FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
|
|
|
o |
|
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)
|
|
|
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
|
|
13-3986004
(I.R.S. Employer
Identification No.) |
|
|
|
3 West Main Street, Suite 201
Irvington, New York
(Address of Principal Executive offices)
|
|
10533
(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, a
non-accelerated filer, or a smaller reporting company. See definition of accelerated filer large
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
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 July 22, 2009, 20,086,122 shares of the Registrants common stock were outstanding.
Electro-Optical Sciences, Inc.
Table of Contents
|
|
|
|
|
|
|
Page |
|
PART I. FINANCIAL INFORMATION |
|
|
|
|
|
|
|
|
|
ITEM 1. Financial Statements |
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
EX-31.1: CERTIFICATION |
|
|
|
|
EX-31.2: CERTIFICATION |
|
|
|
|
EX-32.1: CERTIFICATION |
|
|
|
|
EX-31.1 |
EX-31.2 |
EX-32.1 |
1
ELECTRO-OPTICAL SCIENCES, INC.
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(unaudited) |
|
|
* |
|
ASSETS
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
7,746,799 |
|
|
$ |
15,069,939 |
|
Marketable securities |
|
|
|
|
|
|
390,512 |
|
Prepaid expenses and other current assets |
|
|
303,741 |
|
|
|
375,612 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
8,050,540 |
|
|
|
15,836,063 |
|
Property and equipment, net |
|
|
577,676 |
|
|
|
643,383 |
|
Patents and trademarks, net |
|
|
88,958 |
|
|
|
94,908 |
|
Deferred offering costs |
|
|
199,523 |
|
|
|
|
|
Other assets |
|
|
46,339 |
|
|
|
45,276 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
8,963,036 |
|
|
$ |
16,619,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable (includes related
parties of $7,500 as of June 30, 2009 and
$17,500 as of December 31, 2008) |
|
$ |
422,245 |
|
|
$ |
634,394 |
|
Accrued expenses |
|
|
891,308 |
|
|
|
832,228 |
|
Deferred income |
|
|
|
|
|
|
36,085 |
|
Other current liabilities |
|
|
20,791 |
|
|
|
27,466 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
1,334,344 |
|
|
|
1,530,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
Preferred stock $.10 par value;
authorized 10,000,000 shares; issued and
outstanding: none |
|
|
|
|
|
|
|
|
Common stock $.001 par value;
authorized 30,000,000 shares; issued and
outstanding 17,686,122 shares at June 30,
2009 and 17,634,498 at December 31, 2008 |
|
|
17,686 |
|
|
|
17,634 |
|
Additional paid-in capital |
|
|
76,202,952 |
|
|
|
75,845,953 |
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
(6,868 |
) |
Accumulated deficit |
|
|
(68,591,946 |
) |
|
|
(60,767,262 |
) |
|
|
|
|
|
|
|
Stockholders Equity |
|
|
7,628,692 |
|
|
|
15,089,457 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
8,963,036 |
|
|
$ |
16,619,630 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Derived from the audited balance sheet as of December 31, 2008 |
See accompanying notes to the financial statements
2
ELECTRO-OPTICAL SCIENCES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
2,300,602 |
|
|
$ |
3,623,990 |
|
|
$ |
4,835,016 |
|
|
$ |
6,669,083 |
|
General and administrative |
|
|
1,571,812 |
|
|
|
1,474,679 |
|
|
|
3,098,552 |
|
|
|
2,914,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(3,872,414 |
) |
|
|
(5,098,669 |
) |
|
|
(7,933,568 |
) |
|
|
(9,583,557 |
) |
Interest income |
|
|
9,285 |
|
|
|
92,626 |
|
|
|
34,768 |
|
|
|
274,598 |
|
Other income |
|
|
28,031 |
|
|
|
54,772 |
|
|
|
74,116 |
|
|
|
80,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss: |
|
$ |
(3,835,098 |
) |
|
$ |
(4,951,271 |
) |
|
$ |
(7,824,684 |
) |
|
$ |
(9,228,101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss
per common share |
|
$ |
(0.22 |
) |
|
$ |
(0.32 |
) |
|
$ |
(0.44 |
) |
|
$ |
(0.60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted
average number of common
shares outstanding |
|
|
17,656,686 |
|
|
|
15,407,137 |
|
|
|
17,646,067 |
|
|
|
15,404,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the financial statements
3
ELECTRO-OPTICAL SCIENCES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,824,684 |
) |
|
$ |
(9,228,101 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
163,338 |
|
|
|
144,309 |
|
Non-cash compensation |
|
|
225,844 |
|
|
|
179,575 |
|
Amortization of discount on marketable securities |
|
|
|
|
|
|
882 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Increase in other assets |
|
|
(1,063 |
) |
|
|
|
|
Decrease in prepaid expenses and other current assets |
|
|
71,871 |
|
|
|
259,320 |
|
(Decrease) increase in accounts payable and accrued expenses |
|
|
(153,069 |
) |
|
|
676,551 |
|
Decrease in deferred income |
|
|
(36,085 |
) |
|
|
(49,708 |
) |
(Decrease) increase in other current liabilities |
|
|
(6,675 |
) |
|
|
3,131 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(7,560,523 |
) |
|
|
(8,014,041 |
) |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(91,681 |
) |
|
|
(278,133 |
) |
Sale of marketable securities |
|
|
397,380 |
|
|
|
833,904 |
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
305,699 |
|
|
|
555,771 |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
30,707 |
|
|
|
14,070 |
|
Proceeds from exercise of stock warrants |
|
|
100,500 |
|
|
|
10,586 |
|
Costs related to Committed Equity Financing Facility |
|
|
(199,523 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(68,316 |
) |
|
|
24,656 |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(7,323,140 |
) |
|
|
(7,433,614 |
) |
Cash and cash equivalents at beginning of period |
|
|
15,069,939 |
|
|
|
19,196,589 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
7,746,799 |
|
|
$ |
11,762,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Non-cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Unrealized gain on marketable securities |
|
$ |
6,868 |
|
|
$ |
8,735 |
|
|
|
|
|
|
|
|
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 a medical device
company focused on the design, development and commercialization 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 light of multiple wavelengths
to capture images of suspicious pigmented skin lesions and extract data. The data are then analyzed
utilizing image processing classification algorithms, trained on our proprietary database of
melanomas and benign lesions, to provide information to assist in the management of the patient,
including information useful in the decision of whether to biopsy the lesion.
