Washington, D.C. 20549
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 ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extend transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
As of November 6, 2017 the registrant had 60,905,666 shares of common stock outstanding.
COGENTIX MEDICAL, INC. AND SUBSIDIARIES
As used in this report, the terms “Cogentix”, “Cogentix Medical”, the “Company”, “we”, “us”, “our” and similar references refer to Cogentix Medical, Inc. and our consolidated subsidiaries, and the term “common stock” refers to our common stock, par value $0.01 per share.
This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements contained in this report that refer to our estimated or anticipated future results, including estimated synergies, or other non-historical facts are forward-looking statements that reflect our current perspective of existing trends and information as of the date of this report. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “plan,” “could,” “should,” “estimate,” “expect,” “forecast,” “outlook,” “guidance,” “intend,” “may,” “might,” “will,” “possible,” “potential,” “predict,” “project,” or other similar words, phrases or expressions. These forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control and could cause our actual results to differ materially from those matters expressed or implied by our forward-looking statements. Forward-looking statements (including oral representations) are only predictions or statements of current plans and can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties.
When relying on forward-looking statements to make decisions with respect to the Company, our investors and others should carefully consider the foregoing factors and other uncertainties and potential events and read our filings with the SEC, including our annual report on Form 10K for the year ended December 31, 2016, for a discussion on these and other risks and uncertainties. These filings are available at
www.sec.gov.
We do not undertake any obligation to update or revise any forward-looking statement, except as may be required by law. We qualify all forward-looking statements by these cautionary statements.
PART I. FINANCIAL INFORMATION
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Forward-looking Statements
We recommend that you read this quarterly report on Form 10-Q in conjunction with our annual report on Form 10-K for the year ended December 31, 2016.
You should read the following discussion of our financial condition and results of operation together with the unaudited, condensed, consolidated financial statements and the notes thereto included elsewhere in this report and other financial information included in this report. The following discussions may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, as we discussed in our special note regarding “Forward-Looking Statements” beginning on page 3 of this report and under “Part I - Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2016. These risks could cause our actual results to differ materially from any further performance suggested below.
We do not undertake, nor assume any obligation, to update any forward-looking statement that we may make from time to time.
Overview
Cogentix Medical is a global medical device company headquartered in Minnetonka, Minnesota, with additional operations in New York, Massachusetts, The Netherlands and the United Kingdom. We design, develop, manufacture and market a robust line of high performance fiberoptic and video endoscopy products under the PrimeSight
TM
brand that are used across multiple surgical specialties in diagnostic and treatment procedures, with our focus being on the urology market. We also offer the Urgent® PC Neuromodulation System, a device that delivers percutaneous tibial nerve stimulation (“PTNS”), for the office-based treatment of overactive bladder (“OAB”). OAB is a chronic condition that affects approximately 40 million adults in the U.S. The symptoms include urinary urgency, frequency and urge incontinence. We also offer Macroplastique® Implants, an injectable urethral bulking agent for the treatment of adult female stress urinary incontinence that is primarily due to intrinsic sphincter deficiency.
Outside the U.S., we market additional bulking agents: PTQ
®
for the treatment if fecal incontinence and VOX
®
for vocal cord augmentation.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, which require us to make estimates and assumptions in certain circumstances that affect amounts reported. In preparing these consolidated financial statements, we have made our best estimates and judgments of certain amounts, giving due consideration to materiality.
We have identified in our annual report on Form 10-K for the year ended December 31, 2016, our “critical accounting policies,” which are certain accounting policies that we consider important to the portrayal of our results of operations and financial condition and which may require the application of a higher level of judgment by our management, and as a result are subject to an inherent level of uncertainty.
Management made no significant changes to our critical accounting policies during the nine
months ended September 30, 2017
other than for the adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” Under the new ASU we no longer account for forfeitures of restricted stock awards and stock options throughout the vesting period, and instead, we account for them in the period in which they occur. We also recognize certain tax benefits or tax shortfalls upon a restricted-stock award vesting or stock option exercise relative to the deferred tax asset position established in the provision for income taxes line of the consolidated statements of operations instead of within the consolidated statement of shareholders’ equity.
Results of Operations
Three months ended September 30, 2017 compared to three months ended September 30, 2016
Net Sales:
Consolidated net sales of $13,765,000 in the current period represented a $357,000 increase, or 2.7%, over net sales of $13,408,000 in the prior period. The increase is primarily due to a $422,000 net increase in revenue from the Urology product lines, which is comprised of the PrimeSight, Urgent PC and other urology products, and is offset by a $65,000 net decrease in revenue from the non-core Airway Management and Industrial product lines.
