10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2007
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000 51481
ELECTRO-OPTICAL SCIENCES, INC.
(Exact name of Registrant as specified in its charter)
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Delaware
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13-3986004 |
(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.) |
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3 West Main Street, Suite 201 |
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Irvington, New York
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10533 |
(Address of Principal Executive offices)
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(Zip Code) |
Registrants Telephone Number, including area code:
(914) 591-3783
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of November 8, 2007, 15,401,882 shares of the Registrants common stock were outstanding.
Electro-Optical Sciences, Inc.
Table of Contents
1
ELECTRO-OPTICAL SCIENCES, INC.
CONDENSED BALANCE SHEETS
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September 30, |
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December 31, |
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2007 |
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2006 |
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(unaudited) |
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* |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents (includes $19,000,000 and $12,000,000 in
certificates of deposit as of September 30, 2007 and December 31,
2006 respectively) |
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$ |
23,272,158 |
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$ |
20,939,527 |
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Marketable securities |
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392,800 |
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Receivable from sale and licensing of discontinued operations |
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487,680 |
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Prepaid expenses and other current assets |
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300,360 |
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343,634 |
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Total Current Assets |
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23,965,318 |
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21,770,841 |
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Property and equipment, net |
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638,522 |
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564,471 |
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Patents and trademarks, net |
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123,202 |
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100,630 |
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Other assets |
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45,276 |
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39,758 |
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Total Assets |
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$ |
24,772,318 |
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$ |
22,475,700 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable (includes related parties of $53,987 as of
December 31, 2006) |
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$ |
426,776 |
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$ |
641,036 |
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Accrued expenses (includes related parties of $34,527 as of
December 31, 2006) |
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499,694 |
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504,670 |
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Other current liabilities |
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12,293 |
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16,077 |
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Total Current Liabilities |
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938,763 |
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1,161,783 |
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COMMITMENTS AND CONTINGENCIES (Note 9) |
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Stockholders Equity |
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Common stock $.001 par value; authorized 30,000,000 shares;
issued and outstanding 15,401,882 shares at September 30, 2007 and
13,296,448 shares at December 31, 2006 |
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15,402 |
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13,296 |
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Additional paid-in capital |
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63,848,909 |
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52,525,408 |
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Other comprehensive loss |
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(6,756 |
) |
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Accumulated deficit |
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(40,024,000 |
) |
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(31,224,787 |
) |
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Stockholders Equity |
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23,833,555 |
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21,313,917 |
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Total Liabilities and Stockholders Equity |
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$ |
24,772,318 |
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$ |
22,475,700 |
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* |
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Derived from the audited balance sheet as of December 31, 2006 |
See accompanying notes to the financial statements
2
ELECTRO-OPTICAL SCIENCES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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Operating expenses: |
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Research and development |
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$ |
1,810,866 |
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$ |
1,647,892 |
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$ |
5,649,925 |
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$ |
5,653,768 |
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General and administrative |
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1,217,993 |
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928,861 |
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3,968,355 |
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3,093,144 |
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Operating loss |
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(3,028,859 |
) |
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(2,576,753 |
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(9,618,280 |
) |
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(8,746,912 |
) |
Interest income |
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279,523 |
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151,543 |
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778,732 |
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505,084 |
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Other income |
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40,335 |
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40,335 |
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Net loss |
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$ |
(2,709,001 |
) |
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$ |
(2,425,210 |
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$ |
(8,799,213 |
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$ |
(8,241,828 |
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Basic and diluted net
loss per common share |
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$ |
(0.18 |
) |
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$ |
(0.22 |
) |
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$ |
(0.64 |
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$ |
(0.76 |
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Basic and diluted
weighted average number
of common shares
outstanding |
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14,684,427 |
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10,938,732 |
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13,822,333 |
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10,886,985 |
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See accompanying notes to the financial statements
3
ELECTRO-OPTICAL SCIENCES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
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Nine Months Ended September 30, |
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2007 |
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2006 |
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Cash flows from operating activities: |
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Net Loss |
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$ |
(8,799,213 |
) |
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$ |
(8,241,828 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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163,198 |
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88,025 |
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Noncash compensation and amortization of deferred compensation |
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489,923 |
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778,119 |
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Amortization of discount on marketable securities |
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(56 |
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Amortization of unearned interest income discontinued operations |
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(12,320 |
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Changes in operating assets and liabilities: |
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Decrease in prepaid expenses and other current assets |
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43,274 |
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113,383 |
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Increase in other assets |
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(5,518 |
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(6,146 |
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Decrease in accounts payable and accrued expenses |
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(219,236 |
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(223,529 |
) |
Decrease in other current liabilities |
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(3,784 |
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(3,125 |
) |
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Net cash used in operating activities |
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(8,343,732 |
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(7,495,101 |
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Cash flows from investing activities: |
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Patent costs |
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(39,321 |
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(30,637 |
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Purchases of property and equipment |
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(220,500 |
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(450,783 |
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Purchase of marketable securities |
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(399,500 |
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(998,571 |
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Proceeds from sale of discontinued operations |
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500,000 |
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Net cash used in investing activities |
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(159,321 |
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(1,479,991 |
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Cash flows from financing activities: |
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Proceeds from private placement financing |
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11,501,023 |
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Expenses related to private placement financing |
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(779,866 |
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Proceeds from exercise of stock options |
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114,527 |
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68,930 |
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Net cash provided by financing activities |
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10,835,684 |
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68,930 |
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Net increase (decrease) in cash and cash equivalents |
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2,332,631 |
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(8,906,162 |
) |
Cash and cash equivalents at beginning of period |
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20,939,527 |
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18,505,030 |
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Cash and cash equivalents at end of period |
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$ |
23,272,158 |
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$ |
9,598,868 |
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Supplemental Schedule of Noncash Investing and Financing Activities |
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Unrealized loss on marketable securities |
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$ |
6,756 |
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See accompanying notes to the financial statements
4
ELECTRO-OPTICAL SCIENCES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)
(unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Electro-Optical Sciences, Inc., a Delaware corporation (EOS or the Company), is focused on the
design and development of a non-invasive, point-of-care instrument for assisting in the early
diagnosis of melanoma. The Company has entered into a Protocol Agreement with the Food and Drug
Administration (FDA) which is an agreement for the conduct of the pivotal clinical trial and
establishment of the safety and effectiveness of the MelaFind® device. On October 12,
2006, the Company announced that the FDA informed the Company that when submitted, the
MelaFind® premarket approval, or PMA, application would receive expedited review.
Expedited review means that upon filing a PMA with the FDA, it is placed at the beginning of the
FDAs queue and receives additional review resources. While the expedited review could shorten the
MelaFind® FDA approval process, there can be no assurance that this will be the case.
Upon obtaining premarket approval from the FDA, the Company plans to launch MelaFind® in
the United States. The pivotal clinical trial commenced at the end of January 2007. If the pivotal
trial and FDA approval process proceeds as anticipated, management believes that PMA approval could
come as early as the second half of 2008.
To date the Company has not generated any revenues from MelaFind®. All of the Companys
historical revenues have come from activities and products that have since been discontinued,
including our DIFOTI® product, a non-invasive imaging device for the detection of dental
cavities. The Company discontinued all operations associated with its DIFOTI® product
effective as of April 5, 2005 in order to focus its resources on the development and
commercialization of MelaFind®. As more fully described in Note 13, in December 2006,
the Company sold and licensed its rights to the DIFOTI® assets and does not expect to
have any significant continuing responsibility for the DIFOTI® business or products.
The Company anticipates that it will continue to incur net losses for the foreseeable future in the
development and commercialization of the Melafind® device. From inception, the Company
has financed operations primarily through the sale of convertible preferred stock and subsequently
sold common stock as part of an initial public offering on October 28, 2005 and two private
placements; one that closed in November 2006, and a second that closed in August, 2007 (refer to
Note 10 for further details). Management believes that the proceeds from these transactions will
permit the Company to fund anticipated levels of operations through early 2009. However, the
Company will require additional funds in order to achieve significant commercialization of
MelaFind®. The Company faces certain risks and uncertainties which are present in many
emerging medical device companies regarding future profitability, ability to obtain future capital,
protection of patents and intellectual property rights, competition, rapid technological change,
government regulations, changing health care marketplace, recruiting and retaining key personnel,
and reliance on third party manufacturing organizations.
The unaudited financial statements included herein have been prepared from the books and records of
the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the
SEC) for reporting on Form 10-Q. The information and note disclosures normally included in
complete financial statements prepared in accordance with generally accepted accounting principles
in the United States (GAAP) have been condensed or omitted pursuant to such rules and
regulations. The interim financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the
year ended December 31, 2006.
The Companys management is responsible for the financial statements included in this document. The
Companys interim financial statements are unaudited. Interim results may not be indicative of the
results that may be expected for the year. However, the Company believes all adjustments considered
necessary for a fair presentation of these interim financial statements have been included and are
of a normal and recurring nature.
5
2. MARKETABLE SECURITIES
The Companys marketable securities are debt securities primarily consisting of corporate debt
securities with a weighted average maturity not in excess of twelve months. We classify all of the
Companys marketable securities as available-for-sale, as defined by Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Available-for-sale securities are carried at fair value, with unrealized gains and
losses reported as a component of stockholders equity in accumulated other comprehensive income
(loss). Interest income, realized gains and losses, and declines in value of securities judged to
be other-than-temporary are included in the Companys statement of operations. As of September 30,
2007, marketable securities consisted of:
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September 30, 2007 |
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Unrealized |
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Fair Value |
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Gain (Loss) |
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Corporate debt securities |
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$ |
393 |
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$ |
(7 |
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The Company evaluates declines in fair value of our investments in available-for-sale marketable
securities to determine if these declines are other-than-temporary. When a decline in value is
determined to be other-than-temporary, an impairment charge would be recorded and a new cost basis
in the investment would be established.
3. COMPREHENSIVE LOSS
Comprehensive loss includes net loss and unrealized gains and losses on available-for-sale
marketable securities. Cumulative unrealized gains and losses on available-for-sale marketable
securities are reflected as accumulated other comprehensive loss in stockholders equity on the
Companys balance sheet. For the nine months ended September 30, 2007, comprehensive loss was
$8,806 which includes a net loss of $8,799 and an unrealized loss on available-for-sale marketable
securities of $7.
4. USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires the use of estimates and
assumptions by management that affect reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The most significant estimates relate to
stock-based compensation arrangements and accrued expenses. Actual results could differ from these
estimates.
5. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting
for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109, (FIN 48) which
clarifies the accounting for uncertainty in tax positions. This Interpretation requires that we
recognize, in our condensed financial statements, the impact of a tax position if that position is
more likely than not to be sustained on audit, based on the technical merits of the position. The
provisions of FIN 48 were effective as of January 1, 2007. We have evaluated our tax positions and
determined that the adoption of this pronouncement did not have a material impact on our financial
position or results of operations. Our tax return net operating loss carryforwards are significant.
The tax years 2004, 2005, and 2006 in which losses arose may be subject to audit by the Internal
Revenue Service when such carryforwards are utilized to offset taxable income in future periods.
6. RECENT ACCOUNTING DEVELOPMENTS
In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities, including an amendment to SFAS No.
115 (SFAS No. 159). This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve financial reporting
by providing entities with
6
the opportunity to mitigate volatility in reporting earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting provisions. This statement
is expected to expand the use of fair value measurements, which is consistent with FASBs long-term
measurement objectives for accounting for financial instruments. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. The Company does not expect that the adoption of
SFAS No. 159 will have a material impact on the Companys financial statements.
In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). This statement
defines fair value, establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. This statement is effective for financial statements issued for fiscal
years beginning after November 15, 2007; however, earlier application is encouraged. The Company
does not expect the adoption of SFAS 157 to have a material impact on its financial statements.
7. NET LOSS PER COMMON SHARE
Net loss per common share is presented in accordance with the provisions of SFAS No. 128, Earnings
Per Share (EPS). Basic EPS excludes dilution for potentially dilutive securities and is computed
by dividing net loss attributable to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS gives effect to dilutive options, warrants and
other potential common shares outstanding during the period. Diluted net loss per common share is
equal to the basic net loss per common share since all potentially dilutive securities are
anti-dilutive for each of the periods presented. Potential common stock equivalents excluded
consist of stock options and warrants which are summarized as follows:
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September 30, |
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2007 |
|
2006 |
Common stock options |
|
|
1,776,418 |
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1,571,934 |
|
Warrants |
|
|
1,126,886 |
|
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|
285,835 |
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Total |
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2,903,304 |
|
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|
1,857,769 |
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8. STOCK-BASED COMPENSATION
The Company has one stock-based compensation plan which allows the Board of Directors to grant
incentives to employees, consultants, directors, officers and collaborating scientists in the form
of incentive stock options, nonqualified stock options and restricted stock awards. The Company
also has two other stock-based compensation plans pursuant to which stock options are outstanding.
Effective January 1, 2006, the Company began recording compensation expense associated with stock
options and other forms of equity compensation in accordance with SFAS No. 123 (revised 2004),
Share-Based Payment (SFAS 123R), as interpreted by SEC Staff Accounting Bulletin No. 107. Prior
to January 1, 2006, the Company accounted for stock options according to the provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25),
and related interpretations, and therefore no related compensation expense was recorded for awards
granted with no intrinsic value.
The Company has adopted the modified prospective transition method provided for under SFAS 123R.
Under this transition method, compensation cost associated with stock options recognized in the
three and nine month periods ended September 30, 2006 and 2007 includes: (1) amortization related
to the remaining unvested portion of all stock option awards granted prior to January 1, 2006 over
the requisite service period based on the grant-date fair value estimated in accordance with the
original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and (2)
amortization related to all stock option awards granted on or subsequent to January 1, 2006, based
on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. For
performance-based grants, a compensation charge is recorded when it is probable that performance or
service conditions will be satisfied. The probability of vesting is
updated at each reporting period, and compensation is adjusted via a cumulative catch-up adjustment or
prospectively depending upon the nature of the change.
7
The compensation expense recognized in the Statement of Operations in the third quarters of 2007
and 2006 for stock options and restricted stock awards amounted to $110 and $204, respectively. For
the nine months ended September 30, 2007 and 2006 compensation expense (including issuance of
options to consultant) totaled $490 and $778 respectively. Cash received from options exercised
under all share-based payment arrangements for the three months ended September 30, 2007 and 2006
were $0 and $31, respectively. For the corresponding nine month periods in 2007 and 2006, cash
received from option exercises totaled $115 and $69, respectively.
The fair value of each option award granted after the adoption of SFAS 123R is estimated on the
date of grant using the Black-Scholes option valuation model and assumptions as noted in the
following table:
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For the Nine Months |
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|
For the Nine Months |
|
|
Ended September 30, 2007 |
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|
|
Ended September 30, 2006 |
Expected life |
|
5 years |
|
|
|
5 years |
Expected volatility |
|
60% |
|
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|
60 |
% |
|
Risk-free interest rate |
|
4.51 5.02% |
|
|
|
|
5.04 |
% |
Dividend Yield |
|
0% |
|
|
|
|
0 |
% |
The expected life of the options is based on the observed and expected time to post-vesting,
forfeiture and exercise. Groups of employees that have similar historical exercise behavior are
considered separately for valuation purposes. The expected volatility is based on implied
volatility from other publicly-traded options and other factors. The risk-free interest rate is
based on the continuous rates provided by the U.S. Treasury with a term equal to the expected life
of the option.
Stock awards under the Companys current plans are granted at prices which are no less than the
market value of the stock on the date of grant. Options granted under the 2005 Stock Incentive Plan
(2005 Plan) are generally time-based or performance-based options, and vesting varies
accordingly. Options under this plan expire five years from the date of grant.
Since the Company has adopted the 2005 Plan, awards are not granted under the Companys previous
stock option plans; however, since adoption of the 2005 Plan, additional shares have been reserved
for issuance pursuant to the 2003 Stock Incentive Plan (2003 Plan) in connection with a
formula-based option granted to the Companys CEO Dr. Joseph Gulfo.
8
The status of the Companys stock option plans at September 30, 2007 is summarized in the following
tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
Average |
|
|
|
|
|
|
|
|
Average |
|
Remaining |
|
|
|
|
|
|
|
|
Exercise |
|
Contractual |
|
Aggregate |
|
|
Number of |
|
Price per |
|
Term in |
|
Intrinsic |
|
|
Shares |
|
Share |
|
Years |
|
Value |
Outstanding at December 31, 2006 |
|
|
1,689,412 |
|
|
$ |
2.88 |
|
|
|
4.2 |
|
|
$ |
7,331 |
|
Granted |
|
|
210,491 |
|
|
|
2.66 |
|
|
|
4.0 |
|
|
|
|
|
Exercised |
|
|
(105,256 |
) |
|
|
1.09 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(18,229 |
) |
|
|
6.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2007 |
|
|
1,776,418 |
|
|
|
2.92 |
|
|
|
3.6 |
|
|
$ |
5,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at September 30, 2007 |
|
|
574,901 |
|
|
|
3.29 |
|
|
|
3.6 |
|
|
$ |
1,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
Options Exercisable |
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Remaining |
|
Average |
|
|
|
|
|
Average |
|
|
Number |
|
Contractual |
|
Exercise |
|
Number |
|
Exercise |
Range of Exercise Prices |
|
Outstanding |
|
Life |
|
Price |
|
Exercisable |
|
Price |
$.01$.46 |
|
|
922,207 |
|
|
1.9 years |
|
$ |
.46 |
|
|
|
171,753 |
|
|
$ |
.46 |
|
$.47$1.00 |
|
|
119,648 |
|
|
4.6 years |
|
$ |
1.00 |
|
|
|
119,648 |
|
|
$ |
1.00 |
|
$1.01$7.75 |
|
|
734,563 |
|
|
3.8 years |
|
$ |
6.32 |
|
|
|
283,500 |
|
|
$ |
5.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$.01$7.75 |
|
|
1,776,418 |
|
|
3.6 years |
|
$ |
2.92 |
|
|
|
574,901 |
|
|
$ |
3.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and nine months ended September 30, 2007 the weighted average fair value of
options granted, estimated as of the grant date using the Black-Scholes option valuation model, was
$6.28 and $4.55 respectively. For the same three and nine month periods there were 104,175 and
210,491 options granted respectively. There were no options exercised in the third quarter of 2007.
The total intrinsic value of options exercised during the nine month period ended September 30,
2007 was $558. For the three and nine months ended September 30, 2006, the total intrinsic value of
options exercised was $345, and $573 respectively.
As of September 30, 2007, of the total 1,776,418 options outstanding 1,201,517 have not vested. Of
this total unvested amount, 1,076,117 will vest upon the attainment of certain milestones, and the
balance will vest over the requisite service period. Based on 18,305,186 shares outstanding (on a
fully-diluted basis) as of September 30, 2007, and assuming such shares remain the total number of
shares outstanding on the date we receive PMA approval of MelaFind®, the number of
shares subject to Dr. Gulfos formula-based stock option is 650,454. This stock option vests 50% at
the time of PMA approval of MelaFind®, and the remaining 50% in four equal installments
over the one-year period following such PMA approval of MelaFind®. As of September 30,
2007, there was $2,845 of total unrecognized compensation cost related to unvested options.
As of September 30, 2007 there were 982,590 shares available for future grants under the Companys
2005 Stock Incentive Plan. In addition, the Company has reserved a total of 1,250,000 shares for
issuance only pursuant to grants made under the 2003 Stock Incentive Plan (the 2003 Plan) prior
to the adoption of the 2005 Stock Incentive Plan. Based on the estimate of the number of shares
subject to Dr. Gulfos formula-based option described above (650,454) and the number of shares
subject to other options granted under the 2003 Plan (405,441), 194,105 shares out of the total of
1,250,000 shares reserved for issuance under the 2003 Plan are available for issuance; however,
such shares are only available for issuance pursuant to Dr. Gulfos formula-based stock option.
