UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended: June 30, 2010
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _____________________ to _____________________
Commission File Number:
001-33966
MAKO Surgical Corp.
(Exact name of registrant as specified in its charter)
Delaware
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20-1901148
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(State or Other Jurisdiction of Incorporation
or Organization)
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(I.R.S. Employer Identification No.)
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2555 Davie Road, Fort Lauderdale, Florida 33317
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(Address of Principal Executive Offices) (Zip Code)
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(954) 927-2044
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(Registrants Telephone Number, Including Area Code)
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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
x
No
o
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 large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
o
Accelerated Filer
x
Non-accelerated Filer
o
Smaller reporting company
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
x
Number of shares outstanding of each of the issuers classes of common stock as of July 29, 2010:
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Class
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Outstanding at July 29, 2010
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Common Stock
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33,798,819
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MAKO Surgical Corp.
INDEX TO FORM 10-Q
Table of Contents
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MAKO SURGICAL CORP.
Condensed Balance Sheets
(in thousands, except share and per share data)
(Unaudited)
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June 30,
2010
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December 31,
2009
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$
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10,285
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$
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17,159
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Short-term investments
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38,214
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44,686
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Accounts receivable
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9,097
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6,536
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Inventory
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10,947
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8,377
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Prepaids and other assets
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1,131
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532
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Total current assets
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69,674
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77,290
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Long-term investments
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1,258
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9,368
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Property and equipment, net
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8,670
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8,018
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Intangible assets, net
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6,924
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4,234
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Other assets
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199
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193
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Total assets
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$
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86,725
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$
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99,103
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current Liabilities:
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Accounts payable
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$
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1,667
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$
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1,159
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Accrued compensation and employee benefits
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2,581
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3,709
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Other accrued liabilities
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4,753
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2,872
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Deferred revenue
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451
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548
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Total current liabilities
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9,452
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8,288
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Deferred revenue
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―
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21
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Total liabilities
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9,452
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8,309
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Stockholders equity:
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Preferred stock, $0.001 par value; 27,000,000 authorized; 0 shares issued and
outstanding as of June 30, 2010 and December 31, 2009
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―
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―
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Common stock, $0.001 par value; 135,000,000 authorized; 33,442,353 and 33,036,378
shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively
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33
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33
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Additional paid-in capital
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211,363
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204,977
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Accumulated deficit
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(134,127
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)
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(114,195
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)
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Accumulated other comprehensive income (loss)
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4
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(21
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)
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Total stockholders equity
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77,273
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90,794
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Total liabilities and stockholders equity
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$
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86,725
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$
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99,103
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See accompanying notes.
Table of Contents
MAKO SURGICAL CORP.
Condensed Statements of Operations
(in thousands, except per share data)
(Unaudited)
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Three months ended June 30,
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Six months ended June 30,
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2010
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2009
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2010
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2009
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Revenue:
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Procedures
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$
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4,240
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$
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1,669
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$
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7,868
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$
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2,824
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Systems RIO
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5,672
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4,294
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|
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9,062
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4,294
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Systems TGS, previously deferred
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―
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8,807
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―
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11,297
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Service and other
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339
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134
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570
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216
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Total revenue
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10,251
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14,904
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17,500
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18,631
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Cost of revenue:
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Procedures
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1,111
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963
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3,066
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1,450
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Systems RIO
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2,383
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2,448
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4,123
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2,700
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Systems RIO upgrades
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―
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3,970
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―
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5,183
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Systems TGS, previously deferred
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―
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2,634
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―
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3,606
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Service and other
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177
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204
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478
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310
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Total cost of revenue
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3,671
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10,219
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7,667
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13,249
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Gross profit
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6,580
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4,685
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9,833
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5,382
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Operating costs and expenses:
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Selling, general and administrative
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10,717
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7,497
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21,535
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14,305
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Research and development
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3,701
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3,090
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6,984
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|
5,603
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|
Depreciation and amortization
|
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|
749
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|
|
589
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|
|
1,371
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|
|
1,067
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Total operating costs and expenses
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15,167
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|
|
11,176
|
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29,890
|
|
|
20,975
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|
Loss from operations
|
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(8,587
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)
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|
(6,491
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)
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|
(20,057
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)
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(15,593
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)
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Interest and other income
|
|
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64
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|
|
67
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|
|
172
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|
|
289
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|
Loss before income taxes
|
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(8,523
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)
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(6,424
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)
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(19,885
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)
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(15,304
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)
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Income tax expense
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1
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―
|
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47
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|
5
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Net loss
|
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$
|
(8,524
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)
|
$
|
(6,424
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)
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$
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(19,932
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)
|
$
|
(15,309
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)
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Net loss per share Basic and diluted
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$
|
(0.26
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)
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$
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(0.26
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)
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$
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(0.60
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)
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$
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(0.62
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)
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Weighted average common shares outstanding
Basic and diluted
|
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|
33,419
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24,806
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33,300
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24,774
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See accompanying notes.
Table of Contents
MAKO
SURGICAL CORP.
Condensed Statements of Cash Flows
(in
thousands, except share data)
(Unaudited)
|
|
Six months ended June 30,
|
|
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2010
|
|
2009
|
|
Operating activities:
|
|
|
|
|
|
|
|
Net loss
|
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$
|
(19,932
|
)
|
$
|
(15,309
|
)
|
Adjustments to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
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Depreciation
|
|
|
1,092
|
|
|
996
|
|
Amortization of intangible assets
|
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|
476
|
|
|
336
|
|
Stock-based compensation
|
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|
2,930
|
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|
1,866
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Inventory write-down
|
|
|
1,107
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|
|
265
|
|
Amortization of premium on investment securities
|
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|
299
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|
|
44
|
|
Loss on asset impairment
|
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|
986
|
|
|
―
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,561
|
)
|
|
489
|
|
Inventory
|
|
|
(4,410
|
)
|
|
(4,577
|
)
|
Prepaid and other assets
|
|
|
(599
|
)
|
|
(654
|
)
|
Other assets
|
|
|
(6
|
)
|
|
47
|
|
Accounts payable
|
|
|
508
|
|
|
(24
|
)
|
Accrued compensation and
employee benefits
|
|
|
(1,128
|
)
|
|
(694
|
)
|
Other accrued liabilities
|
|
|
1,881
|
|
|
(317
|
)
|
Deferred cost of revenue
|
|
|
―
|
|
|
3,608
|
|
Deferred revenue
|
|
|
(118
|
)
|
|
(11,437
|
)
|
Net cash used in operating activities
|
|
|
(19,475
|
)
|
|
(25,361
|
)
|
Investing activities:
|
|
|
|
|
|
|
|
Purchase of investments
|
|
|
(8,522
|
)
|
|
(14,701
|
)
|
Proceeds from sales and maturities of investments
|
|
|
22,830
|
|
|
1,025
|
|
Acquisition of property and equipment
|
|
|
(1,997
|
)
|
|
(2,206
|
)
|
Acquisition of intangible assets
|
|
|
(113
|
)
|
|
(150
|
)
|
Net cash provided by (used in) investing activities
|
|
|
12,198
|
|
|
(16,032
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
Deferred equity financing costs
|
|
|
―
|
|
|
(56
|
)
|
Proceeds from employee stock purchase plan
|
|
|
322
|
|
|
206
|
|
Exercise of common stock options and warrants for cash
|
|
|
317
|
|
|
36
|
|
Payment of payroll taxes relating to vesting of restricted
stock
|
|
|
(236
|
)
|
|
(350
|
)
|
Net cash provided by (used in) financing activities
|
|
|
403
|
|
|
(164
|
)
|
Net decrease in cash and cash equivalents
|
|
|
(6,874
|
)
|
|
(41,557
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
17,159
|
|
|
62,547
|
|
Cash and cash equivalents at end of period
|
|
$
|
10,285
|
|
$
|
20,990
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
Transfers of inventory to property and equipment
|
|
$
|
733
|
|
$
|
1,798
|
|
Issuance of stock for intangible asset
|
|
|
3,053
|
|
|
―
|
|
Receipt of
18,112 and 40,211 shares of common stock delivered in payment of payroll
taxes
as of June 30, 2010 and June 30, 3009, respectively
|
|
|
236
|
|
|
350
|
|
See
accompanying notes.