The components of the MelaFind® system include:
|
|
a hand-held imaging device, which employs high precision optics and multi-spectral illumination
(multiple colors of light including near infra-red); |
|
|
|
a proprietary database of pigmented skin lesions, which we believe to be the largest in the U.S.; and |
|
|
|
lesion classifiers, which are sophisticated mathematical algorithms that extract lesion feature
information and classify lesions. |
On June 3, 2009, the Company submitted the MelaFind® premarket approval, or PMA,
application to the U.S. Food and Drug Administration (FDA), which the FDA has previously
indicated will receive expedited review. Expedited review means that upon filing the PMA
application, the FDA will conduct a team review, prioritize the application, and allocate
sufficient resources toward a 180 day review period. While the expedited review could shorten the
MelaFind® FDA approval process, the Company can provide no assurances that this will be
the case. If and when obtaining approval from the FDA, the Company plans to launch
MelaFind® commercially in the United States.
To date the Company has not generated any revenues from MelaFind®.
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
financed operations primarily through the sale of convertible preferred stock and subsequently sold
common stock as part of an initial public offering (IPO) on October 28, 2005, two private
placements: (one that closed in November 2006 and a second that closed in August 2007) and a
registered direct offering which closed August 8, 2008.
On May 7, 2009, the Company entered into a committed equity financing facility (CEFF), with
Kingsbridge Capital Limited, pursuant to which Kingsbridge committed to purchase, from time to time
at the Companys sole discretion, up to the lesser of $45 million or 3,327,000 shares of the
Companys common stock, subject to various conditions for individual sales, including dollar,
timing, and trading volume limitations, a minimum market per share price, and various other
contractual and regulatory requirements. There is no assurance that the Company will satisfy all
the various conditions for one or more individual sales enabling it to use all or any portion of
the CEFF. In connection with this CEFF, the Company issued a 5 year warrant, exercisable as of
November 7, 2009, to Kingsbridge to purchase up to 200,000 shares of the Companys common stock at
an exercise price of $11.35 per share, with a Black Scholes Fair Value of $678 (refer to Note 10
for further details). A registration statement on Form S-3 was declared effective on May 22, 2009,
on which 3,527,000 shares of common stock were registered for resale if and when acquired by
Kingsbridge under the CEFF and its warrant.
5
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.
As of June 30, 2009, the Companys total of cash, cash equivalents and marketable securities was
$7.7 million. On July 22, 2009 the Company closed a registered direct offering with aggregate net proceeds to the Company of
approximately $13.7 million. (Also see note 14.) The Company will require additional funds to fully commercialize MelaFind®. There can be no assurances that the Company will be able to raise financing as needed
from time to time, whether under the Kingsbridge Capital Limited CEFF or by other types of
securities offerings. Funds that become available may not be on acceptable
terms, and there can be no assurance that any additional funding that the Company does obtain will
be sufficient to meet the Companys needs in the long term.
The unaudited condensed financial statements included herein have been prepared from the books and
records of the Company pursuant to the rules and regulations of 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 (GAAP) in the United States 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, 2008.
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.
2. MARKETABLE SECURITIES
The Companys marketable securities consist of corporate debt securities with a weighted average
maturity not in excess of twelve months. The Company classifies its 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 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 June 30, 2009, the Company did not hold any marketable
securities.
The Company evaluates declines in the fair value of its 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. As of June 30, 2009, the Company did not hold any marketable securities.
For the three months ended June 30, 2009, comprehensive loss was $3,830 which includes a net loss
of $3,835 and an unrealized gain on available-for-sale marketable securities of $5. For the three
months ended June 30, 2008, comprehensive loss was $4,939, which includes a net loss of $4,951 and
an unrealized gain on available-for-sale marketable securities of $12.
6
For the six months ended June 30, 2009, comprehensive loss was $7,818 which includes a net loss of
$7,825, and an unrealized gain on available-for-sale marketable securities of $7. For the six
months ended June 30, 2008, comprehensive loss was $9,219, which includes a net loss of $9,228 and
an unrealized gain on available-for-sale marketable securities of $9.
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 May 2009, FASB issued SFAS No. 165, Subsequent Events. This new standard establishes a new
financial statement disclosure requirement to disclose the date events that occur after the balance
sheet date but, before the report is issued or available to be issued. This requirement is
effective for statements issued for interim and annual periods ending after June 15, 2009 (See Note
14). Prior to issuance of this statement, the primary guidance on subsequent events was in the
auditing standards. The adoption of SFAS did not have any impact on the Company.
On April 1, 2009, the FASB issued FASB Staff Position (FSP) FAS 141(R) -1, Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. This FSP
provides additional guidance and disclosure requirements regarding the recognition and measurement
of contingent assets acquired and contingent liabilities assumed in a business combination where
the fair value of the contingent assets and liabilities cannot be determined as of the acquisition
date. This FSP is effective for acquisitions occurring after January 1, 2009. The adoption of
this FSP did not have any impact on the Company, and its future impact will be dependent upon the
specific terms of future business combinations, if any.
In June 2008, the FASB issued Staff Position EITF 03-6-1, Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1), which is
effective for financial statements issued for fiscal years beginning after December 15, 2008. FSP
EITF 03-6-1 clarifies that share-based payment awards that entitle holders to receive
non-forfeitable dividends before they vest will be considered participating securities and included
in the basic earning per share calculation. The adoption of FSP EITF 03-6-1 did not have any
effect on the Companys financial statements.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible
Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors an entity should consider in developing
renewal or extension assumptions used in determining the useful life of recognized intangible
assets under SFAS No. 142, Goodwill and Other Intangible Assets. This guidance for determining
the useful life of a recognized intangible asset applies prospectively to intangible assets
acquired individually or with a group of other assets in either an asset acquisition or business
combination. FSP FAS 142-3 is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2008, earlier adoption is prohibited. The adoption of FSP FAS
142-3 did not have any effect on the Companys financial statements.
In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). This new standard enhances disclosure requirements for derivative
instruments in order to provide users of financial statements with an enhanced understanding of (i)
how and why an entity uses derivative instruments, (ii) how derivative instruments and related
hedged items are accounted for under SFAS No. 133 Accounting for Derivative Instruments and
Hedging Activities and its related interpretations, and (iii) how derivative instruments and
related hedged items affect an entitys financial position, financial performance, and cash flows.
SFAS 161 is to be
7
applied
prospectively for the first annual reporting period beginning on or after November 15, 2008. The Company believes that the
adoption of SFAS 161 will not have a material impact on the Companys financial statement
disclosures since the Company does not have any derivative instruments.
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial
Statementsan amendment of ARB No. 51. This Statement amends ARB 51 to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of
a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest
in the consolidated entity that should be reported as equity in the consolidated financial
statements. In addition to the amendments to ARB 51, this Statement amends FASB Statement No. 128,
Earnings per Share; so that earnings-per-share data will continue to be calculated the same way
those data were calculated before this Statement was issued. This Statement is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The
adoption of this pronouncement did not have any impact on the Companys financial statements.
