Table of Contents
Selling, General and
Administrative Expenses
Our
selling, general and administrative expenses consist primarily of compensation,
including stock-based compensation and benefits, for sales, marketing, clinical
research, operations, regulatory, quality, executive, finance, legal and
administrative personnel. Other significant expenses include costs associated
with sales and marketing activities, marketing and advertising materials,
insurance, professional fees for legal and accounting services, consulting
fees, travel expenses, facility and related operating costs, and recruiting
expenses. Our selling, general and administrative expenses are expected to
continue to increase due to the planned increase in the number of employees
necessary to support the sales and marketing efforts associated with the
growing commercialization of MAKOplasty and an increased number of employees
necessary to support our continued growth in operations. In addition, we expect
to incur additional costs associated with securing and protecting our
intellectual property rights as necessary to support our future product
offerings.
We
loan instrumentation to our customers, which are used to perform MAKOplasty
procedures in conjunction with using the RIO system. These loaned instrument
sets are comprised of tools and equipment which facilitate the implantation of
our RESTORIS family of knee implants. Instrument sets loaned to customers are
not part of the tangible product sold and title of loaned instrument sets never
passes to the surgeon or hospital. To better reflect the true economic nature
and enhance comparability with other companies in our industry, depreciation
expense on loaned instrument sets has been reclassified from cost of revenue
procedures to selling, general and administrative expense. Depreciation expense
for loaned instrument sets was approximately $90,000 and $42,000 for the three
months ended March 31, 2010 and 2009, respectively.
Research and
Development Expenses
Costs
related to research, design and development of products are charged to research
and development expense as incurred. These costs include direct salary and
benefit costs for research and development employees including stock-based
compensation, cost for materials used in research and development activities
and costs for outside services. We expect our research and development expense
to increase as we continue to expand our research and development activities,
including the support of existing products and the research and development of
potential future products, including our RIO-enabled hip application.
Critical Accounting Policies
Effective
January 1, 2010, we early adopted the Financial Accounting Standards Board, or
FASB, Accounting Standard Update No. 2009-13,
Multiple-Deliverable Revenue
Arrangementsa consensus of the FASB Emerging Issues Task Force
, or
ASU 2009-13, and Update No. 2009-14,
Certain
Revenue Arrangements That Include Software Elements, a consensus of the FASB
Emerging Issues Task Force
, or ASU 2009-14, on a prospective basis
for applicable transactions originating or materially modified after December
31, 2009. In accordance with ASU 2009-13 (as codified under Accounting Standards
Codification 605-25,
Multiple-Element Arrangements
) and ASU
2009-14, we allocate arrangement consideration to the RIO systems, associated
instrumentation and services based upon the relative selling-price method.
Under this method, revenue is allocated at the time of sale to all deliverables
based on their relative selling price using a specific hierarchy. The hierarchy
is as follows: vendor-specific objective evidence, or VSOE, of fair value of
the respective elements, third-party evidence of selling price, or best
estimate of selling price.
Prior
to the adoption of ASU 2009-13 and ASU 2009-14, we accounted for the sale of
the RIO systems pursuant to ASC 985-605,
Software Revenue Recognition
, which
required us to allocate arrangement consideration to the RIO systems,
associated instrumentation and services based upon VSOE of fair value of the
respective elements. Had the new accounting guidance been applied to revenue at
the beginning of 2009, the resultant revenue and net loss for the year ended
December 31, 2009 would have been substantially the same.
17
Table of Contents
Other
than as described above, there have been no significant changes in our critical
accounting policies during the three months ended March 31, 2010 as compared to
the critical accounting policies described in our Form 10-K for the year ended
December 31, 2009.
Results of Operations
Comparison of the
Three Months Ended March 31, 2010 to the Three Months Ended March 31, 2009
Revenue.