Table of Contents
MAKO
SURGICAL CORP.
Notes to Condensed Financial Statements
June
30, 2010
(Unaudited)
1. Description of the
Business
MAKO Surgical
Corp. (the “Company” or “MAKO”) is an emerging medical device company that
markets its advanced robotic arm solution and orthopedic implants for minimally
invasive orthopedic knee procedures called MAKOplasty
®
. The Company
was incorporated in the State of Delaware on November 12, 2004 and is
headquartered in Fort Lauderdale, Florida. In February 2008, the Company’s
common stock began trading on The NASDAQ Global Market under the ticker symbol
“MAKO” in connection with the closing of its initial public offering.
2. Summary of Significant
Accounting Policies
Basis of Presentation
In the
opinion of management, the accompanying unaudited condensed financial
statements (“condensed financial statements”) of the Company have been prepared
on a basis consistent with the Company’s December 31, 2009 audited
financial statements and include all adjustments, consisting of only normal
recurring adjustments, necessary to fairly state the information set forth
herein. These condensed financial statements have been prepared in accordance
with the regulations of the Securities and Exchange Commission and, therefore,
omit certain information and footnote disclosure necessary to present the
statements in accordance with accounting principles generally accepted in the United States of America. These quarterly condensed financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company’s annual report on Form 10-K for the year ended December 31,
2009 (the “Form 10-K”). The results of operations for the three and six months
ended June 30, 2010 may not be indicative of the results to be expected for the
entire year or any future periods.
Liquidity and Operations
In executing
its current business plan, the Company believes its existing cash, cash
equivalents and investment balances and interest income earned on these
balances will be sufficient to meet its anticipated cash requirements for at
least the next twelve months. To the extent the Company’s available cash, cash
equivalents and investment balances are insufficient to satisfy its operating
requirements, the Company will need to seek additional sources of funds,
including selling additional equity, debt or other securities or entering into
a credit facility, or modifying its current business plan. The sale of
additional equity and convertible debt securities may result in dilution to the
Company’s current stockholders. If the Company raises additional funds through
the issuance of debt securities, these securities may have rights senior to
those of its common stock and could contain covenants that could restrict the
Company’s operations and issuance of dividends. The Company may also require
additional capital beyond its currently forecasted amounts. Any required
additional capital, whether forecasted or not, may not be available on
reasonable terms, or at all. If the Company is unable to obtain additional
financing, the Company may be required to reduce the scope of, delay or
eliminate some or all of its planned research, development and
commercialization activities, which could materially harm its business and
results of operations.
Concentrations of Credit
Risk and Other Risks and Uncertainties
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash and cash equivalents and investments.
The Company’s cash and cash equivalents are held in demand and money market
accounts at three large financial institutions. The Company’s investments 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 at three large financial institutions. Such deposits
are generally in excess of insured limits. The Company has not experienced any
historical losses on its deposits of cash and cash equivalents.
Table of Contents
The Company
is subject to risks common to emerging companies in the medical device industry
including, but not limited to: new technological innovations, dependence on key
personnel, dependence on key suppliers, changes in general economic conditions
and interest rates, protection of proprietary technology, compliance with
changing government regulations and taxes, uncertainty of widespread market
acceptance of products, access to credit for capital purchases by our
customers, product liability and the need to obtain additional financing. The
Company’s products include components subject to rapid technological change.
Certain components used in manufacturing have relatively few alternative
sources of supply and establishing additional or replacement suppliers for such
components cannot be accomplished quickly. The inability of any of these
suppliers to fulfill the Company’s supply requirements may negatively impact
future operating results. While the Company has ongoing programs to minimize
the adverse effect of such uncertainty and considers technological change in
estimating the net realizable value of its inventory, uncertainty continues to
exist.
The Company’s
current versions of its RIO
®
Robotic Arm Interactive Orthopedic
(“RIO”) system, which is the second generation of its Tactile Guidance System™
(“TGS™”), its RESTORIS
®
unicompartmental and RESTORIS MCK
multicompartmental knee implant systems and its TGS have been cleared by the
U.S. Food and Drug Administration (“FDA”). Certain products currently under
development by the Company will require clearance or approval by the FDA or
other international regulatory agencies prior to commercial sale. There can be
no assurance that the Company’s products will receive the necessary clearances
or approvals. If the Company were to be denied such clearance or approval or
such clearance or approval were delayed, it could have a material adverse
impact on the Company.
The Company
may perform credit evaluations of its customers’ financial condition and,
generally, requires no collateral from its customers. The Company will provide
an allowance for doubtful accounts when collections become doubtful but has not
experienced any credit losses to date.
Revenue Recognition
Revenue is
generated from unit sales of the Company’s RIO system, including associated
instrumentation, installation services and training, from sales of implants and
disposable products, and by providing extended warranty services. The Company
recognizes revenue in accordance with Staff Accounting Bulletin No. 104,
Revenue
Recognition
, when persuasive evidence of an arrangement exists, the fee is
fixed or determinable, collection of the fee is probable and delivery has
occurred. For all sales, the Company uses either a signed agreement or a
binding purchase order as evidence of an arrangement.
Table of Contents
Effective
January 1, 2010, the Company early adopted the
Financial
Accounting Standards Board (“FASB”)
Accounting Standard Update
No. 2009-13,
Multiple-Deliverable Revenue Arrangements—a consensus of
the FASB Emerging Issues Task Force
(“ASU 2009-13”) and
Update No. 2009-14,
Certain Revenue Arrangements That
Include Software Elements, a consensus of the FASB Emerging Issues Task Force
(“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 (“ASC”) 605-25,
Multiple-Element
Arrangements
) and ASU 2009-14, the Company allocates
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 (“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,
the
Company accounted for the sale of the RIO systems pursuant to ASC 985-605,
Software
– Revenue Recognition
, which required the Company 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.
Subsequent to
December 31, 2008, the Company no longer manufactures TGS units, to which
associated TGS sales arrangements required it to provide upgrades and
enhancements, through and including the delivery of the RIO system. The Company
commercially released the RIO system in the first quarter of 2009. Sales
arrangements for RIO systems do not require the Company to provide upgrades and
enhancements. As a result, revenues related to RIO system sales are recognized
upon installation of the system and training of at least one surgeon.
For sales of
TGS units through December 31, 2008, VSOE of fair value was not established for
upgrades and enhancements (through and including delivery of the RIO system), which the TGS sales arrangements required the Company to provide. Accordingly,
prior to delivery of the RIO system, sales of TGS units were recorded as
deferred revenue and the direct cost of revenue associated with the sale of TGS
units was recorded as deferred cost of revenue. Revenue for all previously
deferred TGS sales was recognized in our statement of operations during the six
months ended June 30, 2009, upon delivery of the RIO system. As of June 30,
2010, the deferred revenue balance consists primarily of deferred service
revenue as discussed below.