9
9. COMMITMENTS AND CONTINGENCIES
In connection with the start of clinical trials, the Company has committed to several clinical
sites a total amount of approximately $115 in contracts that do not exceed one year. These
contracts are cancelable with 30 days prior notice.
The Company is party to two non-cancelable operating leases for office space expiring June 2009 and
January 2011. The leases are subject to escalations for increases in operating expenses. The
approximate aggregate minimum future payments under these leases are due as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
$79 |
|
$ |
320 |
|
|
$ |
256 |
|
|
$ |
186 |
|
|
$ |
16 |
|
On March 28, 2007 the Company announced the signing of an agreement with LOreal to study and
assess the feasibility of using EOS novel multi-spectral imaging technology for the evaluation and
differentiation of pigmented skin lesions of cosmetic importance. EOS has granted LOreal an option
to take an exclusive license to use EOS technology in the field covered by the research, on terms
to be mutually agreed. The option expires on the earlier to occur of six months after the
completion of the Feasibility Plan, as defined in the agreement, or August 31, 2008. The laboratory
and clinical research will be funded by LOreal. Pursuant to the agreement, LOreal is responsible
for all costs and expenses incurred in connection with the Feasibility Program, and will reimburse
EOS for expenses incurred by EOS with respect to the Feasibility Program. During the three months
and nine months ended September 30, 2007, the Company billed LOreal $40 as other income to offset
expenses incurred by EOS under the Feasibility Program.
In August of 2006, the Company engaged Carl Zeiss Jena GmbH on usual commercial terms to build the
lenses and assemblies, as well as provide certain technical consulting, for the MelaFind®
units which will be used in the Companys pivotal clinical trial. We expect this work to take
place throughout 2007.
In January 2006, the Company entered into an agreement with ASKION GmbH (ASKION) to produce and
test commercial-grade MelaFind® hand-held imaging device systems. Under the agreement,
ASKION is to produce up to forty MelaFind® imaging devices for the Company to be
utilized in the Companys pivotal trial which is being conducted under the auspices of the Protocol
Agreement reached with FDA. The Company is required to make payments to ASKION upon delivery of the
MelaFind® systems. The Company expects to maintain a relationship, which has evolved
into a month-to-month agreement, with ASKION and continue with development activities throughout
2007.
The Company has an employment agreement with its President and Chief Executive Officer, Dr. Gulfo,
which provides for an annual base salary, stock options and performance bonuses at the discretion
of the Board of Directors. The agreement, which provides for automatic one-year renewal terms,
currently runs through the end of 2007. On May 8, 2007, but effective April 1, 2007, the Board of
Directors increased Dr. Gulfos annual base salary to $260 and awarded him a bonus of $60.
The Company is not currently subject to any material legal proceedings, nor to managements
knowledge is any material legal proceeding threatened against the Company.
10. PRIVATE PLACEMENTS
On October 31, 2006, the Company entered into securities purchase agreements and a registration
rights agreement with certain accredited investors for the private placement of 2,312,384 shares of
the Companys common stock and warrants to purchase up to 346,857 shares of the Companys common
stock for aggregate gross proceeds of approximately $13.2 million and net proceeds of approximately
$12.5 million. Pursuant to the securities purchase agreements, for a purchase price of $5.70 each
investor received one share of the Companys common stock and a warrant to purchase 0.15 of a share
of the Companys common stock. The warrants are five-year warrants with an exercise price of $6.70
per share. The private placement closed on November 3, 2006.
10
On July 31, 2007, the Company entered into a securities purchase agreement and a registration
rights agreement with certain accredited investors for the private placement of 2,000,178 shares of
the Companys common stock and warrants to purchase up to 500,041 shares of the Companys common
stock for aggregate gross proceeds of approximately $11.5 million and net proceeds of approximately
$10.7 million. The private placement closed August 3, 2007. Pursuant to the securities purchase
agreement, for a purchase price of $5.75 each investor received one share of the Companys common
stock and a warrant to purchase 0.25 of a share of common stock. The warrants are five-year
warrants with an exercise price of $8.00 per share. The private placement was completed pursuant to
an exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended,
and/or Regulation D promulgated thereunder.
Pursuant to the terms of the registration rights agreements, the Company filed resale registration
statements covering the shares in both private placements, including the shares issuable upon
exercise of the warrants, with the SEC. In the unlikely event that the Company fails to meet
certain obligations, as described in the registration rights agreements, the holders would be
entitled to certain monetary damages.
However, in no event is the Company obligated to make payments in excess of 10% of the aggregate
purchase price of the common shares. The Company has concluded that it is unlikely that the Company
would be required to remit any payments to its investors for failing to maintain its effectiveness.
The Companys resale registration statements on Form S-3 were declared effective by the Securities
and Exchange Commission (Registration No.333-139056 and Registration No.333-145740) on February 12,
2007 and September 11, 2007, respectively.
11. WARRANTS
Warrants outstanding at September 30, 2007 include a five-year warrant to purchase 75,000 shares of
the Companys common stock at an exercise price of $7.00 per share issued to one of the Companys
consultants in 2004, and seven-year warrants to purchase an aggregate of 54,988 shares the
Companys common stock at an exercise price of $4.52 per share issued in connection with the sale
of Series C redeemable convertible preferred stock.
In connection with the Companys initial public offering which closed on November 2, 2005, the
Company issued 150,000 warrants to the underwriters to purchase shares of the Companys common
stock at $6.25 per share which became exercisable commencing October 28, 2006 and have a five-year
term.
Additionally, as previously discussed, in connection with the Companys November 3, 2006 and August
3, 2007 financings the following warrants have been granted:
Financing that closed November 3, 2006: warrants to purchase up to 346,857 shares of the Companys
common stock were issued. The warrants are five-year warrants with an exercise price of $6.70 per
share,
Financing that closed August 3, 2007: warrants to purchase up to 500,041 shares of the Companys
common stock were issued. The warrants are five-year warrants with an exercise price of $8.00 per
share.
12. RELATED PARTY CONSULTING AGREEMENTS
The Company has in place the following consulting agreements with related parties:
Consulting Agreement with Breaux Castleman
In June 2003, the Company entered into a consulting agreement with Breaux Castleman, the Chairman
of the Companys Board of Directors, for consulting services related to the FDA approval of
MelaFind®, and the Companys business and financial strategy. Under this agreement, Mr.
Castleman receives compensation for each month of services rendered. The Company made payments,
pursuant to this consulting agreement, of $6 and $18, respectively, for the three and nine month
periods ending September
30, 2007, and $6 and $23 for the comparable periods in 2006. This consulting agreement is
terminable by either party by providing thirty days prior written notice.
11
Consulting Agreement with Marek Elbaum, Ph.D.
Pursuant to a consulting agreement effective as of May 31, 2005, the Company retained Marek Elbaum,
Ph.D., the Companys founder and former President and Chief Science and Technology Officer, as the
Companys Chief Scientist. In consideration of the services to be provided, the Company agreed to
pay Dr. Elbaum a monthly fee of $15. The term of this agreement extended for a period of two years
and was automatically renewable for an additional one-year period. In the event of a non-renewal or
in the event that Dr. Elbaums services terminate as a result of his death or disability, the
Company agreed to pay Dr. Elbaum a termination fee of $100. Dr. Elbaum and the Company entered into
an amended agreement effective June 1, 2007. Under the terms of the amended agreement Dr. Elbaum
will be paid a monthly fee of $9 through January 2009.
Consulting Agreement with Robert Friedman, M.D.
Effective as of June 1, 2005, the Company retained the services of Robert Friedman, M.D., for an
initial term of one year as a consultant, medical advisor to our Board of Directors, and in
connection with the clinical testing of MelaFind®. In consideration for these services,
Dr. Friedman is paid at a rate of $5 for each day of service rendered.
This consulting agreement automatically renewed effective June 1, 2006, and again June 1, 2007 for
additional one-year terms, and continues to automatically renew for successive one-year terms
unless either party terminates the agreement at least 30 days prior to the expiration of the
agreement. The Company made payments to Dr. Friedman totaling $33 and $45 for the three-and nine
month periods ending September 30, 2007, and $5 and $27 respectively for the same periods a year
earlier.
Consulting Agreement with Gerald Wagner, Ph.D.
On March 24, 2006, the Company entered into an amended and restated consulting agreement with
Gerald Wagner, Ph.D., a member of the Companys Board of Directors and its former Acting Chief
Operating Officer. Under this amended consulting agreement, the Company agreed to pay Dr. Wagner
the annual amount of $180 payable monthly over the term of the agreement. In addition, in
connection with his ongoing engagement as a consultant, Dr. Wagner received a stock option grant of
50,000 shares of the Companys common stock which vested upon commencement of the pivotal trial for
Melafind® in January 2007. The Company recorded a $140 charge to operations during the
quarter ended March 31, 2007.
In addition, in connection with the start of the Companys pivotal clinical trial at the end of
January 2007, Dr. Wagner has transitioned out of his role as our Acting Chief Operating Officer and
has entered into an amendment to his amended and restated consulting contract with the Company.
Under the terms of the amended contract, Dr. Wagner is paid a monthly retainer of $2.5 and will be
paid $2.5 for each additional consulting day. This amended agreement will end at the option of Dr.
Wagner or the Company at any time, by providing fifteen days prior written notice, or immediately
upon the mutual agreement of the Company and Dr. Wagner. The Company incurred consulting costs
pursuant to this agreement of $7.5 and $20 in the three and nine month periods ended September 30,
2007.
13. SALE AND LICENSING OF DISCONTINUED OPERATIONS
Effective April 5, 2005, the Company decided to discontinue all operations associated with its
DIFOTI® product in order to focus its resources and attention on the development and
commercialization of MelaFind®. In accordance with the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-lived Assets, the results of operations of the
DIFOTI® business have been excluded from continuing operations and have been reported as
discontinued operations. The assets and liabilities of the business have been classified as held
for sale.
