Table of Contents
Cost of
revenue was $18.2 million for the year ended December 31, 2010, compared to
$21.5 million for the year ended December 31, 2009. The decrease in cost of
revenue of $3.3 million, or 15%, was primarily due to the recognition of $8.8
million of the direct cost of revenue during the year ended December 31, 2009
from 17 previously deferred unit sales of our TGS, including the cost of
providing the RIO system upgrades. This was partially offset by the recognition
of the cost of revenue from 33 unit sales of our RIO system during the year
ended December 31, 2010 as compared to the recognition of the cost of revenue
from 19 unit sales of our RIO system during the year ended December 31, 2009
and to an increase in MAKOplasty PKA procedures performed. Cost
of revenue for the year ended December 31, 2010 was also impacted by a
write-off of approximately $1.4 million of excess RESTORIS Classic implants
necessitated by the rapid adoption of RESTORIS MCK and an adjustment to reverse
the accrual for our warranty and maintenance obligation by $552,000 as
discussed in Factors That May Influence Future Results of Operations above.
Gross profit for the year ended December 31, 2010 was $26.1 million compared to a gross profit of $12.8 million for
the year ended December 31, 2009. Total gross margin for the year ended December 31, 2010 was 59%, including a 66% margin on procedure
revenue, a 55% margin on RIO system revenue and a 40% margin on service revenue compared to a gross margin of 37% for the year
ended December 31, 2009, including a 59% margin on procedure revenue, a 31% margin on RIO system revenue and a 15% margin on service
revenue. The increase in margin on procedure revenue was primarily attributable to a higher average selling price per procedure,
which was partially offset by a write-off of approximately $1.4 million of excess RESTORIS Classic implants in 2010. The increase
in margin on RIO system revenue was primarily attributable to the cost of providing RIO system upgrades for 17 previously deferred
unit sales of our TGS.
Selling, General and Administrative
Selling,
general and administrative expense was $69.0 million for the year ended
December 31, 2011, compared to $47.0 million for the year ended December
31, 2010. The increase of $22.0 million, or 47%, 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. Our total number of
employees increased from 291 as of December 31, 2010 to 415 as of December 31,
2011. Of the 124 employee increase, 68 were in sales and marketing. Selling,
general and administrative expense for the year ended December 31, 2010 was
also impacted by a write-off of $1.0 million of excess RESTORIS classic
instrumentation necessitated by the rapid adoption of RESTORIS MCK, and the corresponding
decline in the usage of RESTORIS Classic. Selling, general and administrative
expense for the year ended December 31, 2011 included $8.3 million of
stock-based compensation expense compared to $5.4 million for the year ended
December 31, 2010. The increase in stock-based compensation expense was
primarily due to additional option grants and restricted stock grants made in
2011 combined with an increase in the price of our common stock. We expect our
selling, general and administrative expenses to continue to increase
substantially due to our planned increase in the number of employees and sales
and training programs necessary to support the sales and marketing efforts
associated with the growing commercialization of our products, and an increased
number of employees, facilities and operating costs 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 current and future product offerings.
Selling,
general and administrative expense was $47.0 million for the year ended
December 31, 2010, compared to $32.1 million for the year ended December
31, 2009. The increase of $14.9 million, or 47%, 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. Our total number of
employees increased from 232 as of December 31, 2009 to 291 as of December 31,
2010. Of the 59 employee increase, 35 were in Sales and Marketing. Selling,
general and administrative expense for the year ended December 31, 2010 was
also impacted by a write-off of $1.0 million of excess RESTORIS classic
instrumentation necessitated by the rapid adoption of the RESTORIS MCK
multicompartmental implant system. Selling, general and administrative expense
for the year ended December 31, 2010 also included $5.4 million of stock-based
compensation expense compared to $3.3 million for the year ended December 31,
2009. The increase in stock-based compensation expense was primarily due to
additional option grants and restricted stock grants made in 2009 and 2010.
We
loan instrumentation to our customers, which are used to perform MAKOplasty
procedures in conjunction with using the RIO system. These loaned instrument
sets, or implant instruments, are comprised of tools and equipment that
facilitate the implantation of our implants. Implant instruments loaned to
customers are not part of the tangible product sold and title of loaned
instrument remains with the Company. To better reflect the economics of the
implant instruments and enhance comparability with other companies in our
industry, depreciation expense on implant instruments has been reclassified
from cost of revenue procedures to selling, general and administrative
expense beginning in the first quarter of 2010. Depreciation expense for
implant instruments was
$1.1 million, $464,000 and $250,000 for the years ended December 31, 2011, 2010
and 2009, respectively.
78
Table of Contents
Research and Development
Research
and development expense was $20.6 million for the year ended December 31,
2011, compared to $15.0 million for the year ended December 31, 2010. The
increase of $5.6 million, or 38%, was primarily due to an increase in research
and development activities associated with on-going development of our RIO
system and applications, including our MAKOplasty THA application that we
commercially launched in September 2011, our RESTORIS family of implant systems, and
potential future products. Research and development expense for the year ended
December 31, 2011 was also impacted by $1.3 million of expense incurred under
the Strategic Alliance Agreement with Pipeline Biomedical Holding, LLC as
discussed in Item 8, Financial Statements and Supplementary Data, Note 7 to the
Financial Statements. 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.
Research
and development expense was $15.0 million for the year ended December 31,
2010, compared to $13.1 million for the year ended December 31, 2009. The
increase of $1.9 million, or 14%, was primarily due to an increase in research
and development activities associated with on-going development of our RIO
system, our RESTORIS family of implant systems and potential future products, including our MAKOplasty
THA application and associated implant
systems.
Depreciation and Amortization
Depreciation
and amortization expense was $4.3 million for the year ended December 31, 2011,
compared to $3.0 million for the year ended December 31, 2010. The increase of
$1.3 million, or 41%, was primarily due to an increase in depreciation of
property and equipment as a result of purchases made during 2011 and 2010 due
to the growth in our business and the expansion of our facilities in 2010 to
accommodate an increase in employees and operational activities necessary to
support such growth.
Depreciation
and amortization expense was $3.0 million for the year ended December 31, 2010,
compared to $2.0 million for the year ended December 31, 2009. The increase of
$1.0 million, or 56%, was primarily due to an increase in depreciation of
property and equipment as a result of purchases made during 2010 and 2009 due
to the growth in our business and the expansion of our facilities in 2010 to
accommodate an increase in employees necessary to support such growth.
Other Income, Net
Other
income, net was $245,000 for the year ended December 31, 2011, compared to
$317,000 for the year ended December 31, 2010. The decrease of $72,000, or 23%,
was primarily due to lower yields realized on our cash, cash equivalents and
investments compared with the same period of 2010, which is attributable to a
cash investment strategy that emphasizes the security of the principal invested
and fulfillment of liquidity needs, and to realized losses on foreign currency
transactions for the year ended December 31, 2011.
Other
income, net was $317,000 for the year ended December 31, 2010, compared to
$432,000 for the year ended December 31, 2009. The decrease of $115,000, or
27%, was primarily due to lower yields realized on our cash, cash equivalents
and investments for the year ended December 31, 2010 compared with the same
period of 2009 which is attributable to a cash investment strategy which
emphasizes the security of the principal invested and fulfillment of liquidity
needs.
Income Taxes
No federal
income taxes were recognized for the years ended December 31, 2011, 2010 or
2009, due to net operating losses in each period. State and local income taxes
for the years ended December 31, 2011, 2010
79
Table of Contents
and 2009 were $105,000, $68,000 and $56,000, respectively. Income taxes
recognized to date have not been significant due to net operating losses we
have incurred in each period since our inception. In addition, no deferred
income taxes were recorded for the years ended December 31, 2011, 2010 or 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
Change
|
|
% of
Change
|
|
2010
|
|
2009
|
|
Change
|
|
% of
Change
|
|
Cash and cash
equivalents
|
|
$
|
13,438
|
|
$
|
27,108
|
|
$
|
(13,670
|
)
|
|
(50
|
%)
|
$
|
27,108
|
|
$
|
17,159
|
|
$
|
9,949
|
|
|
58
|
%
|
Short-term
investments
|
|
|
36,354
|
|
|
46,401
|
|
|
(10,047
|
)
|
|
(22
|
%)
|
|
46,401
|
|
|
44,686
|
|
|
1,715
|
|
|
4
|
%
|
Long-term
investments
|
|
|
8,902
|
|
|
23,283
|
|
|
(14,381
|
)
|
|
(62
|
%)
|
|
23,283
|
|
|
9,368
|
|
|
13,915
|
|
|
149
|
%
|
Total cash, cash
equivalents, and investments
|
|
$
|
58,694
|
|
$
|
96,792
|
|
$
|
(38,098
|
)
|
|
(39
|
%)
|
$
|
96,792
|
|
$
|
71,213
|
|
$
|
25,579
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in
operating activities
|
|
$
|
(27,303
|
)
|
$
|
(30,292
|
)
|
$
|
2,989
|
|
|
(10
|
%)
|
$
|
(30,292
|
)
|
$
|
(45,572
|
)
|
$
|
15,280
|
|
|
(34
|
%)
|
Cash provided by
(used in) investing activities
|
|
|
10,584
|
|
|
(20,076
|
)
|
|
30,660
|
|
|
(153
|
%)
|
|
(20,076
|
)
|
|
(54,180
|
)
|
|
34,104
|
|
|
(63
|
%)
|
Cash provided by
financing activities
|
|
|
3,049
|
|
|
60,317
|
|
|
(57,268
|
)
|
|
(95
|
%)
|
|
60,317
|
|
|
54,364
|
|
|
5,953
|
|
|
11
|
%
|
Net increase
(decrease) in cash and cash equivalents
|
|
$
|
(13,670
|
)
|
$
|
9,949
|
|
$
|
(23,619
|
)
|
|
(237
|
%)
|
$
|
9,949
|
|
$
|
(45,388
|
)
|
$
|
55,337
|
|
|
(122
|
%)
|
We
have incurred net losses and negative cash flow from operating activities for
each period since our inception in November 2004. As of December 31, 2011, we
had an accumulated deficit of $189.0 million and have financed our
operations principally through the sale of our equity securities.