Consolidated net sales for PrimeSight urology products of $4,293,000 in the current period represented a $114,000 decrease, or 2.6%, over net sales of $4,407,000 in the prior period. Our PrimeSight endoscopes are capital purchases for our customers, and such capital sales can vary from quarter to quarter. In the third quarter of 2016, the Company had its largest sale to date of capital equipment to one customer and there was no comparable sale in the third quarter of 2017. Year to date through September 30, 2017, PrimeSight urology revenue has increased by 26% over the same period of 2016.
Consolidated net sales of our Urgent PC System of $5,360,000 in the current period represented a $150,000 increase, or 2.9%, when compared to net sales of $5,210,000 in the prior period. The increase is due to increased utilization within existing accounts.
Consolidated net sales of our Macroplastique product of $1,715,000 in the current period represented a $44,000 increase, or 2.6%, over net sales of $1,671,000 in the prior period. Macroplastique serves a small market, and the focus of our sales force has been on growing sales of our PrimeSight urology and Urgent PC products.
Consolidated net sales of other urology products of $550,000 in the current period represented a $342,000 increase, or 164.4%, over net sales of $208,000 in the prior period. The increase is due primarily to non-PrimeSight revenue from the Genesis Acquisition described in Note 3 to the financial statements.
Consolidated net sales of our non-urology products (Airway Management and Industrial Boroscopes) of $1,847,000 in the current period represented a $65,000 decrease, or 3.4%, over net sales of $1,912,000 in the prior period. The decrease is primarily due to our increased focus on Urology products.
Additionally, we are exploring strategic alternatives for our non-Urology Airway Management and Industrial product lines.
Consolidated net sales to customers in the U.S. of $10,415,000 in the current period represented a decrease of $425,000, or 3.9%, over net sales of $10,840,000 in the prior period. Consolidated net sales to customers outside the U.S. of $3,350,000 in the current period represented an increase of $782,000, or 30.5%, over net sales of $2,568,000 in the prior period.
Gross Profit
: Gross profit was $9,395,000, or 68.3% of net sales in the current period, compared to $9,038,000, or 67.4% of net sales in the prior period. The increase in gross profit percentage is attributed primarily to product mix. Revenue from our higher margin Urgent PC and Macroplastique products were a higher proportion of total sales in the current quarter than the prior quarter.
Operating Expenses:
Operating expenses in the current period totaled approximately $9,589,000, compared to approximately $8,517,000 in the prior period, an increase of approximately $1,072,000. The increase was primarily attributable to share based compensation expense, business development costs, operating costs from the Genesis Acquisition described in Note 3 to the financial statements and the expansion of the U.S. sales force. Operating expenses included:
General and Administrative Expenses (G&A):
G&A expenses of $2,056,000 in the current period increased $498,000 from $1,558,000 in the prior period. The increase is attributed primarily to a $192,000 increase of share based compensation expense and approximately $208,000 of business development costs as well as inclusion of approximately $100,000 for the operating costs of Genesis.
Research and Development Expenses (R&D):
R&D expenses of $1,234,000 in the current period decreased $16,000 from $1,219,000 in the prior period.
Selling and Marketing Expenses (S&M):
S&M expenses of $5,698,000 in the current period increased $494,000, from $5,203,000 in the prior period
. The increase is attributed primarily to the expansion of the U.S sales force as well as the addition of five sales personnel from the Genesis Acquisition.
One-time Costs:
In the first half of 2016, the Company incurred one-time costs related to the proxy contest between the Company and Mr. Lewis Pell (a current director) and related litigation. In the third quarter of 2016, the Company received a $54,000 refund of professional fees. There were no similar costs or refunds in the current period.
Amortization of Intangible Assets
: Amortization of intangible assets was $602,000 in the current period compared to $591,000 in the prior period.
Other Income (Expense):
Other income (expense) includes interest income, interest expense, foreign currency exchange and other non-operating costs when incurred. Net other income was $61,000 in the current period compared to net other expense of $396,000 in the prior period. Other income in the current quarter is primarily interest income from our investments. Interest expense in the prior year is primarily due to interest on related party debt that was converted into equity in the fourth quarter of 2016.