A portion of
the Company’s customers acquire the RIO system through a leasing
arrangement with one of a number of qualified third-party leasing companies. In
these instances, the Company typically sells the RIO system to the leasing
company, and the customer enters into an independent leasing arrangement with
the leasing company. The Company treats these leasing transactions the same as
sales transactions for purposes of recognizing revenue for the sale. The
Company sells implants and disposable products utilized in MAKOplasty
procedures directly to the customers.
Procedure
revenue from the sale of implants and disposable products utilized in
MAKOplasty procedures is recognized at the time of sale (i.e., at the time of
the related surgical procedure).
Costs
associated with establishing an accrual for the RIO system standard one-year
warranty liability and royalties covered by licensing arrangements related to
the sale of RIO systems are expensed upon installation and are included in cost
of revenue - systems, in the statements of operations.
Service
revenue consists of extended warranty services on the RIO system hardware, and
is deferred and recognized ratably over the service period until no further
obligation exists. Costs associated with providing extended warranty services
are expensed as incurred.
Table of Contents
Deferred Revenue
Deferred
revenue consists of deferred service revenue and deferred system revenue.
Deferred service revenue results from the advance payment for services to be
delivered over a period of time, usually in one-year increments. Service
revenue is recognized ratably over the service period. Deferred system revenue
arises from timing differences between the installation of RIO systems and satisfaction
of all revenue recognition criteria consistent with the Company’s revenue
recognition policy. Deferred revenue expected to be realized within one year is
classified as a current liability. The deferred revenue balance as of June 30,
2010 consists primarily of deferred service revenue for extended warranty
services on the RIO system hardware.
Foreign Currency Transactions
Gains or
losses from foreign currency transactions are included in interest and other
income. To date, realized gains and losses recognized from foreign currency
transactions were not significant.
Intangible Assets
The Company’s
intangible assets are comprised of patents, patent applications and licenses to
intellectual property rights. These intangible assets are carried at cost, net
of accumulated amortization. Amortization is recorded using the straight-line
method over their respective useful lives, which range from 5 to 13 years based
on the respective anticipated lives of the underlying patents and patent
applications.
Inventory
Inventory is
stated at the lower of cost or market value on a first-in, first-out basis.
Inventory costs include direct materials, direct labor and manufacturing
overhead. The Company reviews its inventory periodically to determine net
realizable value and considers product upgrades in its periodic review of
realizability. The Company writes down inventory, if required, based on
forecasted demand and technological obsolescence. These factors are impacted by
market and economic conditions, technology changes and new product
introductions and require estimates that may include uncertain elements.
Beginning
with the fourth quarter of 2008, manufacturing overhead costs have been
capitalized and included in inventory. As of June 30, 2010 and December 31,
2009, capitalized manufacturing overhead included in inventory was
approximately $1.7 million and $1.1 million, respectively. Previously, such
overhead costs were fully expensed as selling, general and administrative
expense as capitalizable amounts that were not significant.
Net Loss Per Share
The Company
calculated net loss per share in accordance with ASC 260,
Earnings per Share
.
Basic earnings per share (“EPS”) is calculated by dividing the net income or
loss by the weighted average number of common shares outstanding for the
period, without consideration for common stock equivalents. Diluted EPS is
computed by dividing the net income or loss by the weighted average number of
common shares outstanding for the period and the weighted average number of
dilutive common stock equivalents outstanding for the period determined using
the treasury stock method. The following table sets forth potential shares of
common stock that are not included in the calculation of diluted net loss per
share because to do so would be anti-dilutive as of the end of each period
presented:
(in thousands)
|
|
June 30,
|
|
|
|
2010
|
|
2009
|
|
Stock options outstanding
|
|
|
4,495
|
|
|
3,544
|
|
Warrants to purchase common stock
|
|
|
2,043
|
|
|
2,076
|
|
Unvested restricted stock
|
|
|
333
|
|
|
286
|
|
Table of Contents
Reclassifications
Certain
reclassifications have been made to the prior periods’ statement of cash flows
and to the prior periods’ statement of operations to conform to the current
period’s presentation.
The Company
loans instrumentation to its 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 that facilitate the implantation of
the Company’s knee implants (“Implant Instruments”). Implant Instruments loaned
to customers are not part of the tangible product sold and title of loaned
Implant Instruments 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 Implant Instruments has been
reclassified from cost of revenue – procedures to selling, general and
administrative expense. Depreciation expense for loaned Implant Instruments was
approximately $189,000 and $105,000 for the six months ended June 30, 2010 and
2009, respectively.
In addition
to loaning Implant Instruments to customers, prior to 2010, Implant Instruments
were also included as components of a RIO system sale and undeployed Implant
Instruments were classified as inventory. Once deployed and placed into
service, loaned Implant Instruments were classified as a long-lived asset and
included in property and equipment, net of accumulated depreciation. Beginning
in the first quarter of 2010, Implant Instruments are no longer included as
components of a RIO system sale. To better reflect the true economic nature of
the Implant Instruments and be consistent with industry practice, undeployed
Implant Instruments have been reclassified from inventory to property and
equipment. Undeployed Implant Instruments are carried at cost, net of
allowances for excess and obsolete instruments. Loaned Implant Instruments in
the field are carried at cost less accumulated depreciation. Depreciation is
computed using the straight-line method based on the estimated useful life of
five years. The Company reviews instruments for impairment whenever events or
changes in circumstances indicate that the carrying value of an instrument may
not be recoverable. As of June 30, 2010 and December 31, 2009, approximately
$1.6 million and $1.8 million, respectively, of undeployed Implant Instruments
have been included as property and equipment.
3.
Investments
The Company’s
investments are classified as available-for-sale. Available-for-sale securities
are carried at fair value, with the unrealized gains and losses included in
other comprehensive income within stockholders’ equity. Realized gains and
losses, interest and dividends and declines in value determined to be
other-than-temporary on available-for-sale securities are included in interest
and other income. During the six months ended June 30, 2010 and 2009, realized
gains and losses recognized on the sale of investments were not significant.
The cost of securities sold is based on the specific identification method.
Table of Contents
The amortized
cost and fair value of short and long-term investments, with gross unrealized
gains and losses, were as follows:
As of June
30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
|
|
|
|
|
|
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
(in
thousands)
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
24,329
|
|
$
|
11
|
|
$
|
(2
|
)
|
$
|
24,338
|
|
Certificates of deposit
|
|
|
11,377
|
|
|
4
|
|
|
(27
|
)
|
|
11,354
|
|
U.S. corporate debt
|
|
|
2,509
|
|
|
13
|
|
|
―
|
|
|
2,522
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
|
750
|
|
|
2
|
|
|
―
|
|
|
752
|
|
U.S. corporate debt
|
|
|
503
|
|
|
3
|
|
|
―
|
|
|
506
|
|
Total investments
|
|
$
|
39,468
|
|
$
|
33
|
|
$
|
(29
|
)
|
$
|
39,472
|
|
As of
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
|
|
|
|
|
|
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
(in
thousands)
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
32,860
|
|
$
|
31
|
|
$
|
(24
|
)
|
$
|
32,867
|
|
Certificates of deposit
|
|
|
10,297
|
|
|
1
|
|
|
(25
|
)
|
|
10,273
|
|
U.S. corporate debt
|
|
|
1,532
|
|
|
14
|
|
|
―
|
|
|
1,546
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
|
5,418
|
|
|
―
|
|
|
(18
|
)
|
|
5,400
|
|
Certificates of deposit
|
|
|
2,462
|
|
|
―
|
|
|
(10
|
)
|
|
2,452
|
|
U.S. corporate debt
|
|
|
1,506
|
|
|
10
|
|
|
―
|
|
|
1,516
|
|
Total investments
|
|
$
|
54,075
|
|
$
|
56
|
|
$
|
(77
|
)
|
$
|
54,054
|
|
As of June
30, 2010, all short-term investments had maturity dates of less than one year.