6. RECENT ACCOUNTING PRONOUNCEMENTS
On June 29, 2009, the FASB issued FASB Statement No. 168, the FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting Principles. This
statement establishes the FASB Accounting Standards CodificationTM (Codification)
to become the source of authoritative U.S. generally accepted accounting principles (U.S.
GAAP) recognized by the FASB to be applied by nongovernmental entities. Statement 168 and the
Codification are effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The Company believes that the adoption of Statement 168 will
not have any significant impact on the Companys financial statement disclosures.
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:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
2009 |
|
2008 |
Common stock options |
|
|
2,007,473 |
|
|
|
1,901,660 |
|
Warrants |
|
|
1,307,669 |
|
|
|
1,124,544 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,315,142 |
|
|
|
3,026,204 |
|
|
|
|
|
|
|
|
|
|
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
but no new grants may be made.
8
Stock awards under the Companys stock option plans have been granted at prices which are no less
than the closing price of the stock on the date of the grant. Options granted under the 2005 Stock
Incentive Plan (2005 Plan), are generally time-based or performance-based and vesting varies
accordingly. Options under this plan expire in up to a maximum of ten years from the date of
grant. Since the Company adopted the 2005 Plan, awards may not be granted under the Companys
previous stock option plans.
The compensation expense recognized in the Statement of Operations in the second quarter of 2009
and 2008 for stock options amounted to $107 (of which $4 relates to performance milestones) and $68
(of which $20 relates to performance milestones), respectively. For the six months ended June 30,
2009 and 2008, compensation expense for stock options amounted to $226 (of which $13 relates to
performance milestones) and $180 (of which $53 relates to performance milestones), respectively.
Cash received from options and warrants exercised under all share-based payment arrangements for
the three months ended June 30, 2009 and 2008 were $129 and $25, respectively, and for the six
month periods ended June 30, 2009 and 2008, $131 and $25, 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:
|
|
|
|
|
|
|
|
|
|
|
For the Six Months |
|
For the Six Months |
|
|
Ended June 30, 2009 |
|
Ended June 30, 2008 |
Expected life |
|
5 years |
|
5 years |
Expected volatility |
|
|
60 |
% |
|
|
60 |
% |
Risk-free interest rate |
|
|
1.69-2.54 |
% |
|
|
2.95-3.72 |
% |
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 calculated on closing
price volatility based on daily closing prices from the Companys IPO to June 30, 2009, which
approximates implied volatility from other publicly-traded stock that was established at the time
of our IPO. 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. The expected dividend yield is zero
as the Company has never paid dividends and does not currently anticipate paying any in the
foreseeable future.
On October 10, 2008, a formula-based option, issued in 2004 to Dr. Gulfo, President and CEO, from
the Companys 2003 Stock Incentive Plan for 743,283 shares, at an exercise price of $0.46, was
cancelled. On October 10, 2008, Dr. Gulfo was granted ten year stock options for an aggregate of
900,000 shares of the Companys common stock at an exercise price of $3.75 a share (the closing
price on the grant date); of which 520,000 shares were from the 2005 Plan approved for issuance by
the Compensation Committee of the Board of Directors subject to stockholder approval. That
approval was given at the Companys Annual Meeting of Stockholders held May 22, 2009, when the
stockholders approved an amendment to the 2005 Plan increasing the aggregate number of shares of
common stock available under the plan by 1,500,000.
At June 30, 2009, stock options to purchase 2,007,473 shares of common stock at exercise prices
ranging from $0.46 to $8.32 per share were outstanding and exercisable at various dates through
2018.
During the three and six months ended June 30, 2009, the weighted average fair value of options
granted, estimated as of the grant date using the Black-Scholes option valuation model, was $3.58
and $3.20, respectively. For the three and six month periods ended June 30, 2008, the weighted
average fair value of options granted was $4.04 and $2.63, respectively.
For the three and six months ended June 30, 2009, the total intrinsic value of options exercised
was $215 and $235, respectively. For the three and six months ended June 30, 2008, the total
intrinsic value of options exercised was $118.
9
The status of the Companys stock option plans at June 30, 2009 is summarized in the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
Average |
|
|
|
|
|
|
|
|
Average |
|
Remaining |
|
|
|
|
|
|
|
|
Exercise |
|
Contractual |
|
Aggregate |
|
|
Number of |
|
Price per |
|
Term in |
|
Intrinsic |
|
|
Shares |
|
Share |
|
Years |
|
Value |
Outstanding at December 31, 2008 |
|
|
2,069,080 |
|
|
$ |
4.39 |
|
|
|
5.8 |
|
|
|
|
|
Granted |
|
|
28,000 |
|
|
|
3.20 |
|
|
|
4.8 |
|
|
|
|
|
Exercised |
|
|
(36,107 |
) |
|
|
0.85 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(53,500 |
) |
|
|
4.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2009 |
|
|
2,007,473 |
|
|
$ |
4.48 |
|
|
|
5.4 |
|
|
$ |
6,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at June 30, 2009 |
|
|
833,285 |
|
|
$ |
4.52 |
|
|
|
3.6 |
|
|
$ |
2,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
105,000 |
|
|
0.5 years |
|
$ |
.46 |
|
|
|
80,000 |
|
|
$ |
.46 |
|
$.47-$1.00 |
|
|
78,471 |
|
|
2.8 years |
|
$ |
1.00 |
|
|
|
78,471 |
|
|
$ |
1.00 |
|
$1.01-$8.32 |
|
|
1,824,002 |
|
|
5.8 years |
|
$ |
4.86 |
|
|
|
674,814 |
|
|
$ |
5.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$.01-$8.32 |
|
|
2,007,473 |
|
|
5.4 years |
|
$ |
4.48 |
|
|
|
833,285 |
|
|
$ |
4.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009, of the total 2,007,473 options outstanding, 1,174,188 have not vested. Of this
total unvested amount, 872,163 will vest upon the attainment of certain milestones, and the balance
will vest over the requisite service period.
As of June 30, 2009, of the $3,053 of total unrecognized compensation cost related to unvested
options to be recognized, $2,593 is to be recognized over a period to be determined by
performance-based milestones, and $460 is to be recognized through
2014 as determined by
service-based milestones.
As of June 30, 2009, there were 1,393,151 shares available for future grants under the Companys
2005 Plan.
9. COMMITMENTS AND CONTINGENCIES
The Company is party to a non-cancelable operating lease for office space expiring January 2011.
The lease is subject to escalations for increases in operating expenses. A second lease for office
and laboratory space that expired June 30, 2009 has been continued on a month-to-month basis.
On July 14, 2009, the Company entered into a new lease agreement for office and laboratory space.
(See Note 14). The approximate aggregate minimum future payments under the existing leases and
this new lease, which will be effective no later than January 1, 2010, are due as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014-16 |
|
$169 |
|
$ |
356 |
|
|
$ |
384 |
|
|
$ |
412 |
|
|
$ |
441 |
|
|
$ |
1,329 |
|
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. The Company expects to
maintain a relationship, which has evolved into a month-to-month agreement, with ASKION and
continue with production and development activities throughout 2009.