As
of December 31, 2011, we had $58.7 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
and certificates of deposit.
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 and
stock-based compensation. Net cash used in operating activities was also
reduced in 2011 by the recognition of research and development expense
associated with stock issued under the Strategic Alliance Agreement with
Pipeline Biomedical Holding, LLC. 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 year ended December 31,
2011 are $11.6 million of increases to inventory necessitated by increased
sales of RIO systems and implants and disposable products and the commercial
launch of our MAKOplasty THA application in September 2011 and $9.4 million of
increases to accounts receivable due to increased sales in the fourth quarter
of 2011 compared with the same period
of 2010. This was partially offset by $2.7 million of increases to
accounts payable and $5.6 million of increases to other accrued liabilities.
For the year ended December 31, 2010, inventory write-downs of $1.7 million and
property and equipment write-downs of $1.2 million were incurred primarily due
to the write-off of excess RESTORIS Classic implants and instrumentation necessitated by the rapid adoption of the
RESTORIS MCK implant system. Included in changes in operating assets and
liabilities for the year ended December 31, 2010 are approximately $6.1 million
of increases to inventory necessitated by increased sales of implants and
disposable products to support the growth of MAKOplasty PKA and preparation for
the anticipated launch of our MAKOplasty THA application, $5.0 million of
increases to accounts receivable due to increased sales in 2010, which was
partially offset by $4.0 million of increases to other accrued liabilities and
accrued compensation and employee benefits.
Net Cash Provided by (Used in) Investing Activities
Net
cash provided by investing activities for the year ended December 31, 2011 was
primarily attributable to proceeds of $57.3 million from sales and maturities
of investments, which was partially offset by the purchase of investments of
$33.1 million and purchases of property and equipment of $12.3 million due to
the growth in
80
Table of Contents
our business,
the expansion of our facilities and instrumentation required for the commercial
launch of the MAKOplasty THA application in September 2011. Net cash used in
investing activities for the year ended December 31, 2010 was primarily
attributable to the purchase of investments of $65.8 million and purchases of
property and equipment of $2.6 million, which was partially offset by proceeds
of $49.7 million from sales and maturities of investments. Purchases of
investments in 2010 were primarily driven by net proceeds of $59.3 million
received in a public offering of our common stock in November 2010.
Net Cash Provided by
Financing Activities
Net
cash provided by our financing activities for the year ended December 31, 2011
was primarily attributable to proceeds received under our employee stock
purchase plan of $1.2 million and to proceeds received on the exercise of stock
options and warrants of $2.9 million. Net cash provided by our financing
activities for the year ended December 31, 2010 was primarily attributable to
net proceeds of $59.3 million received in a public offering of our common stock
in November 2010.
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 years as we expand
our sales and marketing capabilities in the orthopedic products market,
continue to commercialize our RIO system and MAKOplasty applications, including
our MAKOplasty THA application that we commercially launched in September 2011,
and our implant systems, continue research and development of existing and
future products, and continue development of the corporate infrastructure
required to sell and market our products and support operations. We also expect
to experience increased cash requirements for inventory and property and
equipment in conjunction with the continued commercialization of our RIO system
and implant systems, and introducing other potential future applications.
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 or
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 ability to issue
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:
|
|
|
|
|
the revenue
generated by sales of our current and future products;
|
|
|
|
|
|
the expenses
we incur in selling and marketing our products and supporting our growth;
|
|
|
|
|
|
the costs
and timing of regulatory clearance or approvals for new products or upgrades
or changes to our products;
|
81
Table of Contents
|
|
|
|
|
the expenses
we incur in complying with domestic or foreign regulatory requirements
imposed on medical device companies;
|
|
|
|
|
|
the rate of
progress, cost and success or failure of on-going development activities;
|
|
|
|
|
|
the
emergence of competing or complementary technological developments;
|
|
|
|
|
|
the costs of
filing, prosecuting, defending and enforcing any patent or license claims and
other intellectual property rights, or participating in litigation related
activities;
|
|
|
|
|
|
the terms
and timing of any collaborative, licensing, or other arrangements that we may
establish;
|
|
|
|
|
|
the future
unknown impact of recently enacted healthcare legislation;
|
|
|
|
|
|
the
acquisition of businesses, products and technologies; and
|
|
|
|
|
|
general
economic conditions and interest rates.
|
Contractual
Obligations
The
following table summarizes our outstanding contractual obligations as of December 31,
2011 and the effect those obligations are expected to have on our liquidity and
cash flows in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Payment
Due by Period
|
|
|
|
|
|
|
December
31,
|
|
After
2016
|
|
|
|
Total
|
|
2012
|
|
2013-2014
|
|
2015-2016
|
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum royalty payments
licenses
|
|
$
|
13,154
|
|
$
|
1,994
|
|
$
|
4,177
|
|
$
|
3,532
|
|
$
|
3,451
|
|
Operating lease real
estate
|
|
|
5,533
|
|
|
337
|
|
|
856
|
|
|
1,330
|
|
|
3,010
|
|
Purchase commitments and
obligations
|
|
|
15,697
|
|
|
15,697
|
|
|
―
|
|
|
―
|
|
|
―
|
|
Research and license agreement obligations
|
|
|
4,685
|
|
|
2,390
|
|
|
1,497
|
|
|
226
|
|
|
572
|
|
Total
|
|
$
|
39,069
|
|
$
|
20,418
|
|
$
|
6,530
|
|
$
|
5,088
|
|
$
|
7,033
|
|
Our
commitments for minimum royalty payments relate to payments under various
licenses and sublicenses as discussed in Item 8, Financial Statements and
Supplementary Data, Note 7 to the Financial Statements. Our commitments for
operating leases relate to the lease for our headquarters in Fort Lauderdale,
Florida. Our commitments for purchase commitments and obligations include an
estimate of open purchase orders and contractual obligations in the ordinary
course of business, including commitments with contract manufacturers and suppliers,
for which we have not received the goods or services. Our commitments for
research and license agreement obligations relate to payments under contractual
agreements for sponsored research and license fees.
Off-Balance Sheet Arrangements
We
do not have any off-balance sheet arrangements.
|
|
I
TEM 7A.
|
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 and certificates of deposit. 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.
82
Table of Contents
|
|
I
TEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
MAKO SURGICAL CORP.
Index to the Financial Statements
83
Table of Contents
R
EPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of
Directors and Stockholders
MAKO Surgical Corp.
We have audited the accompanying balance sheets of MAKO Surgical Corp.
as of December 31, 2011 and 2010, and the related statements of operations,
comprehensive loss, stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2011. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of MAKO Surgical Corp.
at December 31, 2011 and 2010, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2011, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), MAKO Surgical Corp.s
internal control over financial reporting as of December 31, 2011, based on
criteria established in
Internal ControlIntegrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 8, 2012 expressed an unqualified opinion thereon.
|
|
|
/s/ Ernst & Young LLP
|
|
Certified Public Accountants
|
Boca Raton,
Florida
|
|
March 8,
2012
|
|
84
Table of Contents
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Board of
Directors and Stockholders
MAKO Surgical Corp.
We have
audited MAKO Surgical Corp.s internal control over financial reporting as of
December 31, 2011, based on criteria established in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). MAKO Surgical Corp.s management is responsible for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based on our audit.
We conducted
our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the companys assets that could have a material effect on the financial
statements.
Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our
opinion, MAKO Surgical Corp. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2011, based on the
COSO criteria.
We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the balance sheets of MAKO Surgical Corp. as
of December 31, 2011 and 2010, and the related statements of operations,
comprehensive loss, stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2011 of MAKO Surgical Corp. and our
report dated March 8, 2012 expressed an unqualified opinion thereon.
|
|
|
/s/ Ernst & Young LLP
|
|
Certified Public Accountants
|
Boca Raton,
Florida
|
|
March 8,
2012
|
|
85
Table of Contents
MAKO SURGICAL CORP.
B
alance Sheets
(in thousands,
except share and per share data)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2011
|
|
2010
|
|
ASSETS
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,438
|
|
$
|
27,108
|
|
Short-term investments
|
|
|
36,354
|
|
|
46,401
|
|
Accounts receivable, net of allowances of $158 and $0, at December 31,
2011 and 2010, respectively
|
|
|
20,783
|
|
|
11,560
|
|
Inventory
|
|
|
19,529
|
|
|
10,504
|
|
Deferred cost of revenue
|
|
|
160
|
|
|
―
|
|
Prepaid and other current assets
|
|
|
1,800
|
|
|
1,283
|
|
Total current assets
|
|
|
92,064
|
|
|
96,856
|
|
Long-term investments
|
|
|
8,902
|
|
|
23,283
|
|
Property and equipment, net
|
|
|
19,389
|
|
|
9,212
|
|
Intangible assets, net
|
|
|
7,284
|
|
|
7,530
|
|
Other assets
|
|
|
132
|
|
|
198
|
|
Total assets
|
|
$
|
127,771
|
|
$
|
137,079
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,231
|
|
$
|
1,518
|
|
Accrued compensation and employee benefits
|
|
|
7,579
|
|
|
5,546
|
|
Other accrued liabilities
|
|
|
10,622
|
|
|
5,064
|
|
Deferred revenue
|
|
|
4,826
|
|
|
3,071
|
|
Total current liabilities
|
|
|
27,258
|
|
|
15,199
|
|
|
|
|
|
|
|
|
|
Deferred revenue,
non-current
|
|
|
75
|
|
|
109
|
|
Total liabilities
|
|
|
27,333
|
|
|
15,308
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies (Note 7)
|
|
|
―
|
|
|
―
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 27,000,000 authorized; 0 shares
issued and outstanding as of December 31, 2011 and 2010
|
|
|
―
|
|
|
―
|
|
Common stock, $0.001 par value; 135,000,000 authorized; 41,439,057 and
39,945,467 shares issued and outstanding as of December 31, 2011 and 2010,
respectively
|
|
|
41
|
|
|
40
|
|
Additional paid-in capital
|
|
|
289,352
|
|
|
274,712
|
|
Accumulated deficit
|
|
|
(189,025
|
)
|
|
(152,882
|
)
|
Accumulated other comprehensive gain (loss)
|
|
|
70
|
|
|
(99
|
)
|
Total stockholders equity
|
|
|
100,438
|
|
|
121,771
|
|
Total liabilities and stockholders equity
|
|
$
|
127,771
|
|
$
|
137,079
|
|
See accompanying notes.