As of June 30, 2010, all long-term investments had maturity dates between one
and two years.
Table of Contents
The fair
values of the Company’s investments based on the level of inputs are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
Fair Value Measurements at the Reporting Date Using
|
|
|
|
June 30,
2010
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Short-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
24,338
|
|
$
|
24,338
|
|
$
|
―
|
|
$
|
―
|
|
Certificates of deposit
|
|
|
11,354
|
|
|
11,354
|
|
|
|
|
|
|
|
U.S. corporate debt
|
|
|
2,522
|
|
|
2,522
|
|
|
|
|
|
|
|
Long-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
|
752
|
|
|
752
|
|
|
―
|
|
|
―
|
|
U.S. corporate debt
|
|
|
506
|
|
|
506
|
|
|
―
|
|
|
―
|
|
Total
investments
|
|
$
|
39,472
|
|
$
|
39,472
|
|
$
|
―
|
|
$
|
―
|
|
No
investments measured at fair value on a recurring basis used Level 3 or
significant unobservable inputs for the three months and six months ended June
30, 2010. There have been no transfers between Level 1 and Level 2 measurements
during the three months and six months ended June 30, 2010.
Fair Value of Financial Instruments
Carrying
amounts of certain of the Company’s financial instruments, including cash and
cash equivalents, investments, accounts receivable and other accrued
liabilities approximate fair value due to their short maturities or market
rates of interest.
4. Inventory
Inventory
consisted of the following:
|
|
|
|
|
|
|
|
(in
thousands)
|
|
June 30,
2010
|
|
December 31,
2009
|
|
Raw
materials
|
|
$
|
2,459
|
|
$
|
1,809
|
|
Work-in-process
|
|
|
1,450
|
|
|
884
|
|
Finished
goods
|
|
|
7,038
|
|
|
5,684
|
|
Total
inventory
|
|
$
|
10,947
|
|
$
|
8,377
|
|
In the first
quarter of 2010, the Company wrote-off approximately $1.9 million, or $(0.06)
per basic and diluted share, of excess RESTORIS unicompartmental knee implant
system (“RESTORIS Classic”) implants and related instrumentation with excess
implants of approximately $1.0 million charged to cost of revenue – procedures,
cancellation charges of $130,000 charged to cost of revenue – service and other
and excess instrumentation of approximately $808,000 charged to selling,
general and administrative expenses. These charges were necessitated by the
rapid adoption of the RESTORIS MCK multicompartmental knee implant system and
the corresponding decline in the usage of RESTORIS Classic. RESTORIS Classic
was introduced in the third quarter of 2008 and was modeled after existing
well-known unicompartmental designs. In connection with the launch of the RIO system, in the second quarter of 2009, the Company launched its next generation
RESTORIS MCK multicompartmental knee implant system (“RESTORIS MCK”). RESTORIS
MCK was designed as a premium addition to the RESTORIS product family with the
goal of delivering a more natural feeling knee by preserving bone and providing
anatomical features such as high flexion.
Table of Contents
The Company
reviews its inventory periodically to determine net realizable value and
considers product upgrades in its periodic review of realizability. Depending
on demand for the Company’s products and technical obsolescence, additional
future write-offs of the Company’s inventory may occur.
5. Commitments and Contingencies
Purchase Commitments
At June 30,
2010, the Company was committed to make future purchases for inventory related
items and instrumentation under various purchase arrangements with fixed
purchase provisions aggregating approximately $5.6 million.
Contingencies
The Company
is a party to legal contingencies or claims arising in the normal course of
business, none of which the Company believes is material to its financial
position, results of operations or cash flows.
Development Agreement
In June 2009,
the Company entered into a Research and Development License and Supply
Agreement, or the R&D Agreement, associated with a potential future product
for RIO-enabled hip MAKOplasty procedures. The R&D Agreement required an
up-front payment of $450,000, and requires future milestone payments based on
development progress. The aggregate milestone payments the Company is obligated
to pay under the R&D Agreement are $1.6 million assuming the achievement of
all development milestones. Through June 30, 2010, the Company paid the
$450,000 up-front payment and $550,000 of milestone payments which became due
upon the achievement of the related milestones. The aggregate up-front payment
and milestone payments of $2.0 million the Company is required to pay under the
R&D Agreement are being recognized as research and development expense on a
straight-line basis over the period development services are performed based on
the current expectation that all development milestones will be achieved.
6. Related
Party Transaction
In February
2010, the Company completed the acquisition of substantially all of the
intellectual property portfolio of Z-Kat, Inc. (“Z-Kat”). The terms of the
Asset Purchase Agreement between the Company and Z-Kat (the “Asset Purchase
Agreement”) terminated the Company’s prior licenses with Z-Kat, including
Z-Kat’s nonexclusive sublicense to the Company’s intellectual property
portfolio, and transferred to the Company ownership rights to certain
intellectual property assets for core technologies in computer assisted surgery
(“CAS”), haptics and robotics, including U.S. and foreign patents and patent
applications, proprietary software and documentation, trade secrets and
trademarks owned by Z-Kat, and certain contractual and other rights to patents,
patent applications and other intellectual property licensed to Z-Kat under
licenses. In connection with the acquisition, the Company also entered into a
new license agreement with Z-Kat (the “License Agreement”) pursuant to which
the Company obtained an exclusive worldwide, fully transferable, perpetual,
royalty-free and fully paid-up sublicense to certain intellectual property for
technologies in CAS licensed by Z-Kat. This new License Agreement expands
the Company’s rights in this intellectual property from the field of
orthopedics to the medical field generally. Certain of the Company’s
rights under the Asset Purchase Agreement and License Agreement remain subject
to any prior license granted by Z-Kat, including a license to Biomet Manufacturing
Corp. In consideration for consummation of the transactions contemplated by the
Asset Purchase Agreement and License Agreement, the Company issued 230,458
shares of its unregistered common stock to Z-Kat in a private placement, which
was treated as a related party transaction because certain directors and
executive officers of the Company have a material interest in Z-Kat by virtue
of their ownership of Z-Kat stock. The Asset Purchase Agreement and License
Agreement were approved by the independent members of the board of directors
and audit committee of the Company.
Table of Contents
7. Stockholders’ Equity
Common Stock
As of June
30, 2010 and December 31, 2009, the Company was authorized to issue
135,000,000 shares of $0.001 par value common stock. Common stockholders are
entitled to dividends as and if declared by the Board of Directors, subject to
the rights of holders of all classes of stock outstanding having priority
rights as to dividends. There have been no dividends declared to date on the
common stock. The holder of each share of common stock is entitled to one vote.
Comprehensive Loss
Comprehensive
loss is defined as the change in equity from transactions and other events and
circumstances other than those resulting from investments by owners and
distributions to owners. For the three months ended June 30, 2010 and 2009, the
Company recorded comprehensive losses of approximately $8,504,000 and
$6,372,000, respectively. For the six months ended June 30, 2010 and 2009, the
Company recorded comprehensive losses of approximately $19,907,000 and
$15,297,000, respectively. The difference between comprehensive loss and net
loss for the three months and six months ending June 30, 2010 and 2009 is due
to changes in unrealized gains and losses on the Company’s available-for-sale
securities.
Stock Option Plans and
Stock-Based Compensation
The Company
recognizes compensation expense for its stock-based awards in accordance with
ASC 718,
Compensation-Stock Compensation
. ASC 718 requires the
recognition of compensation expense, using a fair value based method, for costs
related to all stock-based payments including stock options. ASC 718 requires
companies to estimate the fair value of stock-based payment awards on the date
of grant using an option-pricing model.