Revenue was $7.2 million for the
three months ended March 31, 2010, compared to $3.7 million for the three
months ended March 31, 2009. The increase in revenue of $3.5 million, or 94%,
was primarily due to a $2.5 million, or 214%, increase in procedure revenue and
a $900,000, or 36%, increase in RIO system revenue. The $2.5 million increase
in procedure revenue was attributable to an increase in knee MAKOplasty
procedures performed during the three months ended March 31, 2010 as compared
with the three months ended March 31, 2009. There were 731 knee MAKOplasty
procedures performed during the three months ended March 31, 2010 compared to
265 knee MAKOplasty procedures performed during three months ended March 31,
2009. The increase in MAKOplasty procedures performed was driven by the continued
adoption of MAKOplasty, both in terms of utilization per commercial site and
total commercial installed base. Total revenue was also positively impacted by
$3.4 million of revenue from four unit sales of our RIO system as compared to
the recognition of approximately $2.5 million of revenue from four previously
deferred unit sales of our TGS during three months ended March 31, 2009. In
accordance with our revenue recognition policy, recognition of revenue on unit
sales of our TGS was deferred until delivery of the RIO system, which we
commercially released in the first quarter of 2009. Prior to 2009, recognized
revenue was primarily generated from the sale of implants and disposable
products utilized in knee MAKOplasty procedures. For the three months ended
March 31, 2009, we deferred recognition of the revenue and the direct cost of
revenue associated with three new unit sales of our RIO system, which occurred
in the first quarter of 2009. Due to the timing of the release of the RIO
system near the end of the first quarter of 2009, all related revenue
recognition criteria had not been satisfied for these RIO system sales, and
recognition of the revenue and the direct cost of revenue for these sales were
deferred and recognized in the second quarter of 2009. We expect our revenue to
continue to increase as unit sales of our RIO system increase in future periods
and the number of knee MAKOplasty procedures performed increases in future
periods.
Cost of Revenue.
Cost of revenue was $4.0
million for the three months ended March 31, 2010, compared to $3.0 million for
the three months ended March 31, 2009. The increase in cost of revenue of $1.0
million, or 32%, was primarily due to the recognition of the cost of revenue
from four unit sales of our RIO system and to an increase in knee MAKOplasty
procedures performed. Cost of revenue for the three months ended March 31, 2010
was also impacted by a write-off of approximately $1.0 million of excess
RESTORIS Classic implants as discussed in Factors Which May Influence Future
Results of Operations above. This was partially offset by the recognition of
the direct cost of revenue from four previously deferred unit sales of our TGS,
including the cost of providing the RIO system upgrades, during the three months
ended March 31, 2009. We expect our cost of revenue to continue to increase as
unit sales of our RIO system increase in future periods and the number of knee
MAKOplasty procedures performed increases in future periods.
Selling, General and Administrative.
Selling, general and administrative expense was $10.8 million for the
three months ended March 31, 2010, compared to $6.8 million for the three
months ended March 31, 2009. The increase of $4.0 million, or 59%, was
primarily due to an increase in sales, marketing and operations costs
associated with the production and commercialization of our products and an
increase in general and administrative costs to support our continued growth.
Selling, general and administrative expense for the three months ended March
31, 2010 was also impacted by a write-off of approximately $808,000 of excess
RESTORIS classic instrumentation as discussed in Factors Which May Influence
Future Results of Operations above. Selling, general and administrative
expense for the three months ended March 31, 2010 also included $1.1 million of
stock-based compensation expense compared to $642,000 for the three months
ended March 31, 2009. The increase in stock-based compensation expense was
primarily due to additional option grants and restricted stock grants made in
2009 and 2010. We expect our selling, general and administrative expenses to
continue to increase substantially due to our planned increase in the number of
employees necessary to support the sales and marketing efforts associated with
the growing commercialization of our products and an increased number of
employees necessary to support our continued growth in operations.
18
Table of Contents
Research and Development.
Research and
development expense was $3.3 million for the three months ended March 31,
2010, compared to $2.5 million for the three months ended March 31, 2009.
The increase of $770,000, or 31%, was primarily due to an increase in research
and development activities associated with on-going development of our RIO
system, our MAKO implant systems and potential future products, including our
RIO-enabled hip application. We expect our research and development expense to
increase as we continue to expand our research and development activities,
including the support of existing products and the research of potential future
products.
Depreciation and Amortization.
Depreciation and amortization expense was $622,000 for the three months ended
March 31, 2010, compared to $478,000 for the three months ended March 31, 2009.
The increase of $144,000, or 30%, was primarily due to an increase in
depreciation of property and equipment as a result of purchases made during
2010 and 2009.
Interest and Other Income.
Interest and
other income was $108,000 for the three months ended March 31, 2010, compared
to $222,000 for the three months ended March 31, 2009. The decrease of
$114,000, or 51%, was primarily due to lower yields realized on our cash, cash
equivalents and investments for the three months ended March 31, 2010 compared
with the same period of 2009.
Income Taxes.