10
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 services for the
MelaFind® units. The Company expects Carl Zeiss Jena GmbH to continue to supply lenses
and assemblies through ASKION for commercialization units throughout 2009.
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 discretionary performance bonuses. The
agreement, which provides for automatic one-year renewal terms, currently runs through the end of
2009. Effective March 1, 2008, the Board of Directors increased Dr. Gulfos annual base salary to
$280 and awarded him a bonus of $65. (See also Note 8)
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. STOCKHOLDERS EQUITY
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.
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.
Both of these private placements were completed pursuant to an exemption from registration provided
by Section 4(2) of the Securities Act of 1933, as amended, and 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 event that the Company fails to maintain the
effectiveness of these registration statements for the periods 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 Forms S-3 were declared effective by the SEC (file
#333-139056 and file #333-145740) on February 12, 2007 and September 11, 2007, respectively.
On June 26, 2008, the Company filed a Form S-3 shelf registration statement for an indeterminate
number of shares of common stock, warrants to purchase shares of common stock and units consisting
of a combination thereof having an aggregate initial offering price not to exceed $40 million, of
which approximately $28.1 million remains as of June 30, 2009. The SEC declared the registration
statement effective on July 7, 2008. Management utilized this shelf registration statement to
raise additional equity capital by completing a registered direct offering of 2,088,451 shares of
the Companys common stock for aggregate gross proceeds of approximately $11.9 million ($11 million
approximate net proceeds to the Company) at a per share offering price of $5.68. The offering
closed August 8, 2008.
11
On May 7, 2009, the Company entered into a committed
equity financing facility (CEFF), with
Kingsbridge Capital Limited, pursuant to which Kingsbridge committed to purchase, from time to time
at the Companys sole discretion, up to the lesser of $45 million or 3,327,000 shares of the
Companys common stock prior to May 7, 2012, subject to various conditions for individual sales,
including dollar, timing, and trading volume limitations, a minimum market per share price, and
various other contractual and regulatory requirements. There is no assurance that the Company will
satisfy all the various conditions for one or more individual sales enabling it to use all or any
portion of the CEFF.
In connection with this CEFF, the Company issued a 5 year warrant,
exercisable as of November 7, 2009, to Kingsbridge to purchase up to 200,000 shares of our common
stock at an exercise price of $11.35 per share. Legal, accounting, and other costs associated with
this agreement approximating $200 have been deferred and will be charged to equity as a reduction
of proceeds from the CEFF or operations should management decide to abandon the CEFF.
On July 16, 2009, the Company completed, pursuant to the Companys shelf registration statement on
form S-3, a registered direct offering of 2,400,000 shares of the Companys common stock, with a
select group of institutional investors. The aggregate gross proceeds from the offering was $15
million (net proceeds of approximately $13.7 million). The offering closed July 22, 2009 for a
purchase price of $6.25 per share of the Companys common stock (See Note 14).
As of June 30, 2009, the Company had 10,000,000 shares of $0.10 par value preferred stock
authorized with no shares issued and outstanding.
11. WARRANTS
Warrants outstanding at June 30, 2009 include a 5-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, which expires in November of 2009. Also outstanding at June 30, 2009, are
5-year warrants to purchase an aggregate of 52,646 shares of the Companys common stock at an
exercise price of $4.52 per share, which expire in November of 2009. These 52,646 warrants were
converted from Series C preferred stock warrants upon completion of the initial public offering
(IPO).
In connection with the Companys IPO 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 on October 28, 2006, and expire November of 2010. At June 30, 2009,
148,125 of these warrants remain outstanding.
Additionally, as previously discussed, in connection with the Companys two private placement
financings the following warrants have been granted and remain outstanding as of June 30, 2009:
|
|
Financing that closed November 3, 2006: warrants to purchase up to 346,857 shares of the
Companys common stock were issued. At June 30, 2009, 331,857 of these warrants remain
outstanding. These 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. At June 30, 2009, 500,041 of these warrants remain
outstanding. The warrants are five-year warrants with an exercise price of $8.00 per share. |
In connection with the May 7, CEFF with Kingsbridge, the Company issued a 5 year warrant,
exercisable as of November 7, 2009, to Kingsbridge to purchase up to 200,000 shares of our common
stock at an exercise price of $11.35 per share, with a Black Scholes Fair Value of $678.
Cash received for warrants exercised during both the three and six months ended June 30, 2009 and
2008 was $101 and $11 respectively.
12. RELATED PARTY CONSULTING AGREEMENTS
The Company has in place the following consulting agreements with related parties:
12
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 in each of the three month periods ended June 30, 2009
and 2008 and $12 in each of the six month periods ended June 30, 2009 and 2008. This consulting
agreement is terminable by either party by providing thirty days prior written notice.
Consulting Agreement with Marek Elbaum, Ph.D.
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.
In May of 2007 and effective June 1, 2007, Dr. Elbaum and the Company entered into an amended
agreement. Under the terms of the amended agreement, Dr. Elbaum was paid a monthly fee of $9
through January 2009 when the contract terminated.
Consulting Agreement with Robert Friedman, M.D.
The Company has retained the services of Robert Friedman, M.D. as a consultant, medical advisor to
the Companys Board of Directors, and in connection with the clinical testing of
MelaFind®. In consideration for these services, Dr. Friedman is being paid at a rate of
$5 per day.
This consulting agreement continues to automatically renew for successive one-year terms unless
either party terminates the agreement at least 30 days prior to its expiration. The Company made
payments to Dr. Friedman totaling $22.5 for the three month period ending June 30, 2009, and $40
for the six month period ending June 30, 2009. The Company made payments to Dr. Friedman totaling
$15 for the three month period ending June 30, 2008, and $27.5 for the six month period ending June
30, 2008.
Consulting Agreement with Gerald Wagner, Ph.D.
Effective April 1, 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. 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.
With the start of the Companys pivotal clinical trial in January 2007, Dr. Wagner transitioned out
of his role as the Companys acting Chief Operating Officer and entered into an 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 in the three month
period and $15 in the six month period ended June 30, 2009. The Company incurred consulting costs
pursuant to this agreement of $17.5 in the three month period and $25 in the six month period ended
June 30, 2008.
13
Consulting Agreement with Anne Egger
In March 2009, the Company entered into a consulting agreement with Anne Egger for certain
consulting services primarily focusing on physician advocacy. The agreement was for an initial
term of three months and has subsequently been extended for another three month period, and may be
terminated by either party with 30 days notice. Under the terms of the agreement, Ms. Egger is
entitled to receive a consulting fee of $1.6 per day. Ms. Egger was appointed to the Companys
Board of Directors as of June 10, 2009. During both the three and six month periods ended June 30,
2009, Ms. Egger was paid $19 under this agreement.