On February
4, 2010, the Company issued 100,000 shares of restricted stock to its CEO at a
fair value of $1.2 million, or $11.95 per share, on the date of issuance. The
restricted stock will vest over a four-year period. On April 13, 2010, the
Company issued 75,000 shares of restricted stock to its CEO at a fair value of
approximately $476,000 on the date of issuance. The April 13, 2010 grant is
subject to performance conditions based on the achievement of certain performance
metrics. Upon satisfaction of the performance conditions, 50% of the shares
will vest on March 13, 2013 and 50% of the shares will vest on March 13, 2014.
For the six months ended June 30, 2010, 18,112 shares of common stock were
surrendered by the CEO to the Company to cover payroll taxes associated with
the taxable income from the vesting of restricted stock previously granted to
the Company’s CEO. As of June 30, 2010, 889,918 shares of restricted stock
granted to the Company’s CEO were issued and outstanding.
During the
three months ended June 30, 2010 and 2009, stock-based compensation expense was
approximately $1.6 million and $1.0 million, respectively. Included within
stock-based compensation expense for the three months ended June 30, 2010 were
$1.2 million related to stock option grants, $353,000 related to the partial
vesting of shares of restricted stock granted to the Company’s CEO at various
dates from 2006 through 2010, and $71,000 related to employee stock purchases
under the MAKO Surgical Corp. 2008 Employee Stock Purchase Plan (the “2008
Employee Stock Purchase Plan”). During the six months ended June 30, 2010 and
2009, stock-based compensation expense was approximately $2.9 million and $1.9
million, respectively. Included within stock-based compensation expense for the
six months ended June 30, 2010 were $2.2 million related to stock option
grants, $650,000 related to the partial vesting of shares of restricted stock
granted to the Company’s CEO at various dates from 2006 through 2010, and
$124,000 related to employee stock purchases under the MAKO Surgical Corp. 2008
Employee Stock Purchase Plan.
Table of Contents
The Company’s
2004 Stock Incentive Plan (the “2004 Plan”), its MAKO Surgical Corp. 2008
Omnibus Incentive Plan (the “2008 Plan,” and together with the 2004 Plan, the
“Plans”), and its 2008 Employee Stock Purchase Plan are described in the notes
to financial statements in the Form 10-K. Generally, the Company’s outstanding
stock options vest over four years. Stock options granted to certain
non-employee directors prior to 2010 generally vest over three years; however,
stock options granted to non-employee directors after January 1, 2010 generally
vest over one year. Continued vesting typically terminates when the employment
or consulting relationship ends. Vesting generally begins on the date of grant.
The 2008 Plan
contains an evergreen provision whereby the authorized shares available under
the 2008 Plan increase on January 1st of each year in an amount equal to the
least of (1) four percent (4%) of the total number of shares of the Company’s
common stock outstanding on December 31st of the preceding year, (2) 2.5
million shares and (3) a number of shares determined by the Company’s Board of
Directors that is lesser than (1) and (2). The number of additional shares
authorized under the 2008 Plan on January 1, 2009 and 2010 were approximately
998,000 and 1,330,000, respectively.
Under the
terms of the Plans, the maximum term of options intended to be incentive stock
options granted to persons who own at least 10% of the voting power of all
outstanding stock on the date of grant is 5 years. The maximum term of all
other options is 10 years. Options issued under the 2008 Plan that are
forfeited or expire will again be made available for issuing grants under the
2008 Plan. Options issued under the 2004 Plan that are forfeited or expire will
not be made available for issuing grants under the 2008 Plan. All future equity
awards will be made under the Company’s 2008 Plan.
Activity
under the Plans is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
Outstanding Options
|
|
|
|
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
Shares/Options
Available
For Grant
|
|
Number of
Options
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
174
|
|
|
3,478
|
|
|
6.71
|
|
Shares reserved
|
|
|
1,330
|
|
|
―
|
|
|
―
|
|
Restricted stock issued
|
|
|
(175
|
)
|
|
―
|
|
|
―
|
|
Options granted
|
|
|
(1,118
|
)
|
|
1,118
|
|
|
12.36
|
|
Options exercised
|
|
|
―
|
|
|
(69
|
)
|
|
3.62
|
|
Options forfeited under the 2004 Plan
|
|
|
―
|
|
|
(13
|
)
|
|
5.07
|
|
Options forfeited under the 2008 Plan
|
|
|
19
|
|
|
(19
|
)
|
|
8.87
|
|
Balance at June 30, 2010
|
|
|
230
|
|
|
4,495
|
|
|
8.16
|
|
The Company
records stock-based compensation expense on a straight-line basis over the
vesting period. As of June 30, 2010, there was total unrecognized compensation
cost of approximately $15.7 million, net of estimated forfeitures, related to
non-vested stock-based payments (including stock option grants, restricted
stock grants and compensation expense relating to shares issued under the 2008
Employee Stock Purchase Plan) granted to the Company’s employees and non-employee
directors. The unrecognized compensation cost will be adjusted for future
changes in estimated forfeitures, and is expected to be recognized over a
remaining weighted average period of 2.8 years as of June 30, 2010.
The estimated
grant date fair values of the employee stock options were calculated using the
Black-Scholes-Merton valuation model, based on the following assumptions:
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
2009
|
|
Risk-free interest rate
|
|
2.78% - 3.36%
|
|
1.99% - 3.53%
|
|
Expected life
|
|
6.25 years
|
|
6.25 years
|
|
Expected dividends
|
|
―
|
|
―
|
|
Expected volatility
|
|
50.33% - 50.74%
|
|
56.80% - 57.71%
|
|
Table of Contents
Warrants
In December
2004, the Company issued at the purchase price of $0.03 per share warrants to
purchase 462,716 shares of common stock. The warrants were immediately
exercisable at an exercise price of $3.00 per share, with the exercise period
expiring in December 2014. As of June 30, 2010, 429,862 warrants were
outstanding and exercisable.
In October
2008, the Company entered into a Securities Purchase Agreement for an equity
financing with gross proceeds of approximately $40.2 million. In connection
with the financing, the Company issued warrants to the participating investors
to purchase 1,290,323 shares of common stock at a purchase price of $0.125 per
warrant and an exercise price of $7.44 per share. The warrants became
exercisable on April 29, 2009 and have a seven-year term. As of June 30,
2010, all the warrants were outstanding and exercisable. In addition, in
consideration for the right (the “Call Right”) to require certain participants
in the financing to purchase an additional $20 million of common stock and
warrants to purchase common stock, the Company issued warrants to purchase
322,581 shares of common stock at a purchase price of $0.125 per warrant and an
exercise price of $6.20 per share to participating investors. These warrants
became exercisable on December 31, 2009 and have a seven-year term. As of
June 30, 2010, all the warrants were outstanding and exercisable. The
Company did not exercise its Call Right, which expired on December 31, 2009.
8. Income Taxes
The Company
accounts for income taxes under ASC 740,
Income Taxes
. Deferred income
taxes are determined based upon differences between financial reporting and
income tax bases of assets and liabilities and are measured using the enacted
income tax rates and laws that will be in effect when the differences are
expected to reverse. The Company recognizes any interest and penalties related
to unrecognized tax benefits as a component of income tax expense.
Due to
uncertainty surrounding realization of the deferred income tax assets in future
periods, the Company has recorded a 100% valuation allowance against its net deferred
tax assets. If it is determined in the future that it is more likely than not
that the deferred income tax assets are realizable, the valuation allowance
will be reduced.
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ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
In this
report, “MAKO Surgical,” “MAKO,” the “Company,” “we,” “us” and “our” refer to
MAKO Surgical Corp.