86
Table of Contents
MAKO SURGICAL CORP.
S
tatements of
Operations
(in thousands,
except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Procedures
|
|
$
|
34,638
|
|
$
|
17,620
|
|
$
|
7,550
|
|
Systems RIO
|
|
|
43,927
|
|
|
24,928
|
|
|
14,715
|
|
Systems TGS, previously deferred
|
|
|
―
|
|
|
―
|
|
|
11,297
|
|
Service
|
|
|
5,942
|
|
|
1,748
|
|
|
646
|
|
Total
revenue
|
|
|
84,507
|
|
|
44,296
|
|
|
34,208
|
|
Cost of
revenue:
|
|
|
|
|
|
|
|
|
|
|
Procedures
|
|
|
8,793
|
|
|
5,960
|
|
|
3,087
|
|
Systems RIO
|
|
|
16,695
|
|
|
11,171
|
|
|
9,032
|
|
Systems RIO upgrades
|
|
|
―
|
|
|
―
|
|
|
5,183
|
|
Systems TGS, previously deferred
|
|
|
―
|
|
|
―
|
|
|
3,606
|
|
Service
|
|
|
1,395
|
|
|
1,042
|
|
|
546
|
|
Total cost
of revenue
|
|
|
26,883
|
|
|
18,173
|
|
|
21,454
|
|
Gross profit
|
|
|
57,624
|
|
|
26,123
|
|
|
12,754
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
69,024
|
|
|
47,041
|
|
|
32,072
|
|
Research and development
|
|
|
20,592
|
|
|
14,975
|
|
|
13,127
|
|
Depreciation and amortization
|
|
|
4,291
|
|
|
3,043
|
|
|
1,951
|
|
Total
operating costs and expenses
|
|
|
93,907
|
|
|
65,059
|
|
|
47,150
|
|
Loss from
operations
|
|
|
(36,283
|
)
|
|
(38,936
|
)
|
|
(34,396
|
)
|
Other
income, net
|
|
|
245
|
|
|
317
|
|
|
429
|
|
Loss before
income taxes
|
|
|
(36,038
|
)
|
|
(38,619
|
)
|
|
(33,967
|
)
|
Income tax
expense
|
|
|
105
|
|
|
68
|
|
|
56
|
|
Net loss
|
|
$
|
(36,143
|
)
|
$
|
(38,687
|
)
|
$
|
(34,023
|
)
|
Net loss per
share Basic and diluted
|
|
$
|
(0.89
|
)
|
$
|
(1.13
|
)
|
$
|
(1.22
|
)
|
Weighted
average common shares outstanding Basic and diluted
|
|
|
40,752
|
|
|
34,349
|
|
|
27,806
|
|
See accompanying notes.
87
Table of Contents
MAKO SURGICAL CORP.
S
tatements of
Comprehensive Loss
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
Net loss
|
|
$
|
(36,143
|
)
|
$
|
(38,687
|
)
|
$
|
(34,023
|
)
|
Other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities
|
|
|
169
|
|
|
(78
|
)
|
|
(75
|
)
|
Comprehensive loss
|
|
$
|
(35,974
|
)
|
$
|
(38,765
|
)
|
$
|
(34,098
|
)
|
See accompanying notes.
88
Table of Contents
MAKO SURGICAL CORP.
S
tatements of
Stockholders Equity
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
Stock
Amount
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Other
Comprehensive
Income (Loss)
|
|
Total
Stockholders
Equity (Deficit)
|
|
Balance at December 31, 2008
|
|
|
24,685
|
|
$
|
25
|
|
$
|
146,607
|
|
$
|
(80,172
|
)
|
$
|
54
|
|
$
|
66,514
|
|
Issuance of common stock in equity financing
|
|
|
8,050
|
|
|
8
|
|
|
54,300
|
|
|
|
|
|
|
|
|
54,308
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
72
|
|
|
|
|
|
455
|
|
|
|
|
|
|
|
|
455
|
|
Issuance of common stock upon exercise of options and warrants
|
|
|
140
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
|
149
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
3,032
|
|
|
|
|
|
|
|
|
3,032
|
|
Restricted common stock compensation expense
|
|
|
145
|
|
|
|
|
|
982
|
|
|
|
|
|
|
|
|
982
|
|
Receipt of shares delivered in payment of payroll taxes
|
|
|
(56
|
)
|
|
|
|
|
(492
|
)
|
|
|
|
|
|
|
|
(492
|
)
|
Equity financing costs
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
(56
|
)
|
Change in unrealized gain (loss) on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75
|
)
|
|
(75
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
(34,023
|
)
|
|
|
|
|
(34,023
|
)
|
Balance at December 31, 2009
|
|
|
33,036
|
|
|
33
|
|
|
204,977
|
|
|
(114,195
|
)
|
|
(21
|
)
|
|
90,794
|
|
Issuance of common stock in equity financing
|
|
|
6,325
|
|
|
6
|
|
|
59,277
|
|
|
|
|
|
|
|
|
59,283
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
86
|
|
|
|
|
|
765
|
|
|
|
|
|
|
|
|
765
|
|
Issuance of common stock upon exercise of options and warrants
|
|
|
199
|
|
|
|
|
|
611
|
|
|
|
|
|
|
|
|
611
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
5,027
|
|
|
|
|
|
|
|
|
5,027
|
|
Restricted common stock compensation expense
|
|
|
97
|
|
|
|
|
|
1,344
|
|
|
|
|
|
|
|
|
1,344
|
|
Receipt of shares delivered in payment of payroll taxes
|
|
|
(28
|
)
|
|
|
|
|
(342
|
)
|
|
|
|
|
|
|
|
(342
|
)
|
Issuance of stock to a related party for intangible assets
|
|
|
230
|
|
|
1
|
|
|
3,053
|
|
|
|
|
|
|
|
|
3,054
|
|
Change in unrealized loss on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78
|
)
|
|
(78
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
(38,687
|
)
|
|
|
|
|
(38,687
|
)
|
Balance at December 31, 2010
|
|
|
39,945
|
|
$
|
40
|
|
$
|
274,712
|
|
$
|
(152,882
|
)
|
$
|
(99
|
)
|
$
|
121,771
|
|
(continued)
See accompanying notes.
89
Table of Contents
MAKO SURGICAL CORP.
Statements of Stockholders Equity
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
Stock
Amount
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Other
Comprehensive
Income (Loss)
|
|
Total
Stockholders
Equity (Deficit)
|
|
Balance at December 31, 2010
|
|
|
39,945
|
|
$
|
40
|
|
$
|
274,712
|
|
$
|
(152,882
|
)
|
$
|
(99
|
)
|
$
|
121,771
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
77
|
|
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
1,168
|
|
Issuance of common stock upon exercise of options and warrants
|
|
|
1,126
|
|
|
1
|
|
|
2,931
|
|
|
|
|
|
|
|
|
2,932
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
7,959
|
|
|
|
|
|
|
|
|
7,959
|
|
Restricted common stock compensation expense
|
|
|
131
|
|
|
|
|
|
1,942
|
|
|
|
|
|
|
|
|
1,942
|
|
Receipt of shares delivered in payment of payroll taxes
|
|
|
(43
|
)
|
|
|
|
|
(1,051
|
)
|
|
|
|
|
|
|
|
(1,051
|
)
|
Issuance of restricted stock under development agreement (Note 7)
|
|
|
203
|
|
|
|
|
|
1,691
|
|
|
|
|
|
|
|
|
1,691
|
|
Change in unrealized gain (loss) on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
169
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
(36,143
|
)
|
|
|
|
|
(36,143
|
)
|
Balance at December 31, 2011
|
|
|
41,439
|
|
$
|
41
|
|
$
|
289,352
|
|
$
|
(189,025
|
)
|
$
|
70
|
|
$
|
100,438
|
|
See accompanying notes.
90
Table of Contents
MAKO SURGICAL CORP.