Income Tax Expense
: We recorded income tax expense of approximately $26,000 in the current period and $19,000 in the prior period. Income tax expense is attributed to our European subsidiaries and to the payment of minimum taxes in the U.S.
Net Income (Loss)
: Net loss was approximately $160,000 ($0.00 per share) in the current period compared to net income of approximately $106,000 ($0.00 per share) in the prior period.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
Net Sales:
Consolidated net sales of $40,779,000 in the current period represented a $2,160,000 increase, or 5.6%, over net sales of $38,619,000 in the prior period. The increase is primarily due to a $2,850,000 net increase in revenue from the Urology product lines, which is comprised of the PrimeSight, Urgent PC and other urology products, and is offset by a $572,000 net decrease in revenue from the Airway Management and Industrial product lines.
Consolidated net sales for PrimeSight urology products of $13,735,000 in the current period represented a $2,850,000 increase, or 26.2%, over net sales of $10,885,000 in the prior period. The increase is primarily due to our sales force becoming more proficient in selling this technology as well the fact that our PrimeSight technology platform meets the needs of our medical customers for always ready, always sterile flexible endoscopy solutions. Our urology PrimeSight products have been clinically proven to reduce the risk of cross contamination associated with the reuse or reprocessing of difficult to clean conventional endoscopes and they also reduce the typical 45-minute reprocessing time to less than 10 minutes, allowing for greater patient throughput, increased physician productivity and ultimately economic benefit for our customers.
Consolidated net sales of our Urgent PC System of $15,602,000 in the current period represented a $118,000 decrease, or 0.8%, when compared to net sales of $15,720,000 in the prior period. U.S. unit growth was offset by a 4% decline in average selling price. U.S. unit growth was due primarily to sales execution and increased penetration in existing accounts. Our sales team has effectively demonstrated the clinical efficacy and value proposition of Urgent PC to our physician customers resulting in the increased sales. The sales team continues to place a strong emphasis on servicing existing accounts and increasing utilization within existing accounts. The decrease in average selling price is primarily due to the continued sales efforts of a large competitor who entered the PTNS space in the first quarter of 2016. Average selling prices have been substantially consistent over the past four quarters.
Consolidated net sales of our Macroplastique product of $5,237,000 in the current period represented a $273,000 decrease, or 5.0%, over net sales of $5,510,000 in the prior period. Macroplastique serves a small market, and the focus of our sales force has been on growing sales of our PrimeSight urology and our Urgent PC products.
Consolidated net sales of other urology products of $1,071,000 in the current period represented a $273,000 increase, or 34.2%, over net sales of $789,000 in the prior period. The increase is due primarily to non-PrimeSight revenue from the Genesis Acquisition.
Consolidated net sales of our non-urology products of $5,134,000 in the current period represented a $572,000 decrease, or 10.0%, over net sales of $5,706,000 in the prior period. The decrease is primarily due to our increased focus on Urology products.
Additionally, we are exploring strategic alternatives for our non-Urology Airway Management and Industrial product lines.
Consolidated net sales to customers in the U.S. of $29,990,000 in the current period represented an increase of $611,000, or 2.1%, over net sales of $29,379,000 in the prior period. Consolidated net sales to customers outside the U.S. of $10,789,000 in the current period represented an increase of $1,549,000, or 16.8%, over net sales of $9,240,000 in the prior period.
Gross Profit
: Gross profit was $27,257,000, or 66.8% of net sales in the current period, compared to $26,361,000, or 68.3% of net sales in the prior period. The change in gross profit percentage is attributed primarily to product mix, as revenue from our PrimeSight products were a higher proportion of total sales in the currentperiod as compared to the same period of the prior year, and our PrimeSight products have a lower profit percentage than our Urgent PC and Macroplastique products.
Operating Expenses:
Operating expenses in the current period totaled approximately $28,288,000 compared to approximately $28,646,000 in the prior period, a decrease of $359,000. Operating expenses included:
General and Administrative Expenses (G&A):
G&A expenses of $6,250,000 in the current period increased $1,162,000 from $5,088,000 in the prior period. The increase is attributed primarily to an increase of $655,000 in share based compensation expense and approximately $398,000 of business development costs.
Research and Development Expenses (R&D):
R&D expenses of $3,557,000 in the current period increased $301,000 from $3,256,000 in the prior period. The increase is attributed to ongoing enhancements to our PrimeSight product line.