13. OTHER INCOME
During March 2007, the Company entered into 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 was set to expire 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 Company
and LOreal mutually agreed to extend the period of this option until June 30, 2009. On December
16, 2008, LOreal and the Company agreed on a second amendment to the agreement, for a new three
month study. The laboratory and clinical research is being 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. At March 31, 2009, the work to be carried out under the agreement was
completed. During the three and six month periods ended June 30, 2009, the Company earned $0 and
$34, respectively, from LOreal as other income under the feasibility program. During the three
and six month periods ended June 30, 2008, the Company earned $42 and $52, respectively.
During April 2005, the Company discontinued all operations associated with its DIFOTI®
product in order to focus its resources and attention on the development and
commercialization of MelaFind®. 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®.
Beginning in July 2008, 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, 2008, the Company earned $10 as the pro rated
portion of the minimum royalty. For the three and six month periods ended June 30, 2009, the
Company accrued royalty income of $5 and $10, respectively.
14. SUBSEQUENT EVENTS
The following are subsequent events of the Company during the period of July 1, 2009 to July 24,
2009:
On July 14, 2009, the Company entered into a seven year lease agreement for 19,957 square feet of
office and laboratory space in Irvington, NY replacing the 10,300 square feet of space currently
occupied by the Company. The new lease will take effect no later than January 1, 2010. The
Company will continue to occupy space under the building leases in effect as of June 2009 until the
new space is ready for occupancy.
On July 16, 2009, the Company completed, pursuant to the Companys shelf registration statement on
form S-3, a registered direct offering of 2,400,000 shares of the Companys common stock, with a
select group of institutional investors. The aggregate gross proceeds from the offering was $15
million (net proceeds of approximately $13.7 million). The offering closed July 22, 2009 for a
purchase price of $6.25 per share of the Companys common stock.
14
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
unaudited condensed financial statements and accompanying notes included under Part I, Item 1 of
this Quarterly Report and our financial statements and accompanying notes in our Annual Report on
Form 10-K for the year ended December 31, 2008.
This quarterly report on Form 10-Q, including the following 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.
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 June 30, 2009, we had an accumulated deficit of $68.6 million. We expect to continue to spend
significant amounts on the development of MelaFind®.
Our revenue for the foreseeable future will depend on the approval and 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 activities and approvals.
On February 13, 2009, the Company announced that a third-party, independent bio-statistician had
provided positive top line results from the MelaFind® pivotal clinical trial. This
blinded study was conducted at seven clinical sites and included 1,831 pigmented skin lesions from
1,383 patients. On June 3, 2009, the Company submitted the MelaFind® Pre-Market
Approval Application to the FDA. If and upon obtaining approval from the FDA, the Company plans to
launch MelaFind® commercially in the United States.
15
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.
Liquidity and Capital Resources
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.
On June 26, 2008, the Company filed a Form S-3 shelf registration statement for an indeterminate
number of shares of common stock, warrants to purchase shares of common stock and units consisting
of a combination thereof having an aggregate initial offering price not to exceed $40 million. The
SEC declared the registration statement effective on July 7, 2008. Management utilized this shelf
registration statement to raise additional equity capital by completing a registered direct
offering of 2,088,451 shares of the Companys common stock for aggregate gross proceeds of
approximately $11.9 million ($11 million approximate net proceeds to the Company) at a per share
offering price of $5.68. The offering closed August 8, 2008.
On May 7, 2009, the Company entered into a committed equity
financing facility (CEFF), with Kingsbridge Capital Limited, pursuant to which Kingsbridge committed to purchase, from
time to time at the Companys sole discretion, up to the lesser of $45 million or 3,327,000 shares of the Companys common
stock, subject to various conditions for individual sales, including dollar, timing, and trading volume limitations, a
minimum market per share price, and various other contractual and regulatory requirements. There is no assurance that the
Company will satisfy all the various conditions for one or more individual sales enabling it to use all or any portion of
the CEFF. In connection with this CEFF, the Company issued a 5 year warrant, exercisable as of November 7, 2009, to
Kingsbridge to purchase up to 200,000 shares of our common stock at an exercise price of $11.35 per share (refer to Note
10 for further details). A registration statement on Form S-3 was declared effective on May 22, 2009, on which 3,527,000
shares of common stock were registered for resale if and when
acquired by Kingsbridge under the CEFF and its warrant.
On July 16, 2009, the Company completed, pursuant to the Companys shelf registration statement on
form S-3, a registered direct offering of 2,400,000 shares of the Companys common stock, with a
select group of institutional investors. The aggregate gross proceeds from the offering was $15
million (net proceeds of approximately $13.7 million). The offering closed July 22, 2009 for a
purchase price of $6.25 per share of the Companys common stock.
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, activities related to regulatory filings, and manufacturing
development efforts. We expense all of our research and development costs as they are incurred.
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.
As of June 30, 2009, the Companys total of cash, cash equivalents was $7.7 million. The proceeds
from the July 2009 registered direct offering, combined with existing cash balances and the
availability of the Kingsbridge CEFF, will allow the Company to fund anticipated levels of
operations into 2011. The Company will require additional funds to fully commercialize
MelaFind®.
There can be no assurances that the Company will be able to raise financing as needed from time to time, whether under the
Kingsbridge Capital Limited CEFF or by other types of securities offerings. Funds that become available may not be on
acceptable terms, and there can be no assurance that any additional funding that the Company does obtain will be sufficient
to meet the Companys needs in the long term.
Our cash and cash equivalents at June 30, 2009 are liquid investments in money market accounts
and deposits with a commercial bank, which are held in amounts that substantially exceed FDIC
limits.
16
Cash Flows from Operating Activities (in thousands)
Net cash used in operations was $7,561, for the six months ended June 30, 2009. For the
corresponding period in 2008, net cash used in operations was $8,014. In both periods, cash used in
operations was attributable to net losses after an adjustment for non-cash charges related to
depreciation/amortization and share-based compensation, and other changes in operating assets and
liabilities.
Cash Flows from Investing Activities
For the six months ended June 30, 2009, there was $306 net cash provided by our investing
activities, principally related to the redemption of marketable securities. For the corresponding
period in 2008, net cash provided by our investing activities was $556 and was principally related
to the redemption of marketable securities offset by the purchase of information technology and
manufacturing related equipment in support of MelaFind®.
Cash Flows from Financing Activities
For the six months ended June 30, 2009, net cash used in financing activities was $68. Cash
received from the exercise of options and warrants of $131 was offset by $199 of deferred offering
costs related to the May 7, 2009 CEFF transaction. For the six months ended June 30, 2008 net cash
provided by financing activities was $25, representing the exercise of options and warrants
Operating Capital and Capital Expenditure Requirements
We face certain risks and uncertainties, which are present in many emerging medical device
companies. At June 30, 2009, we had an accumulated deficit of $68.6 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 pursue regulatory approvals for
MelaFind®, continue to develop the MelaFind® system, expand our 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®.