12
During December 2006, the Company entered into a sale and
exclusive licensing agreement with KaVo Dental GmbH (KaVo), a leading dental equipment
manufacturer, which provides for KaVo to further develop and commercialize DIFOTI®. Upon
execution of the agreement, KaVo paid the Company $500. The second $500 payment was received on
July 20, 2007. Beginning in 2008 or earlier, KaVo is required to pay to the Company a royalty
stream based upon the worldwide aggregate net sales of the licensed product, as defined in the
license agreement, or a set minimum. During the year ended December 31, 2006, the Company recorded
a gain of $781 on the sale and licensing of its remaining DIFOTI® assets based upon the
cash proceeds and the discounted value of the second payment. Royalties will be recorded when
earned.
13
ITEM 2.
ELECTRO-OPTICAL SCIENCES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This managements discussion and analysis of financial condition and results of operations is
intended to provide information to help you better understand and evaluate our financial condition
and results of operations. We recommend that you read this section in conjunction with our
Financial Statements and Notes to Financial Statements and with our Annual Report on Form 10-K for
the year ended December 31, 2006.
This quarterly report on Form 10-Q, including the following managements discussion and analysis of
financial condition and results of operations, contains forward-looking statements that you should
read in conjunction with the financial statements and notes to financial statements that we have
included elsewhere in this report. These statements are based on our current expectations,
assumptions, estimates and projections about our business and our industry, and involve known and
unknown risks, uncertainties, and other factors that may cause our or our industrys results,
levels of activity, performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied in, or contemplated by, the
forward-looking statements. Words such as believe, anticipate, expect, intend, plan,
will, may, should, estimate, predict, potential, continue, or the negative of such
terms or other similar expressions, identify forward-looking statements. Our actual results and the
timing of events may differ significantly from the results discussed in the forward-looking
statements, and you should not place undue reliance on these statements. Factors that might cause
such a difference include those discussed below under the heading Risk Factors, as well as those
discussed elsewhere in this quarterly report on Form 10-Q. We disclaim any intent or obligation to
update any forward-looking statements as a result of developments occurring after the period
covered by this report or otherwise.
Overview
We are a medical device company focused on the design and development of a non-invasive,
point-of-care instrument to assist in the early diagnosis of melanoma. Our flagship product,
MelaFind®, features a hand-held imaging device that emits multiple wavelengths of light
to capture images of suspicious pigmented skin lesions and extract data. We currently do not have
any commercialized products or any significant source of revenue; however, the financial results
for periods prior to December 2006 discussed below account for the revenues and the related
expenses associated with our DIFOTI® product, a non-invasive imaging device for the
detection of dental cavities, as a discontinued operation. We decided to discontinue all operations
associated with our DIFOTI® product effective as of April 5, 2005 in order to focus our
resources and attention on the development and commercialization of MelaFind®. On
December 11, 2006 we announced that we had signed a sales and exclusive licensing agreement with
KaVo, a leading dental equipment manufacturer, to further develop and commercialize
DIFOTI®. In accordance with the terms of the agreement, KaVo paid us an up-front sum and
has made a second payment to us on July 20, 2007. KaVo will pay us an annual royalty based on the
number of systems sold or a set minimum per calendar year following their commercial re-launch of
DIFOTI®. With the completion of this transaction we do not expect to have any
significant continuing responsibility for the DIFOTI® business.
Unless otherwise indicated, the following discussion relates to our continuing operations.
Our revenue for the foreseeable future will depend on the commercialization of MelaFind®
and may vary substantially from year to year and quarter to quarter. Our operating expenses
may also vary substantially from year to year and quarter to quarter based on the timing of the
pivotal trial that began at the end of January 2007 and its patient enrollment. We believe that
period-to-period comparisons of our results of operations may not be meaningful and should not be
relied on as indicative of our future performance.
We commenced operations in December 1989 as a New York corporation and re-incorporated as a
Delaware corporation in September 1997. Since our inception, we have generated significant losses.
As of September 30, 2007, we had an accumulated deficit of $40.0 million. We expect to continue to spend
significant amounts on the development of MelaFind®.
14
On October 28, 2005, we completed an initial public offering. We issued 4,000,000 shares of common
stock on October 28, 2005 and 262,300 shares of common stock on November 15, 2005, both issuances
at $5.00 per share. After deducting underwriting discounts and expenses and offering-related
expenses, the initial public offering resulted in net proceeds to the Company of approximately
$17.7 million.
On October 31, 2006, we entered into securities purchase agreements and a registration rights
agreement with certain accredited investors for the private placement of 2,312,384 shares of the
Companys common stock and warrants to purchase up to 346,857 shares of the Companys common stock
for aggregate gross proceeds of approximately $13.2 million and net proceeds of approximately $12.5
million. The transaction closed on November 3, 2006.
On July 31, 2007, the Company entered into a securities purchase agreement and a registration
rights agreement with certain accredited investors for the private placement of 2,000,178 shares of
the Companys common stock and warrants to purchase up to 500,041 shares of the Companys common
stock for aggregate gross proceeds of approximately $11.5 million and net proceeds of approximately
$10.7 million.
This transaction closed on August 3, 2007.
We believe that the proceeds from these three transactions will be sufficient to fund our
anticipated level of operations through early-2009. We will however need to raise additional funds
in order to achieve significant commercialization of MelaFind®.
Most of our expenditures to date have been for research and development activities and general and
administrative expenses. Research and development expenses represent costs incurred for product
development, clinical trials and activities relating to regulatory filings and manufacturing
development efforts. We expense all of our research and development costs as they are incurred.
Our research and development expenses incurred for the three and nine months ended September 30,
2007 were expenses related primarily to the development of MelaFind®. We expect to incur
additional research and development expenses relating to MelaFind® prior to its
commercial launch in the US and selected markets outside the US. We also continue to work with
ASKION, a company that has become an integral member of our MelaFind® development team.
ASKION is currently producing additional MelaFind® systems for our pivotal clinical
trial that started at the end of January 2007, as well as for other clinical studies of
MelaFind®. Our research and development expenses are subject to the risks and
uncertainties associated with clinical trials and the FDA regulatory review and approval process.
As a result, our research and development expenses could exceed our estimated amounts, possibly
materially.
General and administrative expenses consist primarily of salaries and related expenses, general
corporate activities and costs associated with our efforts to obtain PMA approval for
MelaFind® and toward development of a commercial infrastructure to market and sell
MelaFind®. We anticipate that general and administrative expenses will increase as a
result of the expected expansion of our operations, facilities and other activities associated with
the planned expansion of our business. We expect selling, general and administrative expenses to
increase as we develop our sales and marketing capabilities to support placing MelaFind®
in selected markets.
Critical Accounting Policies and Significant Judgments and Estimates
Our managements discussion and analysis of our financial condition and results of operations are
based on our financial statements, which have been prepared in accordance with GAAP. The
preparation of these financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported revenues and expenses
during the reporting periods. On an ongoing basis, we evaluate our judgments related to accounting
estimates. We base our estimates on historical experience and on various other factors that we
believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
15
We believe that the following accounting policies and significant judgments and estimates relating
to revenue recognition, stock-based compensation charges, and accrued expenses are most critical to
aid you in fully understanding and evaluating our reported financial results.
Revenue Recognition
We currently do not have any commercialized products or any source of revenue.
Stock-Based Compensation and Deferred Compensation
Effective January 1, 2006, the Company began recording compensation expense associated with stock
options and other forms of equity compensation in accordance with Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R), as interpreted by SEC Staff
Accounting Bulletin No. 107. Prior to January 1, 2006, the Company accounted for stock options
according to the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees ( APB 25 ), and related interpretations, and therefore no related compensation
expense was recorded for awards granted with no intrinsic value.
The Company adopted the modified prospective transition method provided for under SFAS 123R. Under
this transition method, compensation cost associated with stock options in 2006 and 2007 includes:
(1) quarterly amortization related to the remaining unvested portion of all stock option awards
granted prior to January 1, 2006, over the requisite service period based on the grant-date fair
value estimated in accordance with the original provisions of SFAS No.123, Accounting for
Stock-Based Compensation; and (2) quarterly amortization related to all stock option awards granted
on or subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123R.
We have also granted to certain employees stock options that vest with the attainment of
development milestones not under the Companys control. Upon the attainment of the relevant
development milestones, there could be a significant compensation charge based on the fair value of
such options.
Options or warrants issued to non-employees for services are recorded at fair value and accounted
for in accordance with Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. For equity instruments that are not immediately vested, compensation costs are
measured on the date such instruments vest or a performance commitment is reached, as defined in
EITF 96-18. The costs are classified in the accompanying Statement of Operations based on the
nature of the service performed.
Accrued Expenses
As part of the process of preparing financial statements, we are required to estimate accrued
expenses. This process involves identifying services that have been performed on our behalf and
estimating the level of service performed and the associated cost incurred for such service where
we have not been invoiced or otherwise notified of the actual cost. Examples of estimated accrued
expenses include:
|
|
|
professional service fees; |
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contract clinical service fees; |
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fees paid to contract manufacturers in conjunction with the
production of clinical components or materials; and |
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fees paid to third party data collection organizations and
investigators in conjunction with the clinical trials. |
16
In connection with such service fees, our estimates are most affected by our projections of the
timing of services provided relative to the actual level of services incurred by such service
providers. The majority of our service providers invoice us monthly in arrears for services
performed. In the event that we do not identify certain costs that have begun to be incurred or we
are under or over our estimate of the level of services performed or the costs of such services,
our actual expenses could differ from such estimates. The date on which certain services commence,
the level of services performed on or before a given date, and the cost of such services are often
subjective determinations. We make these judgments based upon the facts and circumstances known to
us in accordance with GAAP. This is done as of each balance sheet date in our financial statements.
Results of Operations (in thousands)
As we work on developing MelaFind®, we continue to spend a majority of our time and
money in research and development related activities. Our overall research and development spending
during the first nine months of 2007 has remained relatively consistent with our spending during
the first nine months of 2006. However, we have seen an increase in our general and administrative
spending as we work towards introducing MelaFind® into the marketplace. As we increase
the activity around the pivotal trial for MelaFind®, prepare for our PMA submission, and
begin work towards the commercial launch of MelaFind® our costs will continue to
increase.
Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
Research and Development Expense
Research and Development expense for the three months ended September 30, 2007 was $1,811 as
compared to $1,648 for the three months ending September 30, 2006. In general, the third quarter
2007 costs were consistent with the costs incurred during the third quarter of 2006; however, costs
did increase by $163. Even though we had only a modest increase in research and development
spending, as we have noted in the prior two quarters of 2007 the components of our research and
development spending have changed. Our production costs have increased by $97 during the quarter
and the cost of our clinical trials and related activities have increased by $199. These higher
costs were offset by decreases in our other research function of $82 and our stock-based
compensation costs of $50.
General and Administrative Expense
General and Administrative expense for the three months ended September 30, 2007 was $1,218 as
compared to $929 for the three months ended September 30, 2006. The increase of $289 was the
result of increases in marketing costs of $254 primarily related to an increase in activity leading
to the commercial launch of MelaFind®, and increases in the following areas: travel $33,
consulting $15, and salaries of $10. This was partially offset by a decrease in stock-based
compensation costs of $44.
Other Income
Other income of $40 consisted of amounts due from our contract with LOreal. We had no similar
amounts in 2006. During the three months ended September 30, 2007 the Company billed LOreal $40
as other income to offset expenses we incurred under our joint feasibility program.
Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006
Research and Development Expense
Research and Development expense for the nine months ended September 30, 2007 was $5,650 as
compared to $5,654 for the nine months ended September 30, 2006; resulting in a decrease of $4. As
we have noted in the prior two quarters of 2007 our spending trend has remained consistent for the
first nine months of the year and we expect this level of spending to continue through the balance
of 2007. While our production costs decreased by $270 our clinical trial costs increased $423, and
the technical costs necessary to support these trials increased $143 during the nine month period.
In addition we spent $56 more on quality systems work as we accelerate our efforts to document our
process and procedures for FDA review.
17
These increased costs were offset by a reduction in other
research expenses of $81, salary and consulting expenses of $90 and a reduction in stock-based
compensation of $185.
General and Administrative Expense
General and Administrative expense for the nine months ended September 30, 2007 was $3,968 as
compared to $3,093 for the nine months ended September 30, 2006. The increase of $875 was the
result of increased marketing costs of $485 as we prepare for the commercial launch of
MelaFind®. In addition we had increases in a variety of areas including travel expenses
$143, employee recruiting costs $104, depreciation $84, investor relation costs $34, stock
maintenance fees $31, rent $30, and other miscellaneous expenses of
$36. These increased expenses
were partially offset by a decrease in stock-based compensation of $104.
Interest Income/Expense
Interest income for the three months and nine months ended September 30, 2007 was $280 and $779,
respectively, as compared to $152 and $505, respectively, for the comparable periods a year
earlier. The increase is directly related to the additional cash balances the Company had invested
as a result of the Companys two private equity financings.
Other Income
Other income of $40 consisted of amounts due from our contract with LOreal. We had no similar
amounts in 2006. During the nine months ended September 30, 2007 the Company billed LOreal $40 as
other income to offset expenses we incurred under our joint feasibility program.
Liquidity and Capital Resources
Prior to our initial public offering, we financed our operations primarily through the use of
working capital from private placements of equity securities and by applying for and obtaining a
series of National Institute of Health Small Business Innovative Research grants and similar
grants.
In October and November of 2005 we sold a total of 4,262,300 shares of common stock in an initial
public offering that resulted in approximately $17.7 million in net proceeds.
On October 31, 2006 we entered into securities purchase agreements and a registration rights
agreement with certain accredited investors for the private placement of 2,312,384 shares of the
Companys common stock and warrants to purchase up to 346,857 shares of the Companys common stock
for aggregate gross proceeds of approximately $13.2 million and net proceeds of approximately $12.5
million. The transaction closed November 3, 2006.
On July 31, 2007, the Company entered into a securities purchase agreement and a registration
rights agreement with certain accredited investors for the private placement of 2,000,178 shares of
the Companys common stock and warrants to purchase up to 500,041 shares of the Companys common
stock for aggregate gross proceeds of approximately $11.5 million and net proceeds of approximately
$10.7 million. This transaction closed August 3, 2007.
To date, we have not borrowed (other than by issuing convertible notes, all of which have been
converted into equity) or financed our operations through equipment leases, financing loans or
other debt instruments.
18
As of September 30, 2007, we had $23.7 million in cash, cash equivalents and marketable securities
as compared to $20.9 million at December 31, 2006 for an increase of approximately $2.8 million.
The increase was a result of the approximately $10.7 million in cash received as a result of the
Companys July 31, 2007 financing and interest income produced by our cash, marketable securities,
and certificates of deposit, offset by cash used in our operating and investing activities.
Our cash and cash equivalents at September, 30, 2007 are liquid investments in money market funds,
commercial paper and certificates of deposit with a commercial bank.
Cash Flows from Operating Activities
Net cash used in operations was $8,344 for the nine months ended September 30, 2007. For the
corresponding period in 2006, net cash used in operations was $7,495. Cash used in operations was
attributable to net losses after an adjustment for non-cash charges related to depreciation and
stock-based compensation, and other changes in operating assets and liabilities.
Cash Flows from Investing Activities
For the nine months ended September 30, 2007, net cash used in our investing activities was $159
and was principally related to the purchase of scientific equipment, leasehold improvements in
support of our MelaFind® development and the purchase of marketable equity securities.
This use of cash was partially offset by $500 received from the sale of our discontinued
operations. For the corresponding period in 2006, net cash used by our investing activities was
$1,480 that was principally related to the purchase of marketable securities.
Cash Flows from Financing Activities
For the nine months ended September 30, 2007 net cash provided by financing activities was $10,836.
This was principally related to the July 31, 2007 financing that generated $10,721 in net proceeds
for the company and $115 in proceeds from the exercise of stock options. For the nine months ended
September 30, 2006 net cash provided by financing was $69 and reflects proceeds from the exercise
of stock options.
Operating Capital and Capital Expenditure Requirements
We face certain risks and uncertainties, which are present in many emerging medical device
companies. At September 30, 2007, we had an accumulated deficit of $40.0 million. To date, we have
not commercialized our principal product, MelaFind®. We anticipate that we will continue
to incur net losses for the foreseeable future as we continue to develop the MelaFind®
system, expand our clinical development team and corporate infrastructure, and prepare for
the potential commercial launch of MelaFind®. We do not expect to generate significant
product revenue until we successfully obtain PMA approval for and begin selling
MelaFind®. In order to achieve significant commercialization of MelaFind® we
will need to obtain additional funding. We believe that our current cash and cash equivalents and
interest we earn on these balances, will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures and allow us to continue planned operations through early
2009.
Existing cash and cash generated from our November, 2006 and August, 2007 financings and our 2005
initial public offering may not be sufficient to satisfy the liquidity requirements necessary to
commercially launch MelaFind® or to develop additional products. We will seek to sell
additional equity or debt securities or obtain a credit facility. If additional funds are raised
through the issuance of debt securities, these securities could have rights senior to those
associated with our common stock and could contain covenants that would restrict our operations.
Any additional financing may not be available in amounts or on terms acceptable to us, or at all.
If we are unable to obtain this additional financing, we may be required to reduce the scope of,
delay or eliminate some or all of planned product research and development and commercialization
activities, which could harm our business.
19
Because of the numerous risks and uncertainties associated with the development of medical devices
such as MelaFind®, we are unable to estimate the exact amounts of capital outlays and
operating expenditures associated with our current and anticipated clinical trials. Our future
funding requirements will depend on many factors, including, but not limited to:
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The schedule, costs, and results of our clinical trials; |
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The success of our research and development efforts; |
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The costs and timing of regulatory approval; |
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Reimbursement amounts for the use of MelaFind® that we are
able to obtain from Medicare and third party payers, or the amount of
direct payments we are able to obtain from patients and/or physicians
utilizing MelaFind®; |
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The cost of commercialization activities, including product marketing
and building a domestic direct sales force; |
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The emergence of competing or complementary technological developments; |
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The costs of filing, prosecuting, defending and enforcing any patent
claims and other rights, including litigation costs and the results of
such litigation; |
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The costs involved in defending any patent infringement actions
brought against us by third parties; and |
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Our ability to establish and maintain any collaborative, licensing or
other arrangements, and the terms and timing of any such arrangements. |
Contractual Obligations
The following table summarizes our outstanding contractual obligations as of September 30, 2007 and
the effect those obligations are expected to have on our liquidity and cash flows in future
periods:
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Less than |
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More than |
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Total |
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1 year |
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1-3 years |
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4-5 years |
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5 years |
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Operating leases |
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$ |
914 |
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$ |
340 |
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$ |
507 |
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$ |
67 |
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Included in the total operating leases are non-cancelable operating leases for space expiring June
2009 and January 2011. The lease on 5,000 square feet of office and laboratory space expires in
June 2009, and the lease on 2,800 square feet of office space expires January 2011. In August
2007, we signed a lease amendment for an additional 2,500 square feet of office space adjacent to
our existing laboratory location beginning September 1, 2007 and expiring January 2011.
In connection with the start of our clinical trials, we have committed to several clinical sites a
total of approximately $115 in contracts that do not exceed one year. These contracts are
cancelable by us with up to 30 days prior notice.
Related Party Transactions
On March 24, 2006, the Company entered into an amended and restated consulting agreement with
Gerald Wagner, Ph.D. which became effective as of April 1, 2006. In connection with his ongoing
engagement as a consultant, Dr. Wagner received a stock option grant of 50,000 shares of the Companys common
stock which vested upon commencement of the pivotal trial for MelaFind® at the end of
January 2007. As Dr. Wagner is a consultant to the Company we utilize EITF 96-18 to account for
this grant. Under this method, we calculate a charge based on the fair market value of the option
at the end of each quarter and adjust that charge each subsequent quarter until the option vests.
Since the pivotal clinical trial began at the end of January 2007, the Company recognized $140 in
compensation expense for this grant.
20
In addition, on March 24, 2006, Dr. Wagner received another stock option grant of 49,500 shares of
the Companys common stock which vested immediately. The Company recorded a $162 compensation
charge during the first quarter ended March 31, 2006.