The following
discussion and analysis of our financial condition and results of operations
should be read together with our financial statements and related notes
appearing elsewhere in this report. This report contains forward-looking
statements regarding, among other things, statements related to expectations,
goals, plans, objectives and future events. We intend such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in Section 21E of the Securities Exchange Act of 1934 and
the Private Securities Reform Act of 1995. In some cases, you can identify
forward-looking statements by the following words: “may,” “will,” “could,”
“would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,”
“estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the
negative of these terms or other comparable terminology, although not all
forward-looking statements contain these words. Examples of such statements
include, but are not limited to, statements about the nature, timing and number
of planned new product introductions; market acceptance of the MAKOplasty®
solution; the future availability from third-party suppliers, including single
source suppliers, of implants for and components of our RIO® Robotic Arm
Interactive Orthopedic system, or RIO system; the anticipated adequacy of our
capital resources to meet the needs of our business; our ability to sustain,
and our goals for, sales and earnings growth including projections regarding
systems installations; and our success in achieving timely approval or
clearance of products with domestic and foreign regulatory entities. These
statements are based on the current estimates and assumptions of our management
as of the date of this report and are subject to risks, uncertainties, changes
in circumstances, assumptions and other factors that may cause actual results
to differ materially from those indicated by forward-looking statements, many
of which are beyond our ability to control or predict. Such factors, among
others, may have a material adverse effect on our business, financial condition
and results of operations and may include the potentially significant impact of
a continued economic downturn or delayed economic recovery on the ability of
our customers to secure adequate funding, including access to credit, for the
purchase of our products or cause our customers to delay a purchasing decision,
changes in competitive conditions and prices in our markets, unanticipated
issues relating to intended product launches, decreases in sales of our
principal product lines, increases in expenditures related to increased or
changing governmental regulation or taxation of our business, unanticipated
issues in securing regulatory clearance or approvals for new products or
upgrades or changes to our current products, the impact of the recently enacted
United States healthcare reform legislation on hospital spending,
reimbursement, and the taxing of medical device companies, loss of key
management and other personnel or inability to attract such management and
other personnel and unanticipated intellectual property expenditures required
to develop, market, and defend our products. These and other risks are
described in greater detail under Item 1A, Risk Factors, contained in our
Annual Report on Form 10-K for the year ended December 31, 2009 and under Item
1A, Risk Factors, contained in Part II, Item 1A of our Quarterly Report on Form
10-Q for the quarter ended March 31, 2010. Given these uncertainties, you
should not place undue reliance on these forward-looking statements. We do not
undertake any obligation to release any revisions to these forward-looking
statements publicly to r
eflect events or
circumstances
after the date of this report or to reflect the occurrence
of unanticipated events
.
We have
received or applied for trademark registration of and/or claim trademark rights
for the following marks: “MAKOplasty®,” “RIO®,” “RESTORIS®,” “Tactile Guidance
System” and “TGS,” as well as in the MAKO Surgical Corp. “MAKO” logo, whether
standing alone or in connection with the words “MAKO Surgical Corp.”
Overview
We are an
emerging medical device company that markets our advanced robotic arm solution
and orthopedic implants for minimally invasive orthopedic knee procedures. We
offer MAKOplasty, an innovative, restorative surgical solution that enables
orthopedic surgeons to consistently, reproducibly and precisely treat patient
specific, early to mid-stage osteoarthritic knee disease. In February 2008, our
common stock began trading on The NASDAQ Global Market under the ticker symbol
“MAKO” in connection with the closing of our initial public offering.
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We have
incurred net losses in each year since our inception and, as of June 30, 2010,
we had an accumulated deficit of $134.1 million. We expect to continue to incur
significant operating losses as we increase our sales and marketing activities
and otherwise continue to invest capital in the development and expansion of
our products and our business generally. We expect that our general and administrative
expenses will increase to support the sales and marketing efforts associated
with the growing commercialization of MAKOplasty, and to support our continued
growth in operations. We also expect our research and development expenses 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.
Recent key
milestones in the development of our business include the following:
• During the six month period ended June 30, 2010, a total of
1,524 knee MAKOplasty procedures were performed, including thirteen procedures
performed at a clinical research site in Glasgow, Scotland as discussed below,
representing a 144% increase over the same period in 2009.
• In February 2010, we received 510(k) marketing clearance
from the FDA for an application that assists a surgeon in performing all
components of a total hip arthroplasty using the RIO system. We believe this
represents achievement of a necessary milestone towards what we anticipate will
be our continuing development and future commercialization of a RIO-enabled hip
application.
• In April 2010, we secured the necessary European Union CE
markings for our RIO system and our RESTORIS MCK multicompartmental knee
implant system, which is a legal requirement for medical devices intended for
sale in Europe.
• During the second quarter of 2010, we launched a clinical
research study in partnership with Glasgow Royal Infirmary, Strathclyde University and National Health Services in Glasgow, Scotland. In connection with
the clinical research study, we placed a RIO system at the Glasgow Royal
Infirmary. The system is being utilized in a three-year randomized prospective
clinical trial with the objective of demonstrating the clinical, functional and
ultimately, economic benefits of MAKOplasty. Glasgow Royal Infirmary reported
that 13 procedures were performed at its site during the second quarter of
2010.
We believe
that the keys to growing our business are expanding the acceptance and
application of MAKOplasty to unicompartmental and multicompartmental knee
resurfacing procedures and introducing other potential future applications,
including our RIO-enabled hip application. To successfully commercialize our
products and grow our business, we must gain market acceptance for MAKOplasty
procedures.
Factors Which May Influence
Future Results of Operations
The following
is a description of factors that may influence our future results of
operations, including significant trends and challenges that we believe are
important to an understanding of our business and results of operations.
Revenue
Revenue is
generated from unit sales of our RIO system, including associated
instrumentation, installation services and training, from sales of implants and
disposable products, and by providing extended warranty services. We recognize
revenue in accordance with Staff Accounting Bulletin No. 104,
Revenue
Recognition
, when persuasive evidence of an arrangement exists, the fee is
fixed or determinable, collection of the fee is probable and delivery has
occurred. For all sales, we use either a signed agreement or a binding purchase
order as evidence of an arrangement.
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Since
December 31, 2008, we no longer manufacture TGS units, to which associated TGS
sales arrangements required us to provide upgrades and enhancements, through
and including the delivery of the RIO system. We commercially released the RIO system in the first quarter of 2009. Sales arrangements for RIO systems do not require
us to provide upgrades and enhancements. As a result, we recognize revenues
related to RIO system sales upon installation of the system and training of at
least one surgeon.
For sales of
TGS units through December 31, 2008, the sales arrangements required us to
provide upgrades and enhancements to the TGS unit through and including
delivery of the RIO system. Prior to delivery of the RIO system, sales of TGS
units were recorded as deferred revenue and the direct cost of revenue
associated with the sale of TGS units was recorded as deferred cost of revenue.
Upon satisfaction of the final deliverable of the RIO system, the revenue and
direct cost of revenue associated with the sale of TGS units was recognized in
our statement of operations. Revenue for all previously deferred TGS sales was
recognized in our statement of operations during the six months ended June 30,
2009, upon delivery of the RIO system. Our deferred revenue balance of $451,000
as of June 30, 2010 consists primarily of deferred service revenue for extended
warranty services on the RIO system hardware.
A portion of
our customers acquire our RIO system through a leasing arrangement with
one of a number of qualified third-party leasing companies. In these instances,
we typically sell the RIO system to the leasing company, and our customer
enters into an independent leasing arrangement with the leasing company. We
treat these leasing transactions the same as sales transactions for purposes of
recognizing revenue for the sale. We sell implants and disposable products
utilized in MAKOplasty procedures directly to our customers.