Selling and Marketing Expenses (S&M):
S&M expenses of $16,700,000 in the current period increased $427,000, from $16,273,000 in the prior period
. The increase is attributed primarily to the expansion of the U.S sales force and is partially offset by a $372,000 for an IRS tax refund related to medical device taxes paid in 2013 -2015.
One-time Costs:
One-time costs in the prior period related to the proxy contest settlement between the Company and Mr. Lewis Pell and related litigation in connection with the 2016 Annual Meeting. These fees included $758,000 of professional fees (primarily legal) and $1,500,000 of severance costs for the Company’s former CEO. There were no similar costs in the current period.
Amortization of Intangible Assets
: Amortization of intangible assets was $1,781,000 in the current period compared to $1,773,000 in the prior period.
Other Income (Expense):
Other income (expense) includes interest income, interest expense, foreign currency exchange and other non-operating costs when incurred. Net other income was $221,000 in the current period compared to net other expense of $1,187,000 in the prior period. Other income in the current period is primarily interest income from our investments. Interest expense in the prior year is primarily due to interest on related party debt that was converted into equity in the fourth quarter of 2016.
Income Tax Expense
: We recorded income tax expense of approximately $141,000 in the current period and $52,000 in the prior period. Income tax expense is attributed to our European subsidiaries and to the payment of minimum taxes in the U.S.
Net Income (Loss)
: Net loss was approximately $951,000 ($0.02 per share) in the current period compared to a net loss of approximately $3,525,000 ($0.14 per share) in the prior period.
Non-GAAP Financial Measures
: The following tables reconcile our operating income (loss) calculated in accordance with GAAP to non-GAAP financial measures that exclude non-cash charges for share-based compensation expense, depreciation and amortization. The non-GAAP financial measures used by management and disclosed by us are neither a substitute for, nor superior to, financial measures and consolidated financial results calculated in accordance with GAAP, and you should carefully evaluate our reconciliations to non-GAAP. We may calculate our non-GAAP financial measures differently from similarly titled measures used by other companies. Therefore, our non-GAAP financial measures may not be comparable to those used by other companies. We have described the reconciliations of each of our non-GAAP financial measures described above to the most directly comparable GAAP financial measures.
We use this non-GAAP financial information, and in particular non-GAAP cash operating income (loss), for internal managerial purposes because we believe such measures are one important indicator of the strength and the operating performance of our business. Analysts and investors frequently ask us for this information. We believe that they use this information to evaluate the overall operating performance of companies in our industry, including as a means of comparing period-to-period results and as a means of evaluating our results with those of other companies.
Our non-GAAP cash operating income, excluding non-cash expenses, during the three months ended September 30, 2017 was approximately $1,025,000 and our non-GAAP cash operating income, excluding one-time costs, for the three months ended September 30, 2016 was approximately $1,444,000.
|
|
|
Expense Adjustments
|
|
|
|
|
Three-Months Ended
|
|
GAAP
|
|
|
Share-
based
Expense
|
|
|
Long-
term
Incentive
Plan
|
|
|
Depreciation
|
|
|
Amortization
|
|
|
Non-GAAP
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
9,394,657
|
|
|
$
|
5,257
|
|
|
$
|
-
|
|
|
$
|
54,271
|
|
|
$
|
-
|
|
|
$
|
9,454,185
|
|
% of net sales
|
|
|
68.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68.7
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,055,763
|
|
|
|
(365,780
|
)
|
|
|
-
|
|
|
|
(51,026
|
)
|
|
|
-
|
|
|
|
1,638,957
|
|
Research and development
|
|
|
1,234,468
|
|
|
|
(11,577
|
)
|
|
|
-
|
|
|
|
(3,571
|
)
|
|
|
-
|
|
|
|
1,219,320
|
|
Selling and marketing
|
|
|
5,697,552
|
|
|
|
(45,548
|
)
|
|
|
-
|
|
|
|
(81,405
|
)
|
|
|
-
|
|
|
|
5,570,599
|
|
Amortization
|
|
|
601,604
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(601,604
|
)
|