The exercise price for these two stock option grants is the closing price per share of the
Companys common stock on the option grant date.
With the start of our pivotal clinical trial, Dr. Wagner has transitioned out of his role as our
Acting Chief Operating Officer and has signed an amendment to his amended and restated consulting
contract with the Company. Under the terms of the amended contract, Dr. Wagner is paid a monthly
retainer of $2.5 and will be paid $2.5 for each additional consulting day.
This amended agreement will end at the option of Dr. Wagner or the Company at any time, by
providing fifteen days prior written notice, or immediately upon the mutual agreement of the
Company and Dr. Wagner.
For a more detailed description of our related party transactions, see our financial statements and
the related notes to our financial statements in Note 12.
Off-Balance Sheet Arrangements
We do not currently have, nor have we ever had, any relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance or special purpose
entities, which would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. In addition, we do not engage in
trading activities involving non-exchange traded contracts. As such, we are not materially exposed
to any financing, liquidity, market or credit risk that could arise if we had engaged in these
relationships.
Recently Adopted Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting
for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109, (FIN 48) which
clarifies the accounting for uncertainty in tax positions. This Interpretation requires that we
recognize, in our condensed financial statements, the impact of a tax position if that position is
more likely than not of being sustained on audit, based on the technical merits of the position.
The provisions of FIN 48 are effective as of January 1, 2007. We have evaluated our tax positions
and determined that the adoption of this pronouncement did not have a material impact on our
financial position or results of operations. Our tax return net operating loss carryforwards are
significant. The tax years 2004, 2005, and 2006 in which losses arose may be subject to audit by
the Internal Revenue Service when such carryforwards are utilized to offset taxable income in
future periods.
Recent Accounting Developments
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment to SFAS No. 115 (SFAS 159). This statement permits
entities to choose to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reporting earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value
measurements, which is consistent with the FASBs long-term measurement objectives for accounting
for financial instruments. SFAS 159 is effective for fiscal years beginning after November 15,
2007. The Company does not expect that the adoption of SFAS 159 will have a material impact on the
Companys financial statements.
21
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). This
statement defines fair value, establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. This statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007; however, earlier application is
encouraged. The Company does not expect the adoption of SFAS 157 to have a material impact on its
financial statements.
22
Risk Factors
Our business and operations entail a variety of serious risks and uncertainties, including those
described in Item 1A of our Form 10-K for the year ended December 31, 2006. In addition, the
following risk factors have changed during the nine months ended September 30, 2007:
We have incurred losses for a number of years, and anticipate that we will incur continued losses
for the foreseeable future.
We began operations in December 1989. At that time we provided research services, mostly to US
government agencies, on classified projects. We have financed our operations since 1999 primarily
through the sale of our equity securities and have devoted substantially all of our resources to
research and development relating to MelaFind®. Our net loss for the nine months ended
September 30, 2007 was approximately $8.8 million, and as of September 30, 2007, we had an
accumulated deficit of approximately $40.0 million. Our research and development expenses may
continue to increase in connection with our clinical trials and other development activities
related to MelaFind®. If we receive PMA approval for MelaFind® from the FDA,
we expect to incur significant sales and marketing expenses, which will require additional funding,
and manufacturing expenses. Additionally, our general and administrative expenses have also
increased due to the additional operational and regulatory responsibilities applicable to public
companies. As a result, we expect to continue to incur significant and increasing operating losses
for the foreseeable future. These losses, among other things, have had and will continue to have an
adverse effect on our stockholders equity.
We
may be unable to complete the development and commence
commercialization of
MelaFind®
or other products without additional funding, and we will not be able to achieve significant
commercialization without additional funding.
As of September 30, 2007 we had $23.3 million in cash and cash equivalents and $393 in marketable
securities. Our operations have consumed substantial amounts of cash for each of the last seven
years. We currently believe that our available cash and cash equivalents, including the proceeds
from our November 2006 and August 2007 financings and our 2005 initial public offering, will be
sufficient to fund our anticipated levels of operations through early 2009. However, our business
or operations may change in a manner that would consume available resources more rapidly than we
anticipate. We expect to continue to spend substantial amounts on research and development,
including conducting the pivotal clinical trial for MelaFind®. We will need additional
funds in order to achieve significant commercialization of MelaFind®, including
development of a direct sales force and expansion of manufacturing capacity. We expect that our
cash used by operations will increase significantly in each of the next several years, and should
we encounter any material delays or impediments, we may need additional funds to complete the
development of MelaFind® and commence commercialization of MelaFind®, and we
will need additional funds to achieve significant commercialization of MelaFind®. Any
additional financing may be dilutive to stockholders, or may require us to grant a lender a
security interest in our assets. The amount of funding we will need will depend on many factors,
including:
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the schedule, costs, and results of our clinical trials; |
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the success of our research and development efforts; |
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the costs and timing of regulatory approval; |
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reimbursement amounts for the use of MelaFind® that we are
able to obtain from Medicare and third-party payers, or the amount of
direct payments we are able to obtain from patients and/or physicians
utilizing MelaFind®; |
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the cost of commercialization activities, including product marketing
and building a domestic direct sales force;
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23
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the emergence of competing or complementary technological developments; |
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the costs of filing, prosecuting, defending and enforcing any patent
claims and other rights, including litigation costs and the results of
such litigation; |
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the costs involved in defending any patent infringement actions
brought against us by third parties; and |
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our ability to establish and maintain any collaborative, licensing or
other arrangements, and the terms and timing of any such arrangements. |
Additional financing may not be available to us when we need it, or it may not be available on
favorable terms.
If we are unable to obtain adequate financing on a timely basis, we may be required to
significantly curtail or cease one or more of our development and marketing programs. We could be
required to seek funds through arrangements with collaborators or others that may require us to
relinquish rights to some of our technologies, product candidates or products that we would
otherwise pursue on our own. We also may have to reduce marketing, customer support and other
resources devoted to our products. If we raise additional funds by issuing equity securities, our
then-existing stockholders will experience ownership dilution, could experience declines in our
share price and the terms of any new equity securities may have preferences over our common stock.
Technological breakthroughs in the diagnosis or treatment of melanoma could render
MelaFind® obsolete.
The precision optical imaging field is subject to rapid technological change and product
innovation. MelaFind® is based on our proprietary technology, but a number of companies
and medical researchers are pursuing new technologies. Companies in the medical device industry
with significantly greater financial, technical, research, marketing, sales and distribution and
other resources have expertise and interest in the exploitation of computer-aided diagnosis,
medical imaging, and other technologies MelaFind® utilizes. Some of these companies are
working on potentially competing products or therapies, including confocal microscopy (a type of
scanning microscopy for 3-dimensional specimens, which produces blur-free images at various
depths), various forms of spectroscopy (a study of the way molecules absorb and emit light), other
imaging modalities, including molecular imaging in which tagged antibodies search for cancer cell
antigens, and molecular and genetic screening tests. Molecular-based approaches are being
investigated; Dermtech is exploring Messenger RNA analysis of surface cells, for example. In
addition, the National Institutes of Health and other supporters of cancer research are
presumptively seeking ways to improve the diagnosis or treatment of melanoma by sponsoring
corporate and academic research. There can be no assurance that one or more of these companies
will not succeed in developing or marketing technologies and products or services that demonstrate
better safety or effectiveness, superior clinical results, greater ease of use or lower cost than
MelaFind®, or that such competitors will not succeed in obtaining regulatory approval
for introducing or commercializing any such products or services prior to us. FDA approval of a
commercially viable alternative to MelaFind® produced by a competitor could
significantly reduce market acceptance of MelaFind®. Any of the above competitive
developments could have a material adverse effect on our business, financial condition, and results
of operations. There is no assurance that products, services, or technologies introduced prior to
or subsequent to the commercialization of MelaFind® will not render MelaFind®
less marketable or obsolete.
Our stock price is likely to be volatile; meaning purchasers of our common stock could incur
substantial losses.
Our stock price is likely to be volatile. Between October 28, 2005 (the date of our initial public
offering) and September 30, 2007, our stock price has ranged from $4.29 to $8.92 per share. The
stock market in general and the market for medical technology companies in particular have
experienced extreme volatility that has often been unrelated to the operating performance of
particular companies. The following factors, in addition to other risk factors described in this
section and general market and economic conditions, may have a significant impact on the market
price of our common stock:
24
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results of our research and development efforts and our clinical trials; |
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the timing of regulatory approval for our products; |
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failure of any of our products, if approved, to achieve commercial success; |
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the announcement of new products or product enhancements by us or our competitors; |
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regulatory developments in the US and foreign countries; |
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ability to manufacture our products to commercial standards; |
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developments concerning our clinical collaborators, suppliers or marketing partners; |
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changes in financial estimates or recommendations by securities analysts; |
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public concern over our products; |
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developments or disputes concerning patents or other intellectual property rights; |
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product liability claims and litigation against us or our competitors; |
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the departure of key personnel; |
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the strength of our balance sheet; |
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variations in our financial results or those of companies that are perceived to be similar to us; |
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changes in the structure of and third-party reimbursement in the US and other countries; |
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changes in accounting principles or practices; |
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general economic, industry and market conditions; and |
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future sales of our common stock. |
A decline in the market price of our common stock could cause our stockholders to lose some or all
of their investment and may adversely impact our ability to attract and retain employees and raise
capital. In addition, stockholders may initiate securities class action lawsuits if the market
price of our stock drops significantly. Whether or not meritorious, litigation brought against us
could result in substantial costs and could divert the time and attention of our management. Our
insurance to cover claims of this sort, if brought, may not be adequate.
If our directors, executive officers, and principal stockholders choose to act together, they may
have the ability to influence all matters submitted to stockholders for approval.
As of September 30, 2007, our directors, executive officers, holders of more than 5% of our common
stock, and their affiliates in the aggregate, beneficially owned approximately 46.5% of our
outstanding common stock. As a result, these stockholders, subject to any fiduciary duties owed to
our other stockholders under Delaware law, could be able to exercise a controlling influence over
matters requiring stockholder approval, including the election of directors and approval of
significant corporate transactions, and will have significant control over our management and
policies.