No federal income taxes were
recognized for the three months ended March 31, 2010 and 2009, due to net
operating losses in each period. State and local income taxes were $46,000 for
the three months ended March 31, 2010, compared to $5,000 for the three months
ended March 31, 2009. Income taxes recognized to date have not been significant
due to net operating losses we have incurred in each period since our inception
in November 2004. In addition, no current or deferred income taxes were
recorded for the three months ended March 31, 2010 and 2009, as all income tax
benefits were fully offset by a valuation allowance against our net deferred
income tax assets.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
(in
thousands)
|
|
Three
Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
Cash used in operating
activities
|
|
$
|
(9,770
|
)
|
$
|
(12,973
|
)
|
Cash provided by (used) in
investing activities
|
|
|
2,121
|
|
|
(15,127
|
)
|
Net cash provided by
financing activities
|
|
|
247
|
|
|
127
|
|
Net decrease in cash and
cash equivalents
|
|
$
|
(7,402
|
)
|
$
|
(27,973
|
)
|
We
have incurred net losses and negative cash flow from operating activities for
each period since our inception in November 2004. As of March 31, 2010, we had
an accumulated deficit of $125.6 million and have financed our operations
principally through the sale of our equity securities.
In
August 2009, we completed a public offering of our common stock, issuing
8,050,000 shares at an offering price to the public of $7.25 per share,
resulting in net proceeds of approximately $54.3 million, after underwriting
discounts and commissions and expenses.
As
of March 31, 2010, we had approximately $60.6 million in cash, cash equivalents
and investments. Our cash and investment balances are held in a variety of
interest bearing instruments, including notes and bonds from U.S. government
agencies, certificates of deposit and investment grade rated U.S. corporate
debt.
19
Table of Contents
Net Cash Used in
Operating Activities
Net
cash used in operating activities primarily reflects the net loss for those
periods, which was reduced in part by depreciation and amortization,
stock-based compensation, inventory write-downs and property and equipment
write-downs. For the three months ended March 31, 2010, inventory write-downs
of $1.1 million and property and equipment write-downs of $899,000 were
incurred primarily due to the write-off of excess RESTORIS Classic implants and
instrumentation as discussed in Factors Which May Influence Future Results of
Operations above. Net cash used in operating activities was also affected by
changes in operating assets and liabilities. Included in changes in operating
assets and liabilities for the three months ended March 31, 2010 are
approximately $2.6 million of increases in inventory necessitated by increased
sales of implants and disposable products, $1.9 million of decreases in accrued
compensation and employee benefits due primarily to the payment of year-end
bonuses, which was partially offset by $1.3 million of decreases in accounts
receivable. Included in changes in operating assets for the three months ended
March 31, 2009 is approximately $4.7 million of increases in inventory
necessitated by the commercial release of the RIO system and increased sales of
implants and disposable products.
Net Cash Provided by
(Used in) Investing Activities
Net
cash provided by investing activities for the three months ended March 31, 2010
was primarily attributable to proceeds of $10.0 million from sales and
maturities of investments, which was partially offset by the purchase of
investments of $6.9 million. Net cash used in investing activities for the
three months ended March 31, 2009 was primarily attributable to the purchase of
investments of $14.7 million and purchases of property and equipment of $1.5
million, which was partially offset by proceeds of $1.0 million from sales and
maturities of investments.
Net Cash Provided by
Financing Activities
Net
cash provided by our financing activities for the three months ended March 31,
2010 was primarily attributable to proceeds received under our employee stock
purchase plan and to proceeds received on the exercise of stock options and
warrants. Net cash provided by our financing activities for the three months
ended March 31, 2009 was primarily attributable to proceeds received under our
employee stock purchase plan.
Operating Capital
and Capital Expenditure Requirements
To
date, we have not achieved profitability. We anticipate that we will continue
to incur substantial net losses for at least the next two or three years as we
expand our sales and marketing capabilities in the orthopedic products market,
continue to commercialize our RIO system and RESTORIS MCK multicompartmental
knee implant system, continue research and development of existing and future
products and continue development of the corporate infrastructure required to
sell and market our products and support operations. We also expect to experience increased cash requirements for inventory
and property and equipment in conjunction with the continued commercialization
of our RESTORIS MCK multicompartmental knee implant system and our RIO system.
In
executing our current business plan, we believe our existing cash, cash
equivalents and investment balances, and interest income we earn on these
balances will be sufficient to meet our anticipated cash requirements for at
least the next twelve months. To the extent our available cash, cash
equivalents and investment balances are insufficient to satisfy our operating
requirements after that period, we will need to seek additional sources of
funds, including selling additional equity, debt or other securities or
entering into a credit facility, or modify our current business plan. The sale
of additional equity and convertible debt securities may result in dilution to
our current stockholders. If we raise additional funds through the issuance of
debt securities, these securities may have rights senior to those of our common
stock and could contain covenants that could restrict our operations and
issuance of dividends. We may also require additional capital beyond our
currently forecasted amounts. Any required additional capital, whether
forecasted or not, may not be available on reasonable terms, or at all. If we
are unable to obtain additional financing, we may be required to reduce the
scope of, delay or eliminate some or all of our planned research, development
and commercialization activities, which could materially harm our business and
results of operations.