Procedure
revenue from the sale of implants and disposable products utilized in
MAKOplasty procedures is recognized at the time of sale (i.e., at the time of
the related surgical procedure).
Service
revenue consists of extended warranty services on the RIO system hardware, and
is deferred and recognized ratably over the service period until no further
obligation exists. Costs associated with providing extended warranty services
are expensed as incurred.
Future
revenue from sales of our products is difficult to predict and we expect that
it will only modestly reduce our continuing and increasing losses resulting
from selling, general and administrative expenses, research and development
expenses and other activities for at least the next two or three years. Our
future revenue may also be adversely affected by the current general economic
downturn and the resulting tightening of the credit markets, which may cause
purchasing decisions to be delayed or cause our customers to experience
difficulties in securing adequate funding to buy our products.
The
generation of recurring revenue through sales of our knee implants, disposable
products and extended warranty service contracts is an important part of the
MAKOplasty business model. We anticipate that recurring revenue will constitute
an increasing percentage of our total revenue as we leverage each new
installation of our RIO system to generate recurring sales of implants and
disposable products and as we expand our implant product offering.
Cost of Revenue
Cost of
revenue primarily consists of the direct costs associated with the manufacture
of RIO systems, implants and disposable products for which revenue has been
recognized in accordance with our revenue recognition policy. Costs associated
with providing services are expensed as incurred. Cost of revenue also includes
the allocation of manufacturing overhead costs, the cost associated with
establishing at the time of installation an accrual for the RIO system standard
one-year warranty liability, royalties related to the sale of products covered
by licensing arrangements and write-offs of obsolete, impaired or excess inventory.
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In the first
quarter of 2010, we wrote-off approximately $1.9 million, or $(0.06) per basic
and diluted share, of excess RESTORIS unicompartmental knee implant system, or
RESTORIS Classic, implants and related instrumentation with excess implants of
approximately $1.0 million charged to cost of revenue – procedures,
cancellation charges of $130,000 charged to cost of revenue – service and other
and excess instrumentation of approximately $808,000 charged to selling,
general and administrative expenses. These charges were necessitated by the
rapid adoption of the RESTORIS MCK multicompartmental knee implant system and
the corresponding decline in the usage of RESTORIS Classic. RESTORIS Classic
was introduced in the third quarter of 2008 and was modeled after existing
well-known unicompartmental designs. In connection with the launch of the RIO system, in the second quarter of 2009, we launched our next generation RESTORIS MCK
multicompartmental knee implant system, or RESTORIS MCK. RESTORIS MCK was
designed as a premium addition to the RESTORIS product family with the goal of
delivering a more natural feeling knee by preserving bone and providing
anatomical features such as high flexion.
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 that 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 $189,000 and $105,000 for the six
months ended June 30, 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 Arrangements—a 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.
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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.
Other than as
described above, there have been no significant changes in our critical
accounting policies during the six months ended June 30, 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 June 30, 2010 to
the Three Months Ended June 30, 2009
Revenue.
Revenue
was $10.3 million for the three months ended June 30, 2010, compared to $14.9
million for the three months ended June 30, 2009. The decrease in revenue of
$4.7 million, or 31%, was primarily due to the recognition of $8.8 million of
revenue from thirteen previously deferred unit sales of our TGS during the
three months ended June 30, 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. This was partially offset by a $2.6 million, or 154%, increase in
procedure revenue and a $1.4 million, or 32%, increase in RIO system revenue.
The $2.6 million increase in procedure revenue was attributable to an increase
in knee MAKOplasty procedures performed during the three months ended June 30,
2010 as compared with the three months ended June 30, 2009. There were 780
domestic knee MAKOplasty procedures performed during the three months ended
June 30, 2010 and a $295,000 stocking order associated with the clinical
research site, which reported that thirteen procedures were performed during
the quarter compared to 358 knee MAKOplasty procedures performed during the
three months ended June 30, 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 $5.7 million of revenue from seven unit
sales of our RIO system, including six domestic commercial sales and one
international demonstration system, as compared to the recognition of $4.3
million of revenue from six unit sales of our RIO system during the three
months ended June 30, 2009. Three of the six RIO systems recognized during the
three months ended June 30, 2009 were installed and customer accepted in the
quarter ended March 31, 2009, but the remaining revenue recognition criteria on
these units was completed during the three months ended June 30, 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 $3.7 million for the three months
ended June 30, 2010, compared to $10.2 million for the three months ended June
30, 2009. The decrease in cost of revenue of $6.5 million, or 64%, was
primarily due to the recognition of the direct cost of revenue from thirteen
previously deferred unit sales of our TGS during the three months ended June
30, 2009, including the cost of providing the RIO system upgrades, as described
in the “Factors Which May Influence Future Results of Operations” section
above. This was partially offset by an increase in knee MAKOplasty procedures
performed and to the recognition of the cost of revenue from seven unit sales
of our RIO system during the three months ended June 30, 2010 as compared to
the recognition of the cost of revenue from six unit sales of our RIO system
during the three months ended June 30, 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
$10.7 million for the three months ended June 30, 2010, compared to
$7.5 million for the three months ended June 30, 2009. The increase of
$3.2 million, or 43%, 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 June 30, 2010 also included $1.4 million of stock-based
compensation expense compared to $860,000 for the three months ended June 30,
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.
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Research
and Development.
Research and development expense was
$3.7 million for the three months ended June 30, 2010, compared to
$3.1 million for the three months ended June 30, 2009. The increase of
$611,000, or 20%, 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
$749,000 for the three months ended June 30, 2010, compared to $589,000 for the
three months ended June 30, 2009. The increase of $160,000, or 27%, 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 $64,000 for the
three months ended June 30, 2010, compared to $67,000 for the three months
ended June 30, 2009. The decrease of $3,000, or 4%, was primarily due to lower
yields realized on our cash, cash equivalents and investments for the three
months ended June 30, 2010 compared with the same period of 2009.
Income
Taxes.
No federal income taxes were recognized for the three
months ended June 30, 2010 and 2009, due to net operating losses in each
period. State and local income taxes were $1,000 for the three months ended
June 30, 2010, compared to $0 for the three months ended June 30, 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 June 30, 2010 and 2009, as all income tax benefits were fully
offset by a valuation allowance against our net deferred income tax assets.
Comparison of the Six Months Ended June 30, 2010 to
the Six Months Ended June 30, 2009
Revenue.
Revenue
was $17.5 million for the six months ended June 30, 2010, compared to $18.6
million for the six months ended June 30, 2009. The decrease in revenue of $1.1
million, or 6%, was primarily due to the recognition of $11.3 million of
revenue from seventeen previously deferred unit sales of our TGS during the six
months ended June 30, 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.
This was partially offset by a $5.0 million, or 179%, increase in procedure
revenue and a $4.8 million, or 111%, increase in RIO system revenue. The $5.0
million increase in procedure revenue was attributable to an increase in knee
MAKOplasty procedures performed during the six months ended June 30, 2010 as
compared with the six months ended June 30, 2009. There were 1,511 domestic
knee MAKOplasty procedures performed during the six months ended June 30, 2010
and a $295,000 stocking order associated with the clinical research site, which
reported that thirteen procedures were performed during the quarter compared to
623 knee MAKOplasty procedures performed during the six months ended June 30,
2009. Total revenue was also positively impacted by $9.1 million of revenue
from eleven unit sales of our RIO system as compared to the recognition of
approximately $4.3 million of revenue from six unit sales of our TGS during the
six months ended June 30, 2009.
Cost of
Revenue.