S
tatements of
Cash Flows
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(36,143
|
)
|
$
|
(38,687
|
)
|
$
|
(34,023
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,352
|
|
|
2,445
|
|
|
1,769
|
|
Amortization of intangible assets
|
|
|
1,446
|
|
|
1,070
|
|
|
682
|
|
Stock-based compensation
|
|
|
9,901
|
|
|
6,371
|
|
|
4,014
|
|
Inventory write-down
|
|
|
256
|
|
|
1,701
|
|
|
1,081
|
|
Amortization of premium on investment securities
|
|
|
476
|
|
|
480
|
|
|
188
|
|
Loss on asset impairment
|
|
|
146
|
|
|
1,248
|
|
|
51
|
|
Provision for doubtful accounts
|
|
|
158
|
|
|
―
|
|
|
―
|
|
Issuance of restricted stock under development agreement (Note 7)
|
|
|
1,691
|
|
|
―
|
|
|
―
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(9,381
|
)
|
|
(5,024
|
)
|
|
(3,809
|
)
|
Inventory
|
|
|
(11,619
|
)
|
|
(6,087
|
)
|
|
(7,358
|
)
|
Deferred cost of revenue
|
|
|
(160
|
)
|
|
―
|
|
|
3,608
|
|
Prepaid and other current assets
|
|
|
(517
|
)
|
|
(751
|
)
|
|
(49
|
)
|
Other assets
|
|
|
66
|
|
|
(57
|
)
|
|
(16
|
)
|
Accounts payable
|
|
|
2,713
|
|
|
359
|
|
|
(650
|
)
|
Accrued compensation and employee benefits
|
|
|
2,033
|
|
|
1,837
|
|
|
1,371
|
|
Other accrued liabilities
|
|
|
5,558
|
|
|
2,192
|
|
|
(1,411
|
)
|
Deferred revenue
|
|
|
1,721
|
|
|
2,611
|
|
|
(11,020
|
)
|
Net cash used in operating activities
|
|
|
(27,303
|
)
|
|
(30,292
|
)
|
|
(45,572
|
)
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase of investments
|
|
|
(33,131
|
)
|
|
(65,828
|
)
|
|
(59,961
|
)
|
Proceeds from sales and maturities of investments
|
|
|
57,252
|
|
|
49,692
|
|
|
6,721
|
|
Acquisition of property and equipment
|
|
|
(12,337
|
)
|
|
(2,628
|
)
|
|
(790
|
)
|
Acquisition of intangible assets
|
|
|
(1,200
|
)
|
|
(1,312
|
)
|
|
(150
|
)
|
Net cash provided by (used in) investing activities
|
|
|
10,584
|
|
|
(20,076
|
)
|
|
(54,180
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock in equity financing, net of
underwriting fees
|
|
|
―
|
|
|
59,708
|
|
|
54,861
|
|
Equity financing costs
|
|
|
―
|
|
|
(425
|
)
|
|
(609
|
)
|
Proceeds from employee stock purchase plan
|
|
|
1,168
|
|
|
765
|
|
|
455
|
|
Exercise of common stock options and warrants for cash
|
|
|
2,932
|
|
|
611
|
|
|
149
|
|
Payment of payroll taxes relating to vesting of restricted stock
|
|
|
(1,051
|
)
|
|
(342
|
)
|
|
(492
|
)
|
Net cash provided by financing activities
|
|
|
3,049
|
|
|
60,317
|
|
|
54,364
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(13,670
|
)
|
|
9,949
|
|
|
(45,388
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
27,108
|
|
|
17,159
|
|
|
62,547
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
13,438
|
|
$
|
27,108
|
|
$
|
17,159
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Receipt of 43,058, 28,307 and 56,045 shares of common stock delivered
in payment of payroll taxes for the years ended December 31, 2011, 2010 and
2009, respectively
|
|
$
|
1,051
|
|
$
|
342
|
|
$
|
492
|
|
Transfers of inventory to property and equipment
|
|
|
2,338
|
|
|
2,259
|
|
|
3,760
|
|
Issuance of restricted stock under development agreement (Note 7)
|
|
|
1,691
|
|
|
―
|
|
|
―
|
|
Issuance of stock to a related party for intangible assets
|
|
|
―
|
|
|
3,054
|
|
|
―
|
|
See accompanying notes.
91
Table of Contents
MAKO SURGICAL CORP.
N
otes to
Financial Statements
1. Organization and Basis of Presentation
MAKO
Surgical Corp. (the Company or MAKO) is an emerging medical device company
that markets its advanced robotic arm solution and orthopedic implants for
orthopedic procedures called MAKOplasty®. The Company was incorporated in
the State of Delaware on November 12, 2004 and is headquartered in
Fort Lauderdale, Florida. The Companys common stock trades on The NASDAQ
Global Select Market under the ticker symbol MAKO.
Basis
of Presentation and Use of Estimates
The
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. The accounting estimates that require managements most
significant, difficult and subjective judgments include revenue recognition,
allowance for doubtful accounts, inventory valuation, valuation allowance for
deferred income tax assets, impairment of long-lived assets and the
determination of stock-based compensation. Actual results could differ
significantly from these estimates.
Liquidity
and Operations
In
executing its current business plan, the Company believes its existing cash,
cash equivalents and investment balances will be sufficient to meet its
anticipated cash requirements for at least the next twelve months. To the
extent the Companys 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 or convertible debt
securities may result in dilution to the Companys 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 Companys operations and ability to
issue 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, investments, and
accounts receivable. The Companys cash and cash equivalents are held in demand
and money market accounts at four large financial institutions. The Companys
investments are held in a variety of interest bearing instruments, including
notes and bonds from U.S. government agencies and certificates of deposit 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.
The
Company may perform credit evaluations of its customers financial condition
and, generally, requires no collateral from its customers. The Company provides
an allowance for doubtful accounts when collections become doubtful but has not
experienced any significant credit losses to date.
92
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 new and established domestic and foreign 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 Companys 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 Companys 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 expects to derive most of its revenue from capital sales of its RIO®
Robotic Arm Interactive Orthopedic (RIO) system, current and future
MAKOplasty applications to the RIO system, recurring sales of implants and
disposable products required for each MAKOplasty procedure, and service plans
that are sold with the RIO system. If the Company is unable to achieve broad
commercial acceptance of MAKOplasty or obtain regulatory clearances or
approvals for future products, including other orthopedic products, its revenue
would be adversely affected and the Company would not become profitable.
The
Companys current versions of its RIO system, its MAKOplasty partial knee and
total hip arthroplasty applications, and its RESTORIS® MCK multicompartmental
knee implant systems and RESTORIS total hip implant systems 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 Companys products will receive the necessary
clearances or approvals. If the Company were to be denied any such clearance or
approval or such clearance or approval were delayed, it could have a material
adverse impact on the Company.
Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
280,
Segment
Reporting
, establishes standards for reporting information about
operating segments. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance. The
Companys chief operating decision maker is its CEO. The Companys CEO reviews
financial information presented on an aggregate basis for purposes of
allocating resources and evaluating financial performance. The Company has one
business activity and there are no segment managers who are held accountable
for operations, operating results and plans for products or components below
the aggregate Company level. Accordingly, the Company reports as a single
operating segment. No single hospital customer accounted for more than 10% of
the Companys total revenue for the years ended December 31, 2011, 2010 and
2009. During the years ended December 31, 2011, 2010 and 2009, domestic revenue
accounted for 96% or greater of total revenue, while international revenue
accounted for 4% or less of total revenue, for each of the years.
2. Summary of Significant Accounting Policies
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity at
date of purchase of 90 days or less to be cash equivalents.
Fair
Value of Financial Instruments
Carrying
amounts of certain of the Companys 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.
93
Table of Contents
Allowance
for Doubtful Accounts
The
Company regularly reviews customer balances by considering factors such as
historical experience, credit quality, the age of the accounts receivable
balances and current economic conditions that may affect a customers ability
to pay. The Company provides an allowance for doubtful accounts when
collections become doubtful but has not experienced any significant credit
losses to date.
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.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation
of property and equipment is computed using the straight-line method over their
estimated useful lives of three to seven years. Leasehold improvements are
amortized on a straight-line basis over the lesser of their useful life or the
term of the lease and are included in depreciation expense in the accompanying
statements of operations. Upon retirement or sale, the cost and related
accumulated depreciation are removed from the balance sheet and the resulting
gain or loss is reflected in operations. Maintenance and repairs are charged to
operations as incurred.
The
Company loans instrumentation to its customers, who use the instrumentation 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 Companys implants (Implant Instruments). Implant
Instruments loaned to customers are not part of the tangible product sold and
title of Implant Instruments remains with the Company. Accordingly, Implant
Instruments are classified as a long-lived asset and included as a component of
property and equipment. Undeployed Implant Instruments are carried at cost, net
of allowances for excess and obsolete instruments. Implant Instruments in the
field are carried at cost less accumulated depreciation. Depreciation is
computed using the straight-line method based on an 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. To better reflect the economics of the Implant Instruments
and enhance comparability with other companies in our industry, depreciation
expense on Implant Instruments has been reclassified from cost of revenue
procedures to selling, general and administrative expense beginning in the
first quarter of 2010. Depreciation expense for implant instruments was $1.1
million, $464,000 and $250,000 for the years ended December 31, 2011, 2010 and
2009, respectively.
The
Company also enters into RIO system consignment arrangements for clinical
evaluation or clinical research purposes with terms ranging from sixty days to
three years. Under the terms of such arrangements, the Company installs a RIO
system at the evaluation or research site and retains title to the RIO system,
while the evaluation or research site has use of the RIO system and purchases
the Companys implants and disposables products. Depreciation expense on consigned
RIO systems and instruments is classified in selling, general and
administrative expense and is computed using the straight-line method based on
the estimated useful life of three years. As of December 31, 2011, the Company
had one consigned RIO system, which is being utilized for clinical research
purposes.
Service
and demonstration RIO systems and instruments consist of RIO systems,
associated instrumentation, service tools and equipment, and MAKOplasty
procedure models used for sales demonstrations, surgeon training, and temporary
RIO system placements at customer sites under warranty and extended warranty
agreements. Service and demonstration RIO systems and instruments are
classified as a long-lived asset and
94
Table of Contents
included as a
component of property and equipment. Depreciation expense on service and
demonstration RIO systems and instruments is classified in selling, general and
administrative expense and is computed using the straight-line method based on
an estimated useful life of three years.
Intangible
Assets
The
Companys 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 3 to
13 years based on the respective anticipated lives of the underlying patents
and patent applications.
Impairment
of Long-Lived Assets
The
Company evaluates its long-lived assets for indicators of impairment by
comparison of the carrying amounts to future net undiscounted cash flows
expected to be generated by such assets when events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Should an
impairment exist, the impairment loss would be measured based on the excess
carrying value of the asset over the assets fair value or estimated discounted
future cash flows.
Revenue
Recognition
Revenue
is generated: from (1) unit sales of the Companys RIO system and MAKOplasty
applications (collectively, the RIO system), including associated
instrumentation, installation services and training; (2) sales of implants and
disposable products utilized in MAKOplasty procedures; and (3) sales of
warranty and maintenance services. The Company recognizes revenue in accordance
with ASC 605-10,
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.