|
|
-
|
|
Total operating expenses
|
|
$
|
9,589,387
|
|
|
$
|
(422,905
|
)
|
|
$
|
-
|
|
|
$
|
(136,002
|
)
|
|
$
|
(601,604
|
)
|
|
$
|
8,428,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(194,730
|
)
|
|
$
|
428,162
|
|
|
$
|
-
|
|
|
$
|
190,273
|
|
|
$
|
601,604
|
|
|
$
|
1,025,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
9,038,037
|
|
|
$
|
5,375
|
|
|
$
|
-
|
|
|
$
|
41,938
|
|
|
$
|
-
|
|
|
$
|
9,085,350
|
|
% of net sales
|
|
|
67.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69.9
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,558,090
|
|
|
|
(174,385
|
)
|
|
|
17,534
|
|
|
|
(55,408
|
)
|
|
|
-
|
|
|
|
1,345,831
|
|
Research and development
|
|
|
1,218,669
|
|
|
|
(7,526
|
)
|
|
|
-
|
|
|
|
(1,779
|
)
|
|
|
-
|
|
|
|
1,209,364
|
|
Selling and marketing
|
|
|
5,203,477
|
|
|
|
(27,714
|
)
|
|
|
-
|
|
|
|
(89,427
|
)
|
|
|
-
|
|
|
|
5,086,336
|
|
Amortization
|
|
|
590,858
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(590,858
|
)
|
|
|
-
|
|
One-time costs
|
|
|
(53,887
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(53,887
|
)
|
Total operating expenses
|
|
$
|
8,517,207
|
|
|
$
|
(209,625
|
)
|
|
$
|
17,534
|
|
|
$
|
(146,614
|
)
|
|
$
|
(590,858
|
)
|
|
$
|
7,587,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
520,830
|
|
|
$
|
215,000
|
|
|
$
|
(17,534
|
)
|
|
$
|
188,552
|
|
|
$
|
590,858
|
|
|
$
|
1,497,706
|
|
One-time costs
|
|
|
(53,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,887
|
)
|
Cash operating income excluding one-time costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,443,819
|
|
Our non-GAAP cash operating income, excluding non-cash expenses, during the nine months ended September 30, 2017 was approximately $2,437,000 and our non-GAAP cash operating income, excluding one-time costs for the nine months ended September 30, 2016 was approximately $2,712,000.
|
|
|
Expense Adjustments
|
|
|
|
|
Nine-Months Ended
|
|
GAAP
|
|
|
Share-
based
Expense
|
|
|
Long-
term
Incentive
Plan
|
|
|
Depreciation
|
|
|
Amortization
|
|
|
Non-GAAP
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
27,256,759
|
|
|
$
|
17,072
|
|
|
$
|
-
|
|
|
$
|
140,406
|
|
|
$
|
-
|
|
|
$
|
27,414,237
|
|
% of net sales
|
|
|
66.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67.2
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
6,250,246
|
|
|
|
(971,688
|
)
|
|
|
-
|
|
|
|
(150,210
|
)
|
|
|
-
|
|
|
|
5,128,348
|
|
Research and development
|
|
|
3,556,977
|
|
|
|
(30,975
|
)
|
|
|
-
|
|
|
|
(8,905
|
)
|
|
|
-
|
|
|
|
3,517,097
|
|
Selling and marketing
|
|
|
16,699,590
|
|
|
|
(111,747
|
)
|
|
|
-
|
|
|
|
(255,770
|
)
|
|
|
-
|
|
|
|
16,332,073
|
|
Amortization
|
|
|
1,780,803
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,780,803
|
)
|
|
|
-
|
|
Total operating expenses
|
|
$
|
28,287,616
|
|
|
$
|
(1,114,410
|
)
|
|
|
-
|
|
|
|
(414,885
|
)
|
|
$
|
(1,780,803
|
)
|
|
$
|
24,977,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(1,030,857
|
)
|
|
$
|
1,131,482
|
|
|
$
|
-
|
|
|
$
|
555,291
|
|
|
$
|
1,780,803
|
|
|
$
|
2,436,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
26,360,893
|
|
|
$
|
27,629
|
|
|
$
|
-
|
|
|
$
|
135,321
|
|
|
$
|
-
|
|
|
$
|
26,523,743
|
|
% of net sales
|
|
|
68.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68.7
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
5,087,871
|
|
|
|
(314,838
|
)
|
|
|
64,404
|
|
|
|
(155,208
|
)
|
|
|
-
|
|
|
|
4,682,229
|
|
Research and development
|
|
|
3,255,603
|
|
|
|
(16,191
|
)
|
|
|
-
|
|
|
|
(2,960
|
)
|
|
|
-
|
|
|
|
3,236,452
|
|
Selling and marketing
|
|
|
16,272,678
|
|
|
|
(81,342
|
)
|
|
|
-
|
|
|
|
(298,711
|
)
|
|
|
-
|
|
|
|
15,892,625
|
|
Amortization
|
|
|
1,772,574
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,772,573
|
)
|
|
|
-
|
|
One-time costs
|
|
|
2,257,654
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,257,654
|
|
Total operating expenses
|
|
$
|
28,646,380
|
|
|
$
|
(412,371
|
)
|
|
$
|
64,404
|
|
|
$
|
(456,879
|
)
|
|
$
|
(1,772,573
|
)
|
|
$
|
26,068,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(2,285,487
|
)
|
|
$
|
440,000
|
|
|
$
|
(64,404
|
)
|
|
$
|
592,100
|
|
|
$
|
1,772,573
|
|
|
$
|
454,782
|
|
One-time costs
|
|
|
2,257,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,257,654
|
|
Cash operating income excluding one-time costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,712,436
|
|
Liquidity and Capital Resources
Cash Flows
.