If additional funds are raised through the issuance of debt securities or preferred stock, these
securities could have rights senior to those associated with our common stock and could contain
covenants that would restrict our operations. If we are unable to obtain 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.
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:
|
|
The schedule, costs, and results of our clinical trials; |
|
|
|
The success of our research and development efforts; |
|
|
|
The costs and timing of regulatory approval; |
|
|
|
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®; |
|
|
|
The cost of commercialization activities, including product marketing
and building a domestic direct sales force; |
17
|
|
The emergence of competing or complementary technological developments; |
|
|
|
The costs of filing, prosecuting, defending and enforcing any patent
claims and other rights, including litigation costs and the results of
such litigation; |
|
|
|
The costs involved in defending any patent infringement actions
brought against us by third parties; and |
|
|
|
Our ability to establish and maintain any collaborative, licensing or
other arrangements, and the terms and timing of any such arrangements. |
Contractual Obligations (in thousands)
The Company is party to a non-cancelable operating lease for 2,800 and 2,500 square feet of office
space expiring January 2011. The lease is subject to escalations for increases in operating
expenses. A second lease for 5,000 square feet of office and laboratory space, that expired June
30, 2009, has been continued on a month-to-month basis.
On July 14, 2009, the Company entered into a new lease agreement for 19,957 square feet of office
and laboratory space. (See Note 14). The following table summarizes our outstanding contractual
obligations as of June 30, 2009, adjusted to give effect to the July 14, 2009 lease agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
More than |
|
|
Total |
|
1 year |
|
1-3 years |
|
4-5 years |
|
5 years |
Operating leases |
|
$ |
3,091 |
|
|
$ |
346 |
|
|
$ |
768 |
|
|
$ |
876 |
|
|
$ |
1,101 |
|
Results of Operations (in thousands)
Through the first six months of 2009, the Company announced positive top line results from the
pivotal clinical trial, submitted the MelaFind® PMA to the FDA, continued the
development of processes and equipment to allow for the efficient manufacturing of
MelaFind®, and focused on increasing corporate capabilities to meet the needs of product
launch.
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Research and Development Expense
Research and development expense overall decreased 37% for the three month period ended June 30,
2009 compared to the same period ended June 30, 2008. The R&D costs were refocused from clinical
to regulatory principally attributable to:
|
|
clinical studies costs in the second quarter of 2009 the pivotal trial study sites were
shut down leaving only ongoing data acquisition sites. In the second quarter of 2008, all
sites of the pivotal clinical trial data acquisition phase were fully engaged. Clinical
studies costs decreased $998. |
|
|
|
quality and regulatory costs were increased in the second quarter of 2009 as we
intensified activities resulting in our PMA submission, making extensive use of consultants to
assist in this process. In the second quarter of 2008, we were not near the completion of the
pivotal clinical trial process. Quality and regulatory costs increased $310 period to period. |
|
|
|
development activities in the second quarter of 2009, we experienced a significant
decrease in design and process development costs for MelaFind® as the product had
become defined and finalized through the more extensive development efforts of 2008.
Development costs decreased $622. |
18
General and Administrative Expense
General and administrative expenses consist primarily of salaries and related expenses of general
corporate activities, certain costs associated with our efforts to obtain PMA approval for
MelaFind® and development of a commercial infrastructure to market and sell
MelaFind®.
General and Administrative expense for the three months ended June 30, 2009 increased 7% as
compared to the same period ended June 30, 2008. This increase is reflective of an increase in
reimbursement consulting, recruiting fees, and temporary help costs.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Research and Development Expense
Research and development expense overall decreased 28% for the six month period ended June 30, 2009
compared to the same period ended June 30, 2008. The R&D costs were refocused from clinical to
regulatory principally attributable to:
|
|
clinical studies costs in the first six months of 2009 we closed down the pivotal
clinical trial study sites which, in the same period in 2008 were fully engaged. Clinical
studies costs decreased $1,615 from the prior period. |
|
|
|
quality and regulatory the six month cost level was increased in 2009 as we intensified
activities resulting in PMA submission, making extensive use of consultants to assist in this
process. In the first six months of 2008, we were not near the completion of the pivotal
clinical trial process. Quality and regulatory costs increased $653 over the prior period. |
|
|
|
development activities in the first six months of 2009, we experienced a significant
decrease in design costs and process development for MelaFind® as the product had
become defined and finalized through the more extensive development efforts of 2008.
Development costs decreased $856 from the prior period. |
General and Administrative Expense
General and administrative expenses consist primarily of salaries and related expenses of general
corporate activities, certain costs associated with our efforts to obtain PMA approval for
MelaFind® and development of a commercial infrastructure to market and sell
MelaFind®.
General and Administrative expense for the six months ended June 30, 2009 increased 6% as compared
to the same period ended June 30, 2008. This increase is reflective of:
|
|
pre-marketing activities accelerated throughout the first six months of 2009 following
announcement of positive top-line results from the pivotal clinical trial through submission
of the MelaFind® PMA. There were limited pre-marketing efforts during the six
month period ended June 30, 2008, while the data acquisition phase of the pivotal clinical
trial continued. Pre-marketing expenses increased $78 over the prior period. |
|
|
|
increased investor relations costs primarily associated with disclosure requirements and
other activities involving investor notification, such as the release of top-line results from
our pivotal clinical trial and the submission of our PMA. Investor relations expenses
increased $51 over the prior period. |
|
|
|
other administrative costs were higher in the six months of 2009 primarily due to the
increased level of overall administrative activity as the Company moved towards PMA
submission. Other administrative costs increased $55 from the prior period. |
19
Critical Accounting Policies and Significant Judgments and Estimates
Our managements discussion and analysis of our financial condition and results of operations is
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.
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
We record 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 Bulletins No. 107 and No.110. A
compensation charge is recorded when it is probable that performance 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 on the nature of the change.
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 will be a significant compensation charge based on the fair value of
such options on the date granted.
Options or warrants issued to non-employees for goods or services are recorded at fair value and
accounted for in accordance with Emerging Issues Task Force 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 (EITF 96-18).
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; |
|
|
|
|
contract clinical service fees; |
|
|
|
|
fees paid to contract manufacturers in conjunction with the production
of clinical components or materials; and |
|
|
|
|
fees paid to third party data collection organizations and
investigators in conjunction with the clinical trials. |
20
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.
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 May 2009, FASB issued SFAS No. 165, Subsequent Events This new standard establishes a new
financial statement disclosure requirement to disclose the date events that occur after the balance
sheet date but, before the report is issued or available to be issued.. This requirement is
effective for statements issued for interim and annual periods ending after June 15, 2009 (See Note
14). Prior to issuance of this statement, the primary guidance on subsequent events was in the
auditing standards. The adoption of SFAS did not have any impact on the Company.