The
Companys multiple-element arrangements are generally comprised of the following
elements that qualify as separate units of accounting: (1) RIO system sales;
(2) sales of implants and disposable products; and (3) warranty and maintenance
services on the RIO system hardware. The Companys revenue recognition policies
generally result in revenue recognition at the following points:
|
|
|
|
1.
|
RIO system
sales: Revenues related to RIO system sales are recognized upon installation
of the system, training of at least one surgeon, which typically occurs prior
to or concurrent with the RIO system installation, and customer acceptance,
if required.
|
|
|
|
|
2.
|
Procedure
revenue: Revenues from the sale of implants and disposable products utilized
in MAKOplasty procedures are recognized at the time of sale (i.e., at the
time of the related surgical procedure).
|
|
|
|
|
3.
|
Service
revenue: Revenues from warranty and maintenance services, including extended
warranty services, on the RIO system hardware are deferred and recognized
ratably over the service period until no further obligation exists. Sales of
the Companys RIO system generally include a one-year warranty and
maintenance obligation for services. Costs associated with providing warranty
and maintenance services are expensed to cost of revenue as incurred.
|
Provisions
for discounts and rebates to customers are established as a reduction to
revenue in the same period as the related sales are recorded.
A
portion of the Companys end-user customers acquire the RIO system through
a leasing arrangement with qualified third-party leasing companies. In these
instances, the Company sells the RIO system to the third-party leasing company,
and the end-user customer enters into an independent leasing arrangement with
the third-
95
Table of Contents
party leasing
company. The Company recognizes RIO system revenue for a RIO system sale to a
third-party leasing company on the same basis as a RIO system sale directly to
an end-user customer. The Company sells implants and disposable products
utilized in MAKOplasty procedures directly to end-user customers under a
separate agreement.
The
Companys domestic sales contracts generally do not provide the customer with a
right of return. If such a right is provided, all related revenues would be
deferred until such right expires or is waived. In a limited number of RIO
system sales, the Companys agreement with the customer provides for a customer
acceptance period, which typically does not exceed three months, following
which the customer may either accept or return the RIO system. No system
revenue is recognized for these RIO system sales until the customer has
unconditionally accepted the RIO system.
Sales
of implants and disposable products to independent international distributors
generally provide for a right of return. Accordingly, no revenue is recognized
for these sales until the right of return expires or is waived. Sales of the
Companys RIO system to international distributors generally do not provide the
distributor with a right of return. If such a right is provided, all related revenues
would be deferred until such right expires or is waived. The one-year warranty
for RIO system sales to international distributors is limited to replacing
parts within the warranty period and does not provide for maintenance services.
The Company accrues for the estimated costs of providing the one-year warranty
for RIO system sales to international distributors upon installation as a
component of cost of revenue - systems in the statements of operations.
The
Companys RIO system includes software that is essential to the functionality
of the product. Since the RIO systems software and non-software components
function together to deliver the RIO systems essential functionality, they are
considered one deliverable that is excluded from the software revenue
recognition guidance.
The
Company allocates arrangement consideration to the RIO systems and associated
instrumentation, its implants and disposables and its warranty and maintenance
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 (ESP).
The
Company allocates arrangement consideration using ESP for its RIO system, ESP
for its implants and disposables and VSOE of fair value for its warranty and
maintenance services. VSOE of fair value is based on the price charged when the
element is sold separately. ESP is established by determining the price at
which the Company would transact a sale if the product was sold on a
stand-alone basis. The Company determines ESP for its products by considering
multiple factors including, but not limited to, geographies, type of customer,
and market conditions. The Company regularly reviews ESP and maintains internal
controls over the establishment and updates of these estimates.
Subsequent
to December 31, 2008, the Company no longer manufactures its Tactile Guidance
System (TGS), 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 generally recognized upon installation of the system and
training of at least one surgeon.
96
Table of Contents
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 the Companys statement of operations during the
year ended December 31, 2009, upon delivery of the RIO system. As of December
31, 2011, the deferred revenue balance consists primarily of deferred service
revenue as discussed below.
Costs
associated with establishing an accrual for 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.
Deferred
Revenue and Deferred Cost of Revenue
Deferred
revenue consists of deferred service revenue, deferred system revenue and
deferred procedure revenue. Deferred service revenue results from the advance
payment for services to be delivered over a period of time, usually in one-year
increments. Deferred system revenue arises from timing differences between the
installation of RIO systems and satisfaction of all revenue recognition
criteria consistent with the Companys revenue recognition policy. Deferred
procedure revenue arises from sales to independent international distributors
which provide for a right of return. No revenue is recognized for these sales
until the right of return expires or is waived. Deferred revenue expected to be
realized within one year is classified as a current liability. Deferred cost of
revenue consists of the direct costs associated with the manufacture of RIO
systems and implants and disposable products for which the revenue has been
deferred in accordance with the Companys revenue recognition policy. The
deferred revenue balance as of December 31, 2011 consisted primarily of
deferred service revenue for warranty and maintenance services on the RIO
system hardware.
Foreign
Currency Transactions
Gains
or losses from foreign currency transactions are included in other income, net.
To date, realized gains and losses recognized from foreign currency transactions
were not significant.
Research
and Development Costs
Costs
related to research, design and development of products are charged to research
and development expense as incurred. These costs include direct salary costs
for research and development personnel, costs for materials used in research
and development activities and costs for outside services.
Shipping
and Handling Costs
Costs
incurred for shipping and handling are included in cost of revenue at the time
the expense is incurred.
Software
Development Costs
Software
development costs are included in research and development and are expensed as
incurred. After technological feasibility is established, material software
development costs are capitalized. The capitalized cost is then amortized on a
straight-line basis over the estimated product life, or on the ratio of current
revenue to total projected product revenue, whichever is greater. To date, the
period between achieving technological feasibility, which the Company has
defined as the establishment of a working model which typically occurs when the
verification and validation testing is complete, and the general availability
of such software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs to date.
97
Table of Contents
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.
The
Company accounts for stock-based compensation arrangements with non-employees
in accordance with the ASC 505-50,
Equity-Based Payments to Non-Employees
. The Company records the expense of
such services based on the estimated fair value of the equity instrument using
the Black-Scholes pricing model. The value of the equity instrument is charged
to expense over the term of the service agreement.
See
Note 8 for a detailed discussion of the various stock option plans and
related stock-based compensation.
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs were approximately $2.4
million, $1.6 million and $1.3 million for the years ended December 31, 2011,
2010 and 2009, respectively.
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.
Operating
Leases
Rental
payments and incentives are recognized on a straight-line basis over the life
of a lease. See Note 7 for further discussion of operating leases.
98
Table of Contents
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)
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
Stock
options outstanding
|
|
|
4,753
|
|
|
4,405
|
|
|
3,478
|
|
Warrants to
purchase common stock
|
|
|
1,503
|
|
|
2,039
|
|
|
2,065
|
|
Unvested
restricted stock
|
|
|
469
|
|
|
503
|
|
|
222
|
|
Recent
Accounting Pronouncements
In
June 2011, the Financial Accounting Standards Board issued new accounting
guidance related to the presentation of comprehensive income that increases
comparability between U.S. generally accepted accounting principles and
International Financial Reporting Standards. This guidance will require
companies to present the components of net income and other comprehensive
income (OCI) either as one continuous statement or as two consecutive
statements, eliminating the option to present components of other comprehensive
income as part of the statement of changes in stockholders equity. This
guidance is effective for the Companys interim and annual periods beginning
January 1, 2012. The Company early adopted this guidance in 2011 and
reports OCI in a separate statement. The adoption did not have a material
impact on the Companys results of operations or financial position.
3. Investments
The
Companys 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, amortization of premium and discount
on investment securities and declines in value determined to be
other-than-temporary on available-for-sale securities are included in other
income, net. During the years ended December 31, 2011, 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.
99
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 December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Short-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
19,733
|
|
$
|
23
|
|
$
|
(3
|
)
|
$
|
19,753
|
|
Certificates of deposit
|
|
|
16,588
|
|
|
24
|
|
|
(11
|
)
|
|
16,601
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
|
3,761
|
|
|
21
|
|
|
―
|
|
|
3,782
|
|
Certificates of deposit
|
|
|
5,104
|
|
|
18
|
|
|
(2
|
)
|
|
5,120
|
|
Total
investments
|
|
$
|
45,186
|
|
$
|
86
|
|
$
|
(16
|
)
|
$
|
45,256
|
|
As
of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Short-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
34,483
|
|
$
|
4
|
|
$
|
(16
|
)
|
$
|
34,471
|
|
Certificates of deposit
|
|
|
10,453
|
|
|
1
|
|
|
(28
|
)
|
|
10,426
|
|
U.S. corporate debt
|
|
|
1,501
|
|
|
3
|
|
|
―
|
|
|
1,504
|
|
Long-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
|
17,251
|
|
|
2
|
|
|
(8
|
)
|
|
17,245
|
|
Certificates of deposit
|
|
|
6,095
|
|
|
―
|
|
|
(57
|
)
|
|
6,038
|
|
Total
investments
|
|
$
|
69,783
|
|
$
|
10
|
|
$
|
(109
|
)
|
$
|
69,684
|
|
As
of December 31, 2011 and December 31, 2010, all short-term investments had
maturity dates of less than one year. As of December 31, 2011 and December 31,
2010, all long-term investments had maturity dates between one and three years.
100
Table of Contents
The
fair values of the Companys investments based on the level of inputs are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Fair Value Measurements at the Reporting Date Using
|
|
|
|
December
31, 2011
|
|
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
|
|
$
|
19,753
|
|
$
|
756
|
|
$
|
18,997
|
|
$
|
―
|
|
Certificates of deposit
|
|
|
16,601
|
|
|
―
|
|
|
16,601
|
|
|
―
|
|
Long-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
|
3,782
|
|
|
1,522
|
|
|
2,260
|
|
|
―
|
|
Certificates of deposit
|
|
|
5,120
|
|
|
―
|
|
|
5,120
|
|
|
―
|
|
Total
investments
|
|
$
|
45,256
|
|
$
|
2,278
|
|
$
|
42,978
|
|
$
|
―
|
|
Level
2 securities are priced using quoted market prices for similar instruments or
discounted cash flow techniques. Prior to January 1, 2011, the Company
classified certain investments as Level 1 and, upon further review, has subsequently
determined to classify them as Level 2. In the first quarter of 2011, the
Company transferred $61.2 million of assets previously classified within Level
1 to Level 2. It was determined that the fair value of such investments is
based off Level 2 valuation techniques, and not identical assets in active
markets, as defined within Level 1 valuation techniques. This transfer had no
impact on the fair value of the Companys investments as stated in any of the
periods presented. No investments measured at fair value on a recurring basis
used Level 3 or significant unobservable inputs for the year ended December 31,
2011.