20
Table of Contents
Because
of the numerous risks and uncertainties associated with the development of
medical devices and the current economic situation, we are unable to estimate
the exact amounts of capital outlays and operating expenditures necessary to
complete the development of our products and successfully deliver commercial
products to the market. Our future capital requirements will depend on many
factors, including but not limited to the following:
|
|
|
|
|
the revenue
generated by sales of our current and future products;
|
|
|
|
|
|
the expenses
we incur in selling and marketing our products;
|
|
|
|
|
|
the costs
and timing of regulatory clearance or approvals for upgrades or changes to
our existing products as well as future products;
|
|
|
|
|
|
the rate of
progress, cost and success of on-going product development activities;
|
|
|
|
|
|
the
emergence of competing or complementary technological developments;
|
|
|
|
|
|
the costs of
filing, prosecuting, defending and enforcing any patent or license claims and
other intellectual property rights, or participating in litigation related
activities;
|
|
|
|
|
|
the future
unknown impact of recently enacted healthcare legislation;
|
|
|
|
|
|
the
acquisition of businesses, products and technologies, although we currently
have no understandings, commitments or agreements relating to any material
transaction of this type; and
|
|
|
|
|
|
the
continued downturn in general economic conditions and interest rates.
|
Contractual
Obligations
At
March 31, 2010, we were committed to make future purchases for inventory
related items and instrumentation under various purchase arrangements with
fixed purchase provisions aggregating approximately $6.1 million.
Other
than as described above and scheduled payments through March 31, 2010, there
have been no significant changes in our contractual obligations during the
three months ended March 31, 2010 as compared to the contractual obligations
described in our Form 10-K for the year ended December 31, 2009.
Off-Balance Sheet Arrangements
We
do not have any off-balance sheet arrangements.
I
TEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our
exposure to market risk is confined to our cash, cash equivalents and
investments. The goals of our cash investment policy are the security of the
principal invested and fulfillment of liquidity needs, with the need to
maximize value being an important consideration. To achieve our goals, we
maintain a portfolio of cash equivalents and investments in a variety of
securities including notes and bonds from U.S. government agencies,
certificates of deposit and investment grade rated U.S. corporate debt. The
securities in our investment portfolio are not leveraged and are classified as
available-for-sale. We currently do not hedge interest rate exposure. We do not
believe that a variation in market rates of interest would significantly impact
the value of our investment portfolio.
21
Table of Contents
I
TEM 4. CONTROLS AND PROCEDURES.
Disclosure
Controls and Procedures.
In
accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, or the
Exchange Act, our management evaluated, with the participation of our chief
executive officer and chief financial officer, or the Certifying Officers, the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March
31, 2010. Based upon their evaluation of these disclosure controls and
procedures, our Certifying Officers concluded that the disclosure controls and
procedures were effective as of March 31, 2010 to provide reasonable assurance
that information required to be disclosed by us in the reports we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time period specified in the Securities and Exchange Commission
rules and forms, and to provide reasonable assurance that information required
to be disclosed by us in the reports we file or submit under the Exchange Act
is accumulated and communicated to our management, including our principal
executive and principal financial officers, as appropriate, to allow timely
decisions regarding required disclosure.
We
believe that a controls system, no matter how well designed and operated, is
based in part upon certain assumptions about the likelihood of future events,
and therefore can only provide reasonable, not absolute, assurance that the
objectives of the controls system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.
Changes in Internal Control over Financial
Reporting.
There
have been no changes in our internal control over financial reporting during
the quarter ended March 31, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
22
Table of Contents
P
ART II
OTHER INFORMATION
I
TEM 1A. RISK FACTORS.
There
have been no material changes in our risk factors from those disclosed in our
Form 10-K for the year ended December 31, 2009, except for the risk factor
listed below:
Healthcare
reforms, changes in healthcare policies and changes to third-party coverage and
reimbursements, including recently enacted legislation reforming the U.S.
healthcare system, may affect demand for our systems and products and may have
a material adverse effect on our financial condition and results of operations.
In
March 2010, the U.S. Congress adopted and the President signed into law
comprehensive health care reform legislation through the passage of the Patient
Protection and Affordable Care Act and the Health Care and Education
Affordability Reconciliation Act. These bills include new taxes impacting
certain health-related industries, including medical device manufacturers.