On April 1, 2009, the FASB issued FASB Staff Position (FSP) FAS 141(R) -1, Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. This FSP
provides additional guidance and disclosure requirements regarding the recognition and measurement
of contingent assets acquired and contingent liabilities assumed in a business combination where
the fair value of the contingent assets and liabilities cannot be determined as of the acquisition
date. This FSP is effective for acquisitions occurring after January 1. 2009. The adoption of
this FSP did not have any impact on the Company, and its future impact will be dependent upon the
specific terms of future business combinations, if any.
In June 2008, the FASB issued Staff Position EITF 03-6-1, Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1), which is
effective for financial statements issued for fiscal years beginning after December 15, 2008. FSP
EITF 03-6-1 clarifies that share-based payment awards that entitle holders to receive
non-forfeitable dividends before they vest will be considered participating securities and included
in the basic earning per share calculation. The adoption of FSP EITF 03-6-1 did not have any
effect on the Companys financial statements.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible
Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors an entity should consider in developing
renewal or extension assumptions used in determining the useful life of recognized intangible
assets under SFAS No. 142, Goodwill and Other Intangible Assets. This guidance for determining
the useful life of a recognized intangible asset applies prospectively to intangible assets
acquired individually or with a group of other assets in either an asset acquisition or business
combination. FSP FAS 142-3 is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2008, earlier adoption is prohibited. The adoption of FSP FAS
142-3 did not have any effect on the Companys financial statements.
21
In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). This new standard enhances disclosure requirements for derivative
instruments in order to provide users of financial statements with an enhanced understanding of (i)
how and why an entity uses derivative instruments, (ii) how derivative instruments and related
hedged items are accounted for under SFAS No. 133 Accounting for Derivative Instruments and
Hedging Activities and its related interpretations, and (iii) how derivative instruments and
related hedged items affect an entitys financial position, financial performance, and cash flows.
SFAS 161 is to be applied prospectively for the first annual reporting period beginning on or after
November 15, 2008. The Company believes that the adoption of SFAS 161 will not have a material
impact on the Companys financial statement disclosures since the Company does not have any
derivative instruments.
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial
Statementsan amendment of ARB No. 51. This Statement amends ARB 51 to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of
a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest
in the consolidated entity that should be reported as equity in the consolidated financial
statements. In addition to the amendments to ARB 51, this Statement amends FASB Statement No. 128,
Earnings per Share; so that earnings-per-share data will continue to be calculated the same way
those data were calculated before this Statement was issued. This Statement is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The
adoption of this pronouncement did not have any impact on the Companys financial statements.
Recent Accounting Pronouncements
On June 29, 2009, the FASB issued FASB Statement No. 168, the FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting Principles. This
statement establishes the FASB Accounting Standards CodificationTM (Codification)
to become the source of authoritative U.S. generally accepted accounting principles (U.S.
GAAP) recognized by the FASB to be applied by nongovernmental entities. Statement 168 and the
Codification are effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The Company believes that the adoption of Statement 168 will
not have any significant impact on the Companys financial statement disclosures.
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
Our exposure to market risk is confined to our cash, cash equivalents, and short-term investments.
We invest in high-quality financial instruments, primarily money market funds, with the average
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. The Company is exposed to credit risks in the event of default by the
financial institutions or issuers of investments in excess of FDIC insured limits. The Company
performs periodic evaluations of the relative credit standing of these financial institutions and
limits the amount of credit exposure with any institution.
ITEM 4.
Controls and Procedures
Evaluation of disclosure controls and procedures
Based on their evaluation as of June 30, 2009, 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, were sufficiently effective to
ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q
was recorded, processed,
22
summarized and reported within the time periods specified in the SECs rules and Form l0-Q, and that such
information was accumulated and communicated to management, including the Chief Executive Officer
and Chief Financial Officer, 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
June 30, 2009 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 1A. 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, 2008. In addition, the
following risk factors have materially changed during the six months ended June 30, 2009:
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 three and six
months ended June 30, 2009 was approximately $3.8 million and $7.8 million, respectively, and as of
June 30, 2009, we had an accumulated deficit of approximately $68.6 million. Our research and
development expenses may 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 June 30, 2009, we had $7.7 million in cash and cash equivalents. On July 22, 2009, we closed
a registered direct offering with aggregate gross proceeds of $15 million and net proceeds to the
Company of approximately $13.7 million. Our operations have consumed substantial amounts of cash
for each of the last eight years. The Company will require additional funds to pursue regulatory
approvals and to achieve significant commercialization of MelaFind®.
There can be no assurances that the Company will be able to raise financing as needed from time to time, whether under the
Kingsbridge Capital Limited CEFF or by other types of securities offerings.
23
Additional funds may not become available on acceptable terms, and there can be no assurance that
any additional funding that the Company does obtain will be sufficient to meet the Companys needs
in the long term. 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:
|
|
|
the schedule, costs, and results of our clinical trials; |
|
|
|
|
the success of our research and development efforts; |
|
|
|
|
the costs and timing of regulatory approval; |
|
|
|
|
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®; |
|
|
|
|
the cost of commercialization activities, including product marketing
and building a domestic direct sales force; |
|
|
|
|
the emergence of competing or complementary technological developments; |
|
|
|
|
the costs of filing, prosecuting, defending and enforcing any patent
claims and other rights, including litigation costs and the results of
such litigation; |
|
|
|
|
the costs involved in defending any patent infringement actions
brought against us by third parties; and |
|
|
|
|
our ability to establish and maintain any collaborative, licensing or
other arrangements, and the terms and timing of any such arrangements. |
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.
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 June 30, 2009, our stock price has ranged from $2.29 to $9.99 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:
|
|
|
results of our research and development efforts and our clinical trials; |
|
|
|
|
the timing of regulatory approval for our products; |
|
|
|
|
failure of any of our products, if approved, to achieve commercial success; |
|
|
|
|
the announcement of new products or product enhancements by us or our competitors; |
24
|
|
|
regulatory developments in the US and foreign countries; |
|
|
|
|
ability to manufacture our products to commercial standards; |
|
|
|
|
developments concerning our clinical collaborators, suppliers or marketing partners; |
|
|
|
|
changes in financial estimates or recommendations by securities analysts; |
|
|
|
|
public concern over our products; |
|
|
|
|
developments or disputes concerning patents or other intellectual property rights; |
|
|
|
|
product liability claims and litigation against us or our competitors; |
|
|
|
|
the departure of key personnel; |
|
|
|
|
the strength of our balance sheet; |
|
|
|
|
variations in our financial results or those of companies that are perceived to be similar to us; |
|
|
|
|
changes in the structure of and third-party reimbursement in the US and other countries; |
|
|
|
|
changes in accounting principles or practices; |
|
|
|
|
general economic, industry and market conditions; and |
|
|
|
|
future sales of our common stock. |
A decline in the market price of our common stock could cause you to lose some or all of your
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, or in certain circumstances, not
provide coverage.