Carrying
amounts of certain of the Companys 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. Selected Balance Sheet Components
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31,
|
|
|
|
2011
|
|
2010
|
|
Inventory:
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
3,051
|
|
$
|
2,522
|
|
Work-in-process
|
|
|
866
|
|
|
972
|
|
Finished
goods
|
|
|
15,612
|
|
|
7,010
|
|
Total
inventory
|
|
$
|
19,529
|
|
$
|
10,504
|
|
The
Company incurred inventory write-offs totaling approximately $256,000 and $1.7
million during the years ended December 31, 2011 and 2010, respectively.
Inventory write-offs in 2010 primarily related to the write-off of excess
RESTORIS unicompartmental knee implant system implants necessitated by the
rapid adoption of the RESTORIS MCK multicompartmental knee implant system
(RESTORIS MCK) and the corresponding decline in the usage of RESTORIS
Classic.
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 Companys products and technical obsolescence,
additional future write-offs of the Companys inventory may occur.
101
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31,
|
|
Estimated
Useful Life
|
|
|
|
2011
|
|
2010
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
|
Consigned
instruments and RIO systems
|
|
$
|
8,200
|
|
$
|
3,287
|
|
|
3-5 years
|
|
Service and
demo RIO systems and instruments
|
|
|
5,587
|
|
|
4,029
|
|
|
3 years
|
|
Computer
equipment and software
|
|
|
4,775
|
|
|
2,960
|
|
|
3 years
|
|
Manufacturing
and laboratory equipment
|
|
|
2,657
|
|
|
1,945
|
|
|
3-5 years
|
|
Undeployed
implant instruments
|
|
|
4,525
|
|
|
1,226
|
|
|
See Note 2
|
|
Office
furniture and equipment
|
|
|
1,306
|
|
|
1,038
|
|
|
7 years
|
|
Leasehold
improvements
|
|
|
1,782
|
|
|
738
|
|
|
Lesser of 5-10 years or lease term
|
|
|
|
|
28,832
|
|
|
15,223
|
|
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(9,443
|
)
|
|
(6,011
|
)
|
|
|
|
Total
property and equipment, net
|
|
$
|
19,389
|
|
$
|
9,212
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31,
|
|
|
|
2011
|
|
2010
|
|
Other accrued liabilities:
|
|
|
|
|
|
|
|
Accrued
royalties
|
|
$
|
1,580
|
|
$
|
833
|
|
Accrued
consulting fees
|
|
|
548
|
|
|
792
|
|
Other
|
|
|
8,494
|
|
|
3,439
|
|
|
|
$
|
10,622
|
|
$
|
5,064
|
|
5. Related Party Transactions
Asset
Purchase Agreement
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 Companys prior licenses with Z-Kat, including
Z-Kats nonexclusive sublicense to the Companys 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. Certain of the Companys rights under the Asset Purchase 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 had
a material interest in Z-Kat by virtue of their ownership of Z-Kat stock. The
Company and Z-Kat are not entities under common control. The Asset Purchase
Agreement and License Agreement were approved by the independent members of the
board of directors and audit committee of the Company. The value of the
intellectual property acquired under the Asset Purchase Agreement of $3.1
million was based on the closing price per share of $13.25 of the Companys common
stock on February 25, 2010, the date the transaction was closed, and was
recorded as an intangible asset and is being amortized over its estimated
useful life of eight years.
102
Table of Contents
License
Agreement
In
August 2009, the Company entered into a License Agreement (the Sensor
Agreement) with a third-party sensor company associated with the potential
future development of intellectual property and technology related to sensing
devices in orthopedics. The Sensor Agreement required an initial payment of
$50,000 and required future payments in the event that the Company decided to
enter into a licensing and supply agreement with the third-party sensor company
following the end of the research and development period. In August 2010, the
Company exercised its option to enter into a non-exclusive license and supply
agreement for an upfront payment of $250,000 (the Non-Exclusive License
Payment). The Non-Exclusive License Payment was recorded as an intangible
asset and is being amortized over its estimated useful life of ten years. In
October 2010, the Company exercised its option to enter into an exclusive
license and supply agreement which required additional payments of $750,000
(the Exclusive License Payments). The Exclusive License Payments were
recorded as an intangible asset and are being amortized over the estimated
useful life of approximately five years. The Sensor Agreement was treated as a
related party transaction because certain directors of the Company had a
material interest in the third-party sensor company by virtue of their
ownership of the third-party sensor companys outstanding stock. The Company
and the third-party sensor company are not entities under common control.
6. Intangible Assets
The
Companys intangible assets are comprised of purchased patents, patent
applications and licenses to intellectual property rights (the Licenses). The
Licenses are amortized on a straight line basis over their estimated useful
lives which range from approximately 3 to 13 years. See Note 7 for
additional discussion of Licenses.
The
following tables present details of MAKOs intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(in thousands)
|
|
2011
|
|
2010
|
|
|
|
Amount
|
|
Weighted
Average
Amortization
Period
|
|
Amount
|
|
Weighted
Average
Amortization
Period
|
|
Licenses
|
|
$
|
9,080
|
|
|
8.6
|
|
$
|
7,880
|
|
|
9.4
|
|
Z-Kat
intellectual property (see Note 5)
|
|
|
3,166
|
|
|
8.0
|
|
|
3,166
|
|
|
8.0
|
|
|
|
|
12,246
|
|
|
8.4
|
|
|
11,046
|
|
|
9.0
|
|
Less:
accumulated amortization
|
|
|
(4,962
|
)
|
|
|
|
|
(3,516
|
)
|
|
|
|
Intangible
assets, net
|
|
$
|
7,284
|
|
|
|
|
$
|
7,530
|
|
|
|
|
Amortization
expense related to intangible assets was approximately $1.4 million, $1.1
million and $682,000 for the years ended December 31, 2011, 2010 and 2009,
respectively.
The
estimated future amortization expense of intangible assets for the next five
years as of December 31, 2011 is as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
|
2012
|
|
$
|
1,679
|
|
2013
|
|
|
1,673
|
|
2014
|
|
|
1,479
|
|
2015
|
|
|
1,198
|
|
2016
|
|
|
595
|
|
Total
|
|
$
|
6,624
|
|
103
Table of Contents
7. Commitments and Contingencies
Operating
Leases
In
September 2010, the Company entered into an expanded ten year operating lease
for the Companys existing headquarters in Fort Lauderdale, Florida, to allow
for expansion to support anticipated growth, and terminated the previous lease.
Under the new lease, the Company has the option to renew its facility lease for
two consecutive five year periods. The lease provides for periodic rent
increases and requires the Company to pay the operating costs including taxes,
insurance and maintenance. Rent expense on a straight-line basis was $850,000,
$624,000 and $613,000 for the years ended December 31, 2011, 2010 and
2009, respectively. The rent expense for the years ended December 31,
2011, 2010 and 2009 included the Companys monthly variable operating costs of
the facility.
Future
minimum lease commitments, excluding monthly variable operating costs, under
the Companys operating lease as of December 31, 2011 are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
|
2012
|
|
$
|
337
|
|
2013
|
|
|
352
|
|
2014
|
|
|
504
|
|
2015
|
|
|
657
|
|
2016
|
|
|
673
|
|
Thereafter
|
|
|
3,010
|
|
Total
|
|
$
|
5,533
|
|
Purchase
Commitments
At
December 31, 2011, the Company was committed to make future purchases for
purchase orders that occur in the ordinary course of business under various
purchase arrangements with fixed purchase provisions aggregating $15.7 million.
Other commitments include sponsored research and license agreement obligations
under contractual arrangements of $4.7 million as of December 31, 2011.
License
and Development Agreements
The
Company has license agreements and development agreements related to current
product offerings and research and development projects. Royalty payments
related to these agreements are anticipated to range between 3% and 11% of
future sales of the Companys RIO system and components thereof and/or
products. These royalty payments are subject to certain minimum annual royalty
payments as shown in the schedule below. The terms of these license agreements
continue until the terms expire or the related licensed patents and
intellectual property rights expire, which is expected to range between 3 and
16 years. The net expense related to the Companys license and royalty
agreements was approximately $3.3 million, $2.0 million and $1.5 million for
the years ended December 31, 2011, 2010 and 2009, respectively.
104
Table of Contents
As
of December 31, 2011, future annual minimum royalty payments under
licenses and development agreements are anticipated to be as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
|
2012
|
|
$
|
1,994
|
|
2013
|
|
|
2,147
|
|
2014
|
|
|
2,030
|
|
2015
|
|
|
1,775
|
|
2016
|
|
|
1,757
|
|
Thereafter
|
|
|
3,451
|
|
|
|
$
|
13,154
|
|
Development
Agreement
In
October 2010, the Company entered into a Strategic Alliance Agreement (the
Pipeline Agreement) with Pipeline Biomedical Holdings, LLC (Pipeline) to
develop and supply potential future advanced implant technologies for use with
the Companys RIO system, including the development of a MAKO-branded RESTORIS family of
hip implant systems for use with the MAKOplasty total hip arthroplasty
application. Upon execution of the Pipeline Agreement on October 1, 2010, the
Company issued and delivered to Pipeline 203,417 unregistered restricted shares
of its common stock (the Pipeline Shares) as consideration for the rights
granted to MAKO under the Pipeline Agreement. The Pipeline Shares vested in the
first quarter of 2011 upon achievement of certain performance conditions (the Performance
Conditions). If the Performance Conditions were not achieved, the Company
could have terminated the Pipeline Agreement at its option subject to a breakup
fee not to exceed $800,000 (the Breakup Fee). Although the Company believed
Pipeline would achieve the Performance Conditions, as of December 31, 2010, the
Company accrued $400,000 in expense for its obligation under the Breakup Fee.