Beginning in 2013, each medical device manufacturer will have to pay an excise
tax (or sales tax) in an amount equal to 2.3% of the price for which such
manufacturer sells its medical devices. We believe that this excise tax will
apply to our products. Other significant measures contained in these bills
include initiatives to revise Medicare payment methodologies, initiatives to
promote quality indicators in payment methodologies, initiatives related to the
coordination and promotion of research on comparative clinical effectiveness of
different technologies and procedures, and annual reporting requirements
related to payments to physicians and teaching hospitals. These bills also
include significant new fraud and abuse measures, lowering the governments
thresholds to find violations and increasing potential penalties for such violations.
In
addition to the bills discussed above, various healthcare reform proposals have
also emerged at the state level. We cannot predict whether future healthcare
initiatives will be implemented at the federal or state level or internationally,
or the effect any future legislation or regulation will have on us. The taxes
imposed by the new federal legislation and the expansion in governments role
in the U.S. healthcare industry may result in decreased profits to us, lower
reimbursements by payors for our products, and reduced medical procedure
volumes, all of which may adversely affect our business, financial condition
and results of operations, possibly materially.
I
TEM 2. UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS.
(a) Sales of Unregistered Securities
On
January 8, 2010, we entered into an asset purchase agreement with Z-Kat to
acquire certain intellectual property assets from Z-Kat in consideration for
$3,053,569, payable in shares of our common stock. We closed this transaction
and issued 230,458 shares of our common stock to Z-Kat in a private placement
on February 25, 2010. These shares were issued in a transaction exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
(c) Issuer Purchases of Equity Securities
The
following table summarizes the surrenders of the Companys common stock during
the three month period ended March 31, 2010:
23
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Number of
Shares
Purchased(1)
|
|
Average
Price Paid
per Share(1)
|
|
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
|
|
Maximum
Dollar Value of
Shares that May
Yet be
Purchased
Under the Plans
or Programs
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1 to 31, 2010
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
February 1 to 28, 2010
|
|
|
7,917
|
|
|
13.09
|
|
|
|
|
|
|
|
March 1 to 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,917
|
|
$
|
13.09
|
|
|
|
|
$
|
|
|
|
|
(1)
|
Represents the surrender of
shares of common stock of the Company to satisfy the tax withholding
obligations associated with the vesting of restricted stock.
|
I
TEM 6. EXHIBITS.
|
|
|
|
Exhibit
No.
|
|
Description
|
|
|
|
|
10.1
|
|
Employment
Agreement between MAKO Surgical Corp. and James E. Keller, effective as of
March 22, 2010 (1)
|
10.2
|
|
Employment
Agreement between MAKO Surgical Corp. and Richard Leparmentier, effective as
of March 29, 2010 (2)
|
10.3
|
|
First
Amended and Restated Employment Agreement between MAKO Surgical Corp. and
Rony Abovitz, effective as of March 29, 2010 (2)
|
10.4
|
|
First
Amendment to Employment Agreement between MAKO Surgical Corp. and Ivan
Delevic, effective as of April 13, 2010
|
10.5
|
|
Form of
Subscription Agreement related to the 2008 Employee Stock Purchase Plan
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. §1350
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. §1350
|
|
|
(1)
|
Incorporated
by reference to the Companys Form 8-K filed with the SEC on March 24, 2010
|
|
|
(2)
|
Incorporated
by reference to the Companys Form 8-K filed with the SEC on March 29, 2010
|
24
Table of Contents
S
IGNATURES
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.
|
|
|
|
|
MAKO
Surgical Corp.
|
|
|
|
|
|
Date: May 7,
2010
|
By:
|
/s/ Fritz L.
LaPorte
|
|
|
|
Fritz L.
LaPorte
|
|
|
Senior Vice
President of Finance and
|
|
|
Administration,
Chief Financial Officer and
|
|
|
Treasurer
|
25
Table of Contents
E
XHIBIT
INDEX
|
|
|
|
Exhibit
No.
|
|
Description
|
|
|
|
|
10.4
|
|
First
Amendment to Employment Agreement between MAKO Surgical Corp. and Ivan
Delevic, effective as of April 13, 2010
|
10.5
|
|
Form of
Subscription Agreement related to the 2008 Employee Stock Purchase Plan
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. §1350
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. §1350
|
26
Mako Surgical Corp. (MM) (NASDAQ:MAKO)
Historical Stock Chart
From Jun 2024 to Jul 2024
Mako Surgical Corp. (MM) (NASDAQ:MAKO)
Historical Stock Chart
From Jul 2023 to Jul 2024