25
Some of
these persons or entities may have interests that are different from yours. For
example, these stockholders may support proposals and actions with which you may disagree or which
are not in your interests. The concentration of ownership could delay or prevent a change in
control of our company or otherwise discourage a potential acquirer from attempting to obtain
control of our company, which in turn could reduce the price of our common stock. In addition,
these stockholders, some of whom have representatives sitting on our Board of Directors, could use
their voting influence to maintain our existing management and directors in office, delay or
prevent changes of control of our company, or support or reject other management and board
proposals that are subject to stockholder approval, such as amendments to our employee stock plans
and approvals of significant financing transactions.
If we fail to maintain the adequacy of our internal controls, our ability to provide accurate
financial statements could be impaired and any failure to maintain our internal controls and
provide accurate financial statements could have an adverse effect on our stock price
We face increased legal, accounting, administrative and other costs and expenses as a public
company. The Sarbanes-Oxley Act of 2002 (SOX), as well as new rules subsequently implemented by the
SEC, the Public Company Accounting Oversight Board and the NASDAQ Capital Market, require changes
in the corporate governance practices of public companies. We expect these new rules and
regulations to increase our legal and financial compliance costs, to divert management attention
from operations and strategic opportunities, and to make legal, accounting and administrative
activities more time-consuming and costly. On June 30, 2007 our market capitalization exceeded $75
million. As a result we must have our independent registered public accounting firm attest to our
compliance with Section 404 of SOX for the year ending December 31, 2007. In addition we will be an
accelerated filer effective December 31, 2007. We have retained a consultant experienced in SOX to
assist us and we are in the process of instituting changes to our internal procedures to satisfy
the requirements of the SOX. We are evaluating our internal control systems in order to allow us to
report on, and our independent registered public accounting firm to attest to, our internal
controls, as required by Section 404 of the SOX. While we believe we have made substantial progress
on satisfying the requirements, and anticipate being able to fully implement the requirements
relating to internal controls and all other aspects of Section 404 of the SOX in a timely fashion,
we cannot be certain as to the timing of completion of our evaluation, testing and remediation
actions or the impact of the same on our operations. As a small company with limited capital and
human resources, we will need to divert managements time and attention away from our business in
order to ensure compliance with these regulatory requirements. Implementing these changes may
require new information technologies systems, the auditing of our internal controls, and compliance
training for our directors, officers and personnel. Such efforts will entail a significant expense.
If we fail to maintain the adequacy of our internal controls as such standards are modified,
supplemented or amended from time to time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal control over financial reporting in accordance with
Section 404 of the SOX. Any failure to maintain the adequacy of our internal controls could have an
adverse effect on the trading price of our common stock.
26
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
Our exposure to market risk is confined to our cash, cash equivalents, certificates of deposit, and
short-term investments. We invest in high-quality financial instruments, primarily money market
funds, federal agency notes, and US Treasury obligations, with the effective duration of the
portfolio within one year which we believe are subject to limited credit risk. We currently do not
hedge interest rate exposure. Due to the short-term nature of our investments, we do not believe
that we have any material exposure to interest rate risk arising from our investments.
ITEM 4.
Controls and Procedures
Evaluation of disclosure controls and procedures
Based on their evaluation as of September 30, 2007, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act), were
sufficiently effective to ensure that the information required to be disclosed by us in our
Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and Form l0-Q, and that such information is accumulated and
communicated to our management, including principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure.
Change in internal control over financial reporting
There were no changes in our internal control over financial reporting during the quarter ended
September 30, 2007 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Limitations on the effectiveness of controls
Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance
that the objectives of our disclosure control system are met. Because of inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance that all control
issues, if any, within a company have been detected.
ITEM 4T. Controls and Procedures
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any
material legal proceeding threatened against us. From time to time, we may be a party to certain
legal proceedings, incidental to the normal course of our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On July 31, 2007, the Company entered into a securities purchase agreement and a registration
rights agreement with certain accredited investors for the private placement of 2,000,178 shares of
the Companys common stock and warrants to purchase up to 500,041 shares of the Companys common stock for
aggregate gross proceeds of approximately $11.5 million and net proceeds of approximately $10.7
million. This transaction closed on August 3, 2007.
27
The Company claims an exemption from the registration requirements of the Act for the private
placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D promulgated
thereunder since, among other things, the transaction did not involve a public offering, the
investors are accredited investors and/or qualified institutional buyers, the investors had access
to information about the Company and their investment, the investors took the securities for
investment and not resale, and the Company took appropriate measure to restrict the transfer of the
securities. Pursuant to the securities purchase agreements, for a purchase price of $5.75 each
investor received one share of the Companys common stock and a warrant to purchase 0.25 of a share
of the Companys common stock. The warrants are five-year warrants with an exercise price of $8.00
per share.
Pursuant to the terms of the registration rights agreements, the Company filed a resale
registration statement on Form S-3 covering the shares in this private placement, including the
shares issuable upon exercise of the warrants, with the SEC. The resale registration statement was
declared effective by the SEC (Registration No.333-145740) on September 11, 2007
The proceeds from this financing will be used for general corporate purposes including R & D
activities.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Other Information
|
(a) |
|
Not applicable |
|
|
(b) |
|
Not applicable |
28
Item 6. Exhibits
|
|
|
Exhibit
Number
|
|
Exhibit Title |
|
|
|
3.1
|
|
Fourth Amended and Restated Certificate of Incorporation of the Registrant.(1) |
|
|
|
3.2
|
|
Third Amended and Restated Bylaws of the Registrant.(2) |
|
|
|
4.1
|
|
Specimen Stock Certificate.(2) |
|
|
|
4.2
|
|
Second Amended and Restated Investors Rights Agreement dated as of
October 26, 2004 by and among the Registrant and the parties listed
therein.(3) |
|
|
|
4.3
|
|
Form of Warrant.(7) |
|
|
|
4.4
|
|
Form of Warrant.(13) |
|
|
|
10.1*
|
|
Form of Indemnification Agreement for directors and executive officers.(2) |
|
|
|
10.2*
|
|
1996 Stock Option Plan.(3) |
|
|
|
10.3*
|
|
2003 Stock Incentive Plan, as amended.(3) |
|
|
|
10.4*
|
|
2005 Stock Incentive Plan.(2) |
|
|
|
10.5*
|
|
Employment Agreement dated as of January 5, 2004 between the Registrant and
Joseph V. Gulfo.(3) |
|
|
|
10.6
|
|
Consulting Agreement dated as of May 31, 2005 between the Registrant and
Marek Elbaum.(3) |
|
|
|
10.7
|
|
Lease Agreement dated as of December 16, 1998, by and between the Registrant
and Bridge Street Properties LLC, for office space located at One Bridge
Street, Irvington, New York.(3) |
|
|
|
10.8
|
|
First Amendment to the Lease Agreement dated as of May 17, 2001 by and
between the Registrant and Bridge Street Properties LLC.(3) |
|
|
|
10.9
|
|
Second Amendment to the Lease Agreement dated as of June 19, 2003 by and
between the Registrant and Bridge Street Properties LLC.(3) |
|
|
|
10.10
|
|
Lease Agreement dated as of November 23, 2004, by and between the Registrant
and Bridge Street Properties LLC, for office space located at 3 West Main
Street, Irvington, New York.(3) |
|
|
|
10.11*
|
|
Consulting Agreement dated as of June 1, 2005 between the Registrant and
Gerald Wagner Consulting, LLC.(1) |
|
|
|
10.12*
|
|
Consulting Agreement dated as of June 20, 2003 between the Registrant and
Breaux Castleman, as amended.(1) |
|
|
|
10.13
|
|
Consulting Agreement dated as of June 1, 2005 between the Registrant and
Robert Friedman, M.D.(1) |
|
|
|
10.14
|
|
Task Order Agreement dated as of July 13, 2005 between the Registrant and
Battelle Memorial Institute.(2) |
29
|
|
|
Exhibit
Number
|
|
Exhibit Title |
|
|
|
10.15
|
|
Third Amendment dated as of June 6, 2005, by and between the
Registrant and Bridge Street Properties LLC, for office space
located at 1 Bridge Street, Irvington, New York.(1) |
|
|
|
10.16
|
|
Production Agreement between the Registrant and ASKION GmbH dated
as of January 25, 2006.(4) |
|
|
|
10.17*
|
|
Amended and Restated Consulting Agreement effective as of April 1,
2006 between the Registrant and Gerald Wagner Consulting LLC.(11) |
|
|
|
10.18*
|
|
Resignation Agreement, dated April 24, 2006, between the
Registrant and Karen Krumeich.(5) |
|
|
|
10.19*
|
|
Employment Offer Letter, dated April 24, 2006, between the
Registrant and Richard I. Steinhart.(5) |
|
|
|
10.20*
|
|
Employment Offer Letter, dated May 30, 2006, between the
Registrant and Christiano S. Butler.(6) |
|
|
|
10.21
|
|
Securities Purchase Agreement among the Registrant and the
purchasers identified on the signature pages thereto, dated as of
October 31, 2006.(8) |
|
|
|
10.22
|
|
Securities Purchase Agreement among the Registrant and the
purchasers identified on the signature pages thereto, dated as of
October 31, 2006.(8) |
|
|
|
10.23
|
|
Registration Rights Agreement among the Registrant and the
purchasers identified on the signature pages thereto, dated as of
October 31, 2006.(8) |
|
|
|
10.24
|
|
Placement Agency Agreement by and between the Registrant and
Jefferies & Company, Inc., dated as of October 31, 2006.(7) |
|
|
|
10.25
|
|
Licensing Agreement between the Registrant and KaVo Dental GmbH,
dated as of December 5, 2006.(9) |
|
|
|
10.26*
|
|
Amendment No. 1 to Amended and Restated Consulting Agreement dated
as of January 30, 2007 by and among the Registrant, Gerald Wagner
and Gerald Wagner Consulting LLC. (10) |
|
|
|
10.27
|
|
Research and Feasibility Agreement between the Registrant and
LOreal S.A. dated as of March 26, 2007. (12) |
|
|
|
10.28
|
|
Securities Purchase Agreement among the Registrant and the
purchasers identified on the signature pages thereto, dated as of
July 31, 2007.(13) |
|
|
|
10.29
|
|
Registration Rights Agreement among the Registrant and the
purchasers identified on the signature pages thereto, dated as of
July 31, 2007.(13) |
|
|
|
10.30#
|
|
Fifth Amendment dated as of August 24, 2007, by and between the
Registrant and Bridge Street Commercial, LLC, for office space
located at 1 Bridge Street, Irvington, New York. |
30
|
|
|
Exhibit
Number
|
|
Exhibit Title |
|
|
|
31.1#
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2#
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1#
|
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Indicates management compensatory plan, contract or arrangement |
|
(1) |
|
Incorporated by reference to the Registrants Registration Statement on Form S-1, as amended (File No.