The
total value of $4.0 million to be recognized for the value of the Pipeline
Shares was determined in the first quarter of 2011 on the date the performance
conditions were achieved and the Pipeline Shares vested. The value of the
Pipeline Shares is being recognized as a component of research and development
expense on a straight line basis over 45 months from the effective date of the
Pipeline Agreement through June 30, 2014 - the period over which Pipeline is
expected to perform development services under the Pipeline Agreement. In
accordance with ASC 505-50, however, no research and development expense
associated with the services under the Pipeline Agreement was to be recognized
for the Pipeline Shares until achievement of the Performance Conditions.
Upon
achievement of the Performance Conditions, the Company recognized $320,000 in
expense in the first quarter of 2011, which represented the difference between
the amount accrued in 2010 for the Breakup Fee obligation and the ratable
portion of the expense to be recognized for the Pipeline Shares from the
effective date of the Pipeline Agreement through March 31, 2011. The remaining
value of the Pipeline Shares is being recognized on a straight line basis
through June 30, 2014. Pursuant to an amendment to the Pipeline Agreement dated
October 21, 2011, the expected development period was extended 12 months from
the effective date of the Pipeline Agreement through June 30, 2014. As of
December 31, 2011, the Company had recognized $1.7 million of expense related
to the Pipeline Shares. The Company has no further obligation beyond the
previously issued Pipeline Shares to fund Pipelines research of implant
technologies under the Pipeline Agreement. The Pipeline Agreement contains
provisions under which Pipeline will supply the Company implants developed
under the Pipeline Agreement.
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.
105
Table of Contents
8. Stockholders Equity
Preferred Stock
As
of December 31, 2011 and 2010, the Company was authorized to issue
27,000,000 shares of $0.001 par value preferred stock. As of December
31, 2011 and 2010, there were no shares of preferred stock issued or
outstanding.
Common Stock
As
of December 31, 2011 and 2010, 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.
401K Plan
The
Company maintains a qualified deferred compensation plan under Section 401K of
the Internal Revenue Code, covering substantially all full-time employees,
which permits employees to contribute up to 84% of pre-tax annual compensation
up to annual statutory limitations. The discretionary company match for
employee contributions to the plan is 25% of up to the first 6% of the
participants earnings contributed to the plan. The discretionary company match
for the years ended December 31, 2011, 2010 and 2009 was $261,000, $190,000 and
$141,000, respectively.
Employee Stock
Purchase Plan
The
Companys 2008 Employee Stock Purchase Plan authorizes the issuance of
625,000 shares of the Companys common stock for purchase by eligible
employees of the Company or any of its participating affiliates. The shares of
common stock issuable under the 2008 Employee Stock Purchase Plan may be
authorized but unissued shares, treasury shares or shares purchased on the open
market. The purchase price for a purchase period may not be less than 85% of
the fair market value of the Companys common stock on the first trading day of
the applicable purchase period or the last trading day of such purchase period,
whichever is lower. During the year ended December 31, 2011, the Company issued
approximately 77,000 shares under the 2008 Employee Stock Purchase Plan. As of
December 31, 2011, there were approximately 390,000 shares reserved for future
grant under the 2008 Employee Stock Purchase Plan.
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.
During
the years ended December 31, 2011, 2010 and 2009, stock-based compensation
expense was $9.9 million, $6.4 million and $4.0 million, respectively. Included
within stock-based compensation expense for the year ended December 31, 2011
were $7.5 million related to stock option grants, $1.9 million related to
restricted stock granted to the Companys CEO at various dates from 2007
through 2011, and $453,000 related to employee stock purchases under the 2008
Employee Stock Purchase Plan.
Under
the Companys 2004 Stock Incentive Plan (the 2004 Plan), the Board of
Directors was authorized to grant restricted common stock and options to
purchase shares of common stock to employees, directors and consultants. No
further awards will be made under the 2004 Plan. The Companys 2008 Omnibus
106
Table of Contents
Incentive Plan
(the 2008 Plan, and together with the 2004 Plan, the Plans) became
effective upon the closing of the IPO and will expire January 9, 2018
unless earlier terminated by the Board of Directors. Awards under the 2008 Plan
may be made in the form of: stock options, which may be either incentive stock
options or non-qualified stock options; stock appreciation rights; restricted
stock; restricted stock units; dividend equivalent rights; performance shares;
performance units; cash-based awards; other stock-based awards, including
unrestricted shares; and any combination of the foregoing.
Generally,
the Companys outstanding stock options vest over four years. Stock options
granted to certain non-employee directors 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
increase on January 1st of each year in an amount equal to the least of (1) 4%
of the total number of shares of the Companys common stock outstanding on
December 31st of the preceding year, (2) 2.5 million shares and (3) a number of
shares determined by the Companys Board of Directors that is lesser than (1)
and (2). The number of additional shares authorized under the 2008 Plan on
January 1, 2011 and 2012 was approximately 1,618,000 and 1,676,000,
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 Companys 2008 Plan.
As
of December 31, 2011, the Company had reserved shares of common stock for the
issuance of common stock under the 2008 Employee Stock Purchase Plan, the
exercise of warrants and the issuance of options granted under the 2008 Plan as
follows:
|
|
|
|
|
(in
thousands)
|
|
|
|
|
2008 Employee Stock
Purchase Plan
|
|
|
625
|
|
Warrants to purchase
common stock
|
|
|
2,076
|
|
2008 Plan
|
|
|
5,031
|
|
|
|
|
7,732
|
|
Only
employees are eligible to receive incentive stock options. Non-employees may be
granted non-qualified options. The Board of Directors has the authority to set
the exercise price of all options granted, subject to the exercise price of
incentive stock options being no less than 100% of the estimated fair value, as
determined by the Board of Directors, of a share of common stock on the date of
grant; and no less than 85% of the estimated fair value for non-qualified stock
options, except for an employee or non-employee with options who owns more than
10% of the voting power of all classes of stock of the Company, in which case
the exercise price shall be no less than 110% of the fair market value per
share on the grant date. Options become exercisable as determined by the Board
of Directors.
107
Table of Contents
Activity
under the Plans is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
Outstanding Options
|
|
|
|
Shares/Options
Available
For Grant
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Balance at December 31, 2010
|
|
|
204
|
|
|
4,405
|
|
|
8.35
|
|
Shares
reserved
|
|
|
1,618
|
|
|
―
|
|
|
―
|
|
Restricted
stock issued
|
|
|
(300
|
)
|
|
―
|
|
|
―
|
|
Net shares
settled under the 2008 Plan
|
|
|
9
|
|
|
―
|
|
|
―
|
|
Options
granted
|
|
|
(1,184
|
)
|
|
1,184
|
|
|
17.37
|
|
Options
exercised
|
|
|
―
|
|
|
(707
|
)
|
|
4.58
|
|
Options
forfeited under the 2004 Plan
|
|
|
―
|
|
|
(7
|
)
|
|
11.10
|
|
Options
forfeited under the 2008 Plan
|
|
|
122
|
|
|
(122
|
)
|
|
11.79
|
|
Balance at December 31, 2011
|
|
|
469
|
|
|
4,753
|
|
$
|
11.06
|
|
The
options outstanding and exercisable under the Plans, by exercise price, at
December 31, 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
(in thousands,
except per
share data)
|
|
Number
Of
Options
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value (1)
|
|
Number
Of
Options
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value (1)
|
|
Range of Exercise Prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.67 $2.48
|
|
|
484
|
|
|
|
|
$
|
1.53
|
|
|
|
|
|
484
|
|
|
|
|
$
|
1.53
|
|
|
|
|
$6.90 $8.91
|
|
|
1,230
|
|
|
|
|
$
|
7.96
|
|
|
|
|
|
803
|
|
|
|
|
$
|
7.98
|
|
|
|
|
$9.00 $12.70
|
|
|
1,510
|
|
|
|
|
$
|
11.22
|
|
|
|
|
|
1,006
|
|
|
|
|
$
|
10.98
|
|
|
|
|
$12.87 16.32
|
|
|
1,437
|
|
|
|
|
$
|
15.58
|
|
|
|
|
|
366
|
|
|
|
|
$
|
14.98
|
|
|
|
|
$20.05 39.55
|
|
|
92
|
|
|
|
|
$
|
29.73
|
|
|
|
|
|
20
|
|
|
|
|
$
|
27.39
|
|
|
|
|
|
|
|
4,753
|
|
|
7.36
|
|
$
|
11.06
|
|
$
|
67,679
|
|
|
2,679
|
|
|
6.61
|
|
$
|
9.04
|
|
$
|
43,364
|
|
|
|
|
|
(1)
|
The
aggregate intrinsic value represents the total pre-tax intrinsic value, based
on the Companys closing stock price of $25.21 on December 31, 2011, which
would have been received by the option holders had all option holders
exercised their options as of that date.
|
In
addition to the options issued under the Plans, on July 6, 2010 the Company
issued options to purchase 15,000 shares of its common stock under an agreement
for consulting services (Service Options). The Service Options have an
exercise price of $12.10, and vested ratably quarterly over one year starting
on the grant date. As of December 31, 2011, all Service Options were vested and
outstanding.
As
of December 31, 2011, approximately 4,503,000 options were vested and expected
to vest at a weighted average exercise price of $10.93 per share, a weighted
average contractual life of 7.3 years and aggregate intrinsic value of $64.7
million.
The
weighted average fair values of options granted were $8.90, $6.48 and $4.43 for
the years ended December 31, 2011, 2010 and 2009, respectively. The total fair
value of shares vested was approximately $6.6 million, $4.6 million and $2.8
million during the years ended December 31, 2011, 2010 and 2009,
respectively. The total intrinsic value of options exercised was $16.8 million,
$1.6 million and $1.0 million for the years ended December 31, 2011, 2010 and
2009.