Cost of revenue was $7.7 million for the six months ended
June 30, 2010, compared to $13.2 million for the six months ended June 30,
2009. The decrease in cost of revenue of $5.5 million, or 42%, was primarily
due to the recognition of the direct cost of revenue from seventeen previously
deferred unit sales of our TGS during the six months ended June 30, 2009,
including the cost of providing the RIO system upgrades, as described in the
“Factors Which May Influence Future Results of Operations” section above. This
was partially offset by an increase in knee MAKOplasty procedures performed and
to the recognition of the cost of revenue from eleven unit sales of our RIO
system during the six months ended June 30, 2010 as compared to the recognition
of the cost of revenue from six unit sales of our RIO system during the six
months ended June 30, 2009. Cost of revenue for the six months ended June 30,
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.
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Selling, General and Administrative.
Selling, general and administrative expense was $21.5 million for the six months ended June 30, 2010, compared to $14.3 million for the six months ended June 30, 2009. The increase of $7.2 million, or 51%, 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 six months ended June 30, 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 six months ended June 30, 2010 also included $2.5 million of stock-based compensation expense compared to $1.5 million for the six months ended June 30, 2009. The increase in stock-based compensation expense was primarily due to additional option grants and restricted stock grants made in 2009 and 2010.
Research and Development.
Research and development expense was $7.0 million for the six months ended June 30, 2010, compared to $5.6 million for the six months ended June 30, 2009. The increase of $1.4 million, or 25%, 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 $1.4 million for the six months ended June 30, 2010, compared to $1.1 million for the six months ended June 30, 2009. The increase of $304,000, or 28%, 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 $172,000 for the six months ended June 30, 2010, compared to $289,000 for the six months ended June 30, 2009. The decrease of $117,000, or 40%, was primarily due to lower yields realized on our cash, cash equivalents and investments for the six months ended June 30, 2010 compared with the same period of 2009.
Income Taxes.
No federal income taxes were recognized for the six months ended June 30, 2010 and 2009, due to net operating losses in each period. State and local income taxes were $47,000 for the six months ended June 30, 2010, compared to $5,000 for the six months ended June 30, 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 six months ended June 30, 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)
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
2009
|
|
Cash used in operating activities
|
|
$
|
(19,475
|
)
|
$
|
(25,361
|
)
|
Cash provided by (used in) investing activities
|
|
|
12,198
|
|
|
(16,032
|
)
|
Net cash provided (used in) by financing activities
|
|
|
403
|
|
|
(164
|
)
|
Net decrease in cash and cash equivalents
|
|
$
|
(6,874
|
)
|
$
|
(41,557
|
)
|
We have incurred net losses and negative cash flow from operating activities for each period since our inception in November 2004. As of June 30, 2010, we had an accumulated deficit of $134.1 million and have financed our operations principally through the sale of our equity securities.
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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 June
30, 2010, we had approximately $49.8 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.
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 six months ended
June 30, 2010, inventory write-downs of $1.1 million and property and equipment
write-downs of $986,000 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 six months
ended June 30, 2010 are approximately $4.4 million of increases to inventory
necessitated by increased sales of implants and disposable products, $2.6
million of increases to accounts receivable due to increased sales in 2010,
$1.1 million of decreases to accrued compensation and employee benefits due
primarily to the payment of year-end bonuses, which was partially offset by
$1.9 million of increases to other accrued liabilities. Included in changes in
operating assets and liabilities for the six months ended June 30, 2009 are
approximately $11.4 million and $3.6 million of decreases to the deferred
revenue balance and deferred cost of revenue balance, respectively, due to the
recognition of seventeen previously deferred unit sales of our TGS, and $4.6
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 six months ended June 30, 2010 was
primarily attributable to proceeds of $22.8 million from sales and maturities
of investments, which was partially offset by the purchase of investments of
$8.5 million. Net cash used in investing activities for the six months ended
June 30, 2009 was primarily attributable to the purchase of investments of
$14.7 million, which was partially offset by proceeds of $1.0 million from
sales and maturities of investments and purchases of $2.2 million of property
and equipment which primarily consisted of instrumentation used to perform
MAKOplasty procedures necessitated by the commercial release of the RESTORIS
MCK implant system and an increase in knee MAKOplasty procedures performed.
Net Cash Provided by (Used in) Financing Activities
Net cash
provided by financing activities for the six months ended June 30, 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 used in financing activities for the six months ended June 30, 2009
was primarily attributable to the payment of $350,000 for payroll taxes
associated with the taxable income from the vesting of restricted stock granted
to the Company’s CEO, for which 40,211 shares of common stock were surrendered
by the CEO to cover the payment of the payroll taxes.
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, including our RIO-enabled hip application, 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.
Table of Contents
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, 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.
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:
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the revenue generated by sales of our current and future products;
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the expenses we incur in selling and marketing our products;
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the costs and timing of regulatory clearance or approvals for upgrades or changes to our existing products as well as future products;
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the rate of progress, cost and success of on-going product development activities;
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the emergence of competing or complementary technological developments;
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the costs of filing, prosecuting, defending and enforcing any patent or license claims and other intellectual property rights, or participating in litigation related activities;
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the future unknown impact of recently enacted healthcare legislation;
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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
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the continued downturn in general economic conditions and interest rates.
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Contractual Obligations
At June 30, 2010, we were committed to make future purchases for inventory related items and instrumentation under various purchase arrangements with fixed purchase provisions aggregating approximately $5.6 million.
Other than as described above and scheduled payments through June 30, 2010, there have been no significant changes in our contractual obligations during the six months ended June 30, 2010 as compared to the contractual obligations described in our Form 10-K for the year ended December 31, 2009.
Table of Contents
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our exposure to market risk is confined to our cash, cash equivalents, investments and exchange rate risk on international sales. 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 or exchange rate risk. We do not believe that a variation in market rates of interest would significantly impact the value of our investment portfolio. We do not believe that a variation in the value of the U.S. dollar relative to foreign currencies would significantly impact our results of operations.
ITEM 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 June 30, 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 June 30, 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 June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
ITEM
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 and our Form 10-Q for the quarter ended March 31, 2010.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(c) Issuer Purchases of Equity Securities
The following table summarizes the surrenders of the Companys common stock during the three month period ended June 30, 2010:
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Total
Number of
Shares
Purchased(1)
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Average
Price Paid
per Share(1)
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Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
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Maximum
Dollar Value of
Shares that May
Yet be
Purchased
Under the Plans
or Programs
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Period
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April 1 to 30, 2010
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$
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$
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May 1 to 31, 2010
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10,195
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13.02
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June 1 to 30, 2010
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10,195
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$
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13.02
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$
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(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.
ITEM 6. EXHIBITS.
Exhibit
No.
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Description
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10.1
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Restricted Stock Agreement dated April 13, 2010 issued to Maurice R. Ferré, M.D. (incorporated by reference to Exhibit 10.1 on the Companys Current Report on Form 8-K filed with the SEC on April 15, 2010)
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31.1
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
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31.2
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
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32.1
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Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350
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32.2
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Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350
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Table of Contents
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.
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MAKO Surgical Corp.
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Date: August 4, 2010
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By:
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/s/ Fritz L. LaPorte
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Fritz L. LaPorte
Senior Vice President of Finance and Administration, Chief Financial Officer and Treasurer
(Principal Financial Officer and Authorized Signatory)
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Table of Contents
EXHIBIT INDEX
Exhibit
No.
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Description
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10.1
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Restricted Stock Agreement dated April 13, 2010 issued to Maurice R. Ferré, M.D. (incorporated by reference to Exhibit 10.1 on the Companys Current Report on Form 8-K filed with the SEC on April 15, 2010)
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31.1
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
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31.2
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
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32.1
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Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350
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32.2
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Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350
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