333-125517), as filed on July 15, 2005. |
|
(2) |
|
Incorporated by reference to the Registrants Registration Statement on Form S-1, as amended (File No.
333-125517), as filed on August 8, 2005. |
|
(3) |
|
Incorporated by reference to the Registrants Registration Statement on Form S-1, as amended (File No.
333-125517), as filed on June 3, 2005. |
|
(4) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K filed on January 31, 2006. |
|
(5) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K filed on April 27, 2006. |
|
(6) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K filed on June 2, 2006. |
|
(7) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K filed on November 1, 2006. |
|
(8) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K filed on November 8, 2006. |
|
(9) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K filed on December 11, 2006. |
|
(10) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K filed on January 31, 2007. |
|
(11) |
|
Incorporated by reference to the Registrants Annual Report on Form 10-K filed on March 29, 2006. |
|
(12) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K filed on March 28, 2007. |
|
(13) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K filed on August 1, 2007. |
|
# |
|
Filed herewith. |
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
ELECTRO-OPTICAL SCIENCES, INC.
|
|
|
By: |
/s/ Richard I. Steinhart
|
|
|
|
Richard I. Steinhart |
|
|
|
Vice President and Chief Financial
Officer
(Principal Accounting and Financial
Officer) |
|
|
Date: November 8, 2007
32
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.30
|
|
Fifth Amendment dated as of August 24, 2007, by and between
the Registrant and Bridge Street Commercial, LLC, for office
space located at 1 Bridge Street, Irvington, New York |
|
|
|
31.1
|
|
Certification by the Chief Executive Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934 |
|
|
|
31.2
|
|
Certification by the Chief Financial Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934 |
|
|
|
32.1
|
|
Certification Pursuant to 18
U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
33
EX-10.30
Exhibit 10.30
Fifth
Amendment to Electro-Optical Sciences, Inc. Lease
This
amendment is made the 23th day of July, 2007, by and between Bridge Street Commercial, LLC, a
New York Limited Liability Company having an office at One Bridge
Street, Irvington, New York
10533, and Electro - Optical Sciences, Inc., a Corporation having an office at One Bridge Street,
Irvington, New York 10533.
Witnesseth:
Whereas, Owner (Bridge Street Properties, LLC) and Tenant (Electro-Optical Sciences, Inc.)
entered into a lease dated December 16th, 1998 of certain premises located at One Bridge Street,
Irvington New York and
Whereas, the term of the lease set forth therein is three years commencing upon, December 16,
1998 and ending upon December 15, 2001 and has previously been amended most recently on March 27,
2006
Now, Therefore, the parties hereto agree as follows:
|
1. |
|
The term of the 5th amendment set forth herein will add Suite 11 at 2,365 square
feet for a term of 3.5 years commencing on September 1, 2007 and will end on January
31, 2011. |
|
|
2. |
|
The rate to be paid monthly / yearly will be as follows: |
|
|
|
|
|
|
|
|
|
|
|
Yearly |
|
Monthly |
9/1/07 8/31/08 |
|
$ |
66,220.00 |
|
|
$ |
5,518.33 |
|
9/1/08
8/31/09 |
|
$ |
68,206.60 |
|
|
$ |
5,683.88 |
|
9/1/09 8/31/10 |
|
$ |
70,252.80 |
|
|
$ |
5,854.40 |
|
9/1/10
1/31/11 |
|
$ |
72,360.38 |
|
|
$ |
6,030.03 |
|
|
3. |
|
Security Deposit due will be $5,518.33 and will increase
according to Lease
Provisions. |
|
|
4. |
|
Seven (7) additional parking spaces will be added. |
|
|
5. |
|
Owner will remove platform, paint walls and install carpet in main area and remove
electrical wiring. |
|
|
6. |
|
Continuation of Lease Provisions: Except as amended herein, all other terms and
conditions of the Lease and previous amendments shall remain in full force and effect
for the duration of the Lease.
|
|
|
|
|
|
/s/ WILLIAM J.
THOMPSON |
|
/s/ RICHARD I.
STEINHART |
|
|
|
|
|
Bridge Street Commercial, LLC |
|
Electro-Optical Science, Inc. |
|
|
Managing Member |
|
VP & CFO |
|
|
|
|
|
Title |
|
Title |
|
|
8/24/07 |
|
8/16/07 |
|
|
|
|
|
Date |
|
Date |
|
34
EX-31.1
Exhibit 31.1
CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Joseph V. Gulfo, certify that:
1. |
|
I have reviewed this report on Form 10-Q of Electro-Optical Sciences, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have: |
|
a) |
|
designed such disclosure controls and
procedures, or caused such disclosure
controls and procedures to be
designed under our supervision, to
ensure that material information
relating to the registrant, including
its consolidated subsidiaries, is
made known to us by others within
those entities, particularly during
the period in which this report is
being prepared; |
|
|
b) |
|
designed such internal control over
financial reporting, or caused such
internal control over financial
reporting to be designed under our
supervision, to provide reasonable
assurance regarding the reliability
of financial reporting and the
preparation of the financial
statements for external purposes in
accordance with generally accepted
accounting principles; |
|
|
c) |
|
evaluated the effectiveness of the
registrants disclosure controls and
procedures and presented in this
report our conclusions about the
effectiveness of the disclosure
controls and procedures, as of the
end of the period covered by this
report based on such evaluation; and |
|
|
d) |
|
disclosed in this report any change
in the registrants internal control
over financial reporting that
occurred during the registrants most
recent fiscal quarter that has
materially affected, or is reasonably
likely to materially affect, the
registrants internal control over
financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants Board of
Directors (or persons performing the equivalent functions): |
|
a) |
|
all significant deficiencies and
material weaknesses in the design or
operations of internal control over
financial reporting which are
reasonably likely to adversely affect
the registrants ability to record,
process, summarize and report
financial information; and |
|
|
b) |
|
any fraud whether or not material,
that involves management or other
employees who have a significant role
in the registrants internal control
over financial reporting. |
|
Date: November 8, 2007 |
|
/s/ Joseph V. Gulfo, M.D. |
|
Joseph V. Gulfo, M.D. |
President and Chief Executive Officer |
(Principal Executive Officer) |
35
EX-31.2
Exhibit 31.2
CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Richard I. Steinhart, certify that:
1. |
|
I have reviewed this report on Form 10-Q of Electro-Optical Sciences, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have: |
|
a) |
|
designed such disclosure controls and
procedures, or caused such disclosure
controls and procedures to be
designed under our supervision, to
ensure that material information
relating to the registrant, including
its consolidated subsidiaries, is
made known to us by others within
those entities, particularly during
the period in which this report is
being prepared; |
|
|
b) |
|
designed such internal control over
financial reporting, or caused such
internal control over financial
reporting to be designed under our
supervision, to provide reasonable
assurance regarding the reliability
of financial reporting and the
preparation of the financial
statements for external purposes in
accordance with generally accepted
accounting principles; |
|
|
c) |
|
evaluated the effectiveness of the
registrants disclosure controls and
procedures and presented in this
report our conclusions about the
effectiveness of the disclosure
controls and procedures, as of the
end of the period covered by this
report based on such evaluation; and |
|
|
d) |
|
disclosed in this report any change
in the registrants internal control
over financial reporting that
occurred during the registrants most
recent fiscal quarter that has
materially affected, or is reasonably
likely to materially affect, the
registrants internal control over
financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants Board of
Directors (or persons performing the equivalent functions): |
|
a) |
|
all significant deficiencies and
material weaknesses in the design or
operations of internal control over
financial reporting which are
reasonably likely to adversely affect
the registrants ability to record,
process, summarize and report
financial information; and |
|
|
b) |
|
any fraud whether or not material,
that involves management or other
employees who have a significant role
in the registrants internal control
over financial reporting. |
|
Date: November 8, 2007 |
|
/s/ Richard I. Steinhart |
|
Richard I. Steinhart |
Vice President and Chief Financial Officer |
(Principal Accounting and Financial Officer) |
36
EX-32.1
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
ELECTRO-OPTICAL SCIENCES, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned officers of Electro-Optical Sciences, Inc. (the Company) hereby
certifies to his knowledge that the Companys quarterly report on Form 10-Q for the period ended
September 30, 2007 (the Report), as filed with the Securities and Exchange Commission on the date
hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended, and that the information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the
Company.
|
/s/ Joseph V. Gulfo
Joseph V. Gulfo |
President and Chief Executive Officer |
(Principal Executive Officer) |
November 8, 2007 |
|
/s/ Richard I. Steinhart
Richard I. Steinhart |
Vice President & Chief Financial Officer |
(Principal Accounting and Financial Officer) |
November 8, 2007 |
|
|
|
* |
|
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley
Act of 2002 has been provided to Electro-Optical Sciences, Inc. and will be retained by
Electro-Optical Sciences, Inc. and furnished to the Securities and Exchange Commission or its
staff upon request. This written statement accompanies the Form 10-Q to which it relates, is
not deemed filed with the Securities and Exchange Commission, and will not be incorporated by
reference into any filing of Electro-Optical Sciences, Inc. under the Securities Act of 1933
or the Securities Exchange Act of 1934, irrespective of any general incorporation language
contained in such filing. |
37