At September 30, 2017, our cash, cash equivalents and investments totaled $26,752,000. Our net working capital as of September 30, 2017, totaled approximately $32,615,000.
For the nine months ended September 30, 2017, cash provided by operating activities was $1,608,000, compared to cash provided by operating activities of $2,875,000 during the nine months ended September 30, 2016. For the nine months ended September 30, 2017, we incurred a net loss of $951,000. Significant non-cash expenses incurred in this period include depreciation and amortization expense of $2,336,000 and share based compensation of $1,131,000. Working capital changes that provided cash include higher accrued liabilities and lower accounts receivable, while cash was used as a result of lower accrued compensation and lower accounts payable. For the nine months ended September 30, 2016, we incurred a net loss of $3,525,000. Significant non-cash expenses incurred in this period include depreciation and amortization expense of $2,365,000 and share based compensation of $440,000. Working capital changes that provided cash include higher accrued compensation, lower accounts receivables, and higher accounts payable, while cash was used as a result of inventories increasing.
During the nine months ended September 30, 2017, cash provided by investing activities included $9,900,000 of proceeds from the maturity of available-for-sale securities, partially offset by $2,438,000 in purchases of available-for-sale securities, $2,000,000 for the investment in Vensica Medical, as described in Note 12 to the financial statements, $680,000 for the purchase of property, plant, and equipment, and $178,000 for the Genesis Acquisition, as described in Note 3 to the financial statements. During the nine months ended September 30, 2016, we used $232,000 of net cash for the purchase of property, plant, and equipment.
Sources of Liquidity
.
In addition to our cash and investments, we have
a secured revolving credit facility (“Facility”), subject to eligible accounts receivable and inventory
.
Under the Facility, we may borrow the lesser of: (a) the sum of (i) eighty percent (80%) of the value of eligible accounts receivable; and (ii) forty percent (40%) of the value of eligible inventory, capped at $2.5 million; or (b) $7 million. As of September 30, 2017, based on eligible receivables and inventory, our total available borrowing base was approximately $6,250,000. We did not have any borrowings under the Facility as of September 30, 2017.
On April 19, 2017, we filed a universal shelf registration statement with the SEC that enables us to raise capital through the offering from time to time of an aggregate amount of up to $100 million of securities, including common stock, preferred stock, warrants to purchase common stock or preferred stock, units consisting of a combination of securities, and subscription rights to purchase the foregoing securities. We may offer and sell securities covered by the registration statement through one or more methods of distribution, subject to market conditions and our capital needs. However, the aggregate market value of securities sold during a 12-month period can be no more than one-third of the aggregate market value of voting and nonvoting common equity held by our non-affiliates. The terms of any offering under the shelf registration statement will be established at the time of the offering and described in a prospectus supplement filed with the SEC prior to the completion of the offering.
We may obtain additional debt and/or equity financing during 2017.
Our ability to achieve significant revenue growth will depend, in large part, on our ability to achieve widespread market acceptance of our products and successfully expand our business in the U.S. We cannot guarantee that we will successfully achieve such revenue growth. If we fail to meet our projections of profitability and cash flow, or determine to use cash for matters we are not currently projecting, we may need to seek additional financing to meet our cash needs. We cannot assure you that such financing, if needed, will be available to us on acceptable terms, if at all.
The Company does not have any commitments for capital expenditures.