Results could be impacted by the effects of, and changes in, world-wide economic and capital market
conditions
The Companys business may be adversely affected by factors in the United States and other
countries that are beyond its control, such as disruptions in the financial markets or downturns in
economic activity. The current world-wide economic conditions could have an adverse impact on the
availability and cost of capital, interest rates, tax rates, or regulations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On May 7, 2009, the Company entered into a Committed
Equity Financing Facility arrangement, or CEFF, with Kingsbridge Capital Limited (Kingsbridge) in which Kingsbridge
has committed to purchase, subject to certain conditions and at the Companys sole discretion, up to the lesser
of $45 million or 3,327,000 shares of common stock, through May 7, 2012. Under the terms of the CEFF,
the Company is not obligated to utilize any portion of the CEFF. The Company has access, at its discretion, to the
funds through the sale of newly-issued restricted shares of the Companys common stock.
25
The funds that can be raised under the CEFF over the three year term will depend on the Company satisfying
for individual sales specified contractual limitations, conditions precedent and regulatory obligations. The Company may
sell common stock to Kingsbridge under the CEFF at discounts ranging from 6 to 10 percent of the Volume Weighted Average
Price (VWAP ); the discount depending on the VWAP of the Companys common stock during the applicable pricing period.
In connection with
the CEFF, the Company issued a warrant to Kingsbridge to purchase 200,000 shares of the Companys
common stock at an exercise price of 150% of the 5-day average closing bid price at the
subscription date. The warrant will become exercisable on
November 7, 2009, the six-month
anniversary of the date of the Purchase Agreement (May 7, 2009), and will remain exercisable,
subject to certain exceptions, for a period of five years thereafter. Pursuant to the CEFF and as
a condition to the stock issuance, the Company is obligated to have effective a registration
statement with respect to the resale of shares issued pursuant to the CEFF and underlying the
warrant. Legal fees of up to $75 and broker fees of $75 will be paid under this agreement. In
addition, the Company must pay Kingsbridge $12.5 per quarter for each quarter a drawdown of at
least 2% of the Companys market capitalization is not completed.
The Company filed a resale registration statement with the Securities and Exchange Commission on
Form S-3 to reserve up to approximately 3,527,000 of its authorized common shares to be available
for purchase under this financing arrangement. The registration statement was declared effective
by the SEC on May 22, 2009.
In issuing such warrant and entering into the committed equity financing facility with Kingsbridge,
we relied upon Section 4(2) of the Securities Act of 1933, as amended, as a transaction by an
issuer not involving any public offering and Regulation D of the Securities Act. In connection
with such transaction, we made certain inquiries of Kingsbridge to establish that our sales of
securities qualified for such exemption from the registration requirements under Section 4(2) of
the Securities Act .
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The 2009 Annual Meeting of Stockholders of the Company was held on May 22, 2009.
Our stockholders voted on proposals to elect directors, ratify the selection by the audit committee
of our Board of Directors of Eisner LLP as the Companys independent registered public accounting
firm for the fiscal year ending December 31, 2009, and approve an amendment to the Companys 2005
Stock Incentive Plan increasing the aggregate number of shares available under the plan to
3,224,028.
All nominees for election to the Board as Directors were elected to serve until the 2010 Annual
Meeting of Stockholders and until their respective successors are elected and qualified, or until
such directors earlier death, resignation or removal. The stockholders also ratified the selection
of the independent registered public accounting firm by the audit committee of our Board of
Directors, and voted to approve an amendment to our Stock Incentive Plan. The number of votes cast
for, against or withheld and the number of abstentions with respect to each proposal is set forth
below:
26
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposal 1 |
|
Shares For |
|
Shares Withheld |
|
|
|
|
Election of Directors |
|
|
|
|
|
|
|
|
|
|
|
|
Joseph V. Gulfo, MD |
|
|
13,506,712 |
|
|
|
65,642 |
|
|
|
|
|
Breaux Castleman |
|
|
12,621,292 |
|
|
|
951,062 |
|
|
|
|
|
Sidney Braginsky |
|
|
13,491,577 |
|
|
|
80,777 |
|
|
|
|
|
Gorge C. Chryssis |
|
|
13,503,255 |
|
|
|
69,099 |
|
|
|
|
|
Martin D. Cleary |
|
|
13,495,254 |
|
|
|
77,100 |
|
|
|
|
|
Dan W. Lufkin |
|
|
13,500,005 |
|
|
|
72,349 |
|
|
|
|
|
Gerald Wagner, Ph.D. |
|
|
12,876,014 |
|
|
|
696,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposal 2 |
|
Shares For |
|
Shares Against |
|
Shares Abstaining |
Ratification of Eisner LLP |
|
|
13,499,262 |
|
|
|
50,379 |
|
|
|
22,715 |
|
Proposal 3 |
|
|
|
|
|
|
|
|
|
|
|
|
Authorization of
amendment to Stock
Incentive Plan |
|
|
6,330,093 |
|
|
|
709,335 |
|
|
|
37,975 |
|
Item 5. Other Information
(a) Not applicable
(b) Not applicable
27
Item 6. Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Title |
|
|
|
31.1#
|
|
Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of
1934, as amended. |
|
|
|
31.2#
|
|
Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of
1934, as amended. |
|
|
|
32.1#
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
#
|
|
Filed herewith |
28
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: July 24, 2009
29
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Description |
|
|
|
31.1
|
|
Certification by the Chief Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act
of 1934, as amended. |
|
|
|
31.2
|
|
Certification by the Chief Financial Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act
of 1934, as amended. |
|
|
|
32.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
30
EX-31.1
Exhibit 31.1
CERTIFICATION
BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) or
RULE 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
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: July 24, 2009
|
|
|
|
|
|
|
|
/s/ Joseph V. Gulfo, M.D.
|
|
|
Joseph V. Gulfo, M.D. |
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
32
EX-31.2
Exhibit 31.2
CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) or
RULE 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
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: July 24, 2009
|
|
|
|
|
|
|
|
/s/ Richard I. Steinhart
|
|
|
Richard I. Steinhart |
|
|
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer) |
|
|
33
EX-32.1
Exhibit 32.1
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
June 30, 2009 (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) July 24, 2009 |
|
|
|
|
|
|
/s/ Richard I. Steinhart
|
|
|
Richard I. Steinhart |
|
|
Vice President & Chief Financial Officer
(Principal Accounting and Financial Officer) July 24, 2009 |
|
|
|
|
|
* |
|
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. |
34