108
Table of Contents
The
Company records stock-based compensation expense on a straight-line basis over
the vesting period. As of December 31, 2011, there was total unrecognized
compensation cost of approximately $12.6 million, net of estimated forfeitures,
related to non-vested stock option grants to the Companys 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 2.4 years as of December 31, 2011.
On
February 3, 2011, the Company issued 300,000 shares of restricted stock to its
chief executive officer (CEO) at a fair value of $2.3 million on the date of
issuance. The February 3, 2011 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 31, 2013 and 50%
of the shares will vest on March 31, 2014. For the year ended December 31,
2011, 43,058 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 CEO. As of December 31, 2011,
1,066,665 shares of restricted stock granted to the CEO were issued and
outstanding.
Restricted
stock activity for the year ended December 31, 2011 is as follows:
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
Shares
|
|
Weighted Average
Fair Value
|
|
Unvested shares
at December 31, 2010
|
|
300
|
|
|
$
|
7.64
|
|
Unvested
shares at December 31, 2011
|
|
469
|
|
|
$
|
5.61
|
|
Shares
granted in 2011
|
|
300
|
|
|
$
|
7.61
|
|
Shares
vested in 2011
|
|
131
|
|
|
$
|
10.36
|
|
As
of December 31, 2011, the remaining stock-based compensation expense for
the restricted stock awards was approximately $2.6 million, which will be
recognized on a straight line basis over a remaining weighted average period of
1.79 years.
The
Company uses the Black-Scholes pricing model to determine the fair value of
stock options. The determination of the fair value of stock-based payment
awards on the date of grant using a pricing model is affected by our stock
price as well as assumptions regarding a number of complex and subjective
variables. These variables include our expected stock price volatility over the
term of the awards, actual and projected employee stock option exercise
behaviors, risk-free interest rates and expected dividends.
The
estimated grant date fair values of the employee stock options were calculated
using the Black-Scholes valuation model, based on the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Stock Option
Plans
|
|
Years Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
Risk-free
interest rate
|
|
|
1.34% - 2.92%
|
|
|
2.04% - 3.36%
|
|
|
1.99% - 3.53%
|
|
Expected
life
|
|
|
6.25 years
|
|
|
6.25 years
|
|
|
6.25 years
|
|
Expected
dividends
|
|
|
―
|
|
|
―
|
|
|
―
|
|
Expected
volatility
|
|
|
48.55% - 50.12%
|
|
|
50.15% - 50.74%
|
|
|
54.43% - 57.71%
|
|
The
Company estimates the fair value of each share of stock which will be issued
under the 2008 Employee Stock Purchase Plan based upon its stock prices at the
beginning of each offering period using the Black-Scholes pricing model and
amortizes that value to expense over the plan purchase period. The fair values
determined for the years ended December 31, 2011, 2010 and 2009, as well
as the assumptions used in calculating those values are as follows:
109
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
2008
Employee Stock Purchase Plan
|
|
Year Ended
December 31,
|
|
Year Ended
December 31,
|
|
Year Ended
December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
Fair Value
|
|
$
|
3.68 - $11.70
|
|
$
|
2.21 - $3.68
|
|
$
|
1.82 - $2.54
|
|
Assumptions
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.02% - 0.12%
|
|
|
0.12% - 0.60%
|
|
|
0.60% - 3.20%
|
|
Expected life
|
|
|
0.25 years
|
|
|
0.25 years
|
|
|
0.25 years
|
|
Expected dividends
|
|
|
―
|
|
|
―
|
|
|
―
|
|
Expected volatility
|
|
|
45.92% - 97.14%
|
|
|
34.50% - 52.08%
|
|
|
34.50% - 60.68%
|
|
Risk-Free
Interest Rate.
The risk-free rate is based on U.S.
Treasury zero-coupon issues with remaining terms similar to the expected term
on the options.
Weighted-Average
Expected Term.
The expected term of options granted is
determined using the average period the stock options are expected to remain
outstanding and is based on the options vesting term, contractual terms and
historical exercise and vesting information used to develop reasonable
expectations about future exercise patterns and post-vesting employment
termination behavior. The expected term of the 2008 Employee Stock Purchase
Plan is equal to the duration of the purchase period.
Dividend
Yield.
The Company has never declared or paid any cash
dividends and does not plan to pay cash dividends in the foreseeable future,
and, therefore, used an expected dividend yield of zero in the valuation model.
Volatility.
Since the Company was a private entity until February 2008 with no historical
data regarding the volatility of its common stock, the expected volatility used
for employee stock options for the years ended December 31, 2011, 2010 and
2009, is based on volatility of similar entities, referred to as guideline
companies. In evaluating similarity, the Company considered factors such as
industry, stage of life cycle and size. The expected volatility for shares of
stock issued under the 2008 Employee Stock Purchase Plan is based on average
historical volatilities of the Companys stock price.
Forfeitures.
ASC 718 requires the Company to estimate forfeitures at the time of grant, and
revise those estimates in subsequent periods if actual forfeitures differ from
those estimates. The Company uses historical data to estimate pre-vesting
option forfeitures and records stock-based compensation expense only for those
awards that are expected to vest. All stock-based payment awards are amortized
on a straight-line basis over the requisite service periods of the awards,
which are generally the vesting periods. If the Companys actual forfeiture
rate is materially different from its estimate, the stock-based compensation
expense could be significantly different from what the Company has recorded in
the accompanying periods.
Warrants
In
December 2004, the Company issued warrants to purchase 462,716 shares of common
stock at a purchase price of $0.03 per share. The warrants were immediately
exercisable at an exercise price of $3.00 per share, with the exercise period
expiring in December 2014. As of December 31, 2011 and 2010, 310,872 and
425,915 warrants were outstanding and exercisable, respectively.
In
October 2008, the Company issued warrants to purchase 1,290,323 shares of
common stock at a purchase price of $0.125 per share 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 December 31, 2011 and 2010, 946,455 and 1,290,323
warrants were outstanding and exercisable, respectively.
In
October 2008, the Company issued warrants to purchase 322,581 shares of common
stock at a purchase price of $0.125 per share and an exercise price of $6.20
per share. These warrants became exercisable on December 31,
2009 and have a seven-year term. As of December 31, 2011 and 2010, 245,276
and 322,581 warrants were outstanding and exercisable, respectively.
110
Table of Contents
9. Income Taxes
The
provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Years Ended
|
|
|
|
December 31,
2011
|
|
December 31,
2010
|
|
December 31,
2009
|
|
Current
income taxes:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
―
|
|
$
|
―
|
|
$
|
―
|
|
State
|
|
|
105
|
|
|
68
|
|
|
56
|
|
Total
current income taxes
|
|
|
105
|
|
|
68
|
|
|
56
|
|
Deferred
income taxes
|
|
|
(15,037
|
)
|
|
(14,184
|
)
|
|
(12,593
|
)
|
Change in valuation allowance
|
|
|
15,037
|
|
|
14,184
|
|
|
12,593
|
|
Provision
for income taxes
|
|
$
|
105
|
|
$
|
68
|
|
$
|
56
|
|
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.
No
federal current or deferred income taxes were recorded for the years ended
December 31, 2011, 2010 and 2009, as the Companys income tax benefits
were fully offset by a corresponding increase to the valuation allowance
against its net deferred income tax assets. Current state income taxes of
$105,000, $68,000 and $56,000 were recorded for the years ended
December 31, 2011, 2010 and 2009, respectively.
At
December 31, 2011, 2010 and 2009, the Company had federal and state net
operating loss carryforwards of approximately $163.0 million, $129.6 million
and $100.2 million, respectively, available to offset future taxable income.
These net operating loss carryforwards will expire in varying amounts from 2024
through 2031. Approximately $7.1 million of the net operating loss
carryforwards are related to excess benefits of tax deductions for stock-based
payments that will be recorded in additional paid-in-capital upon utilization.
The
Tax Reform Act of 1986 limits the annual utilization of net operating loss and
tax credit carryforwards, following an ownership change of the Company. Note
that as a result of the Companys equity financings in recent years, the
Company underwent changes in ownership for purposes of the Tax Reform Act.
111
Table of Contents
Deferred
income taxes reflect the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Companys net deferred income taxes are as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31,
|
|
|
|
2011
|
|
2010
|
|
Current deferred income tax assets:
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
1,909
|
|
$
|
1,256
|
|
Reserves
|
|
|
271
|
|
|
619
|
|
Accrued expenses
|
|
|
940
|
|
|
502
|
|
Stock-based compensation
|
|
|
1,507
|
|
|
―
|
|
Total current deferred income tax assets
|
|
|
4,627
|
|
|
2,377
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred income tax assets:
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
61,552
|
|
|
51,163
|
|
Stock-based compensation
|
|
|
1,507
|
|
|
―
|
|
Amortization
|
|
|
867
|
|
|
591
|
|
Depreciation
|
|
|
311
|
|
|
―
|
|
Accrued rent
|
|
|
119
|
|
|
―
|
|
Other
|
|
|
45
|
|
|
10
|
|
Total noncurrent deferred income tax assets
|
|
|
64,401
|
|
|
51,764
|
|
|
|
|
|
|
|
|
|
Total current deferred income tax
liabilities
|
|
|
―
|
|
|
―
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred income tax liabilities:
|
|
|
|
|
|
|
|
Other deferred income tax liabilities
|
|
|
(63
|
)
|
|
(213
|
)
|
Total noncurrent deferred income tax
liabilities
|
|
|
(63
|
)
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(68,965
|
)
|
|
(53,928
|
)
|
Total deferred income tax assets, net
|
|
$
|
―
|
|
$
|
―
|
|
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.
112
Table of Contents
The
reconciliation of the income tax provision computed at the U.S. federal
statutory rate to income tax provision is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
2011
|
|
December 31,
2010
|
|
December 31,
2009
|
|
Tax at U.S.
statutory rate
|
|
|
(35.00
|
)%
|
|
(35.00
|
)%
|
|
(35.00
|
)%
|
State taxes,
net of federal impact
|
|
|
(4.49
|
)%
|
|
(4.49
|
)%
|
|
(3.28
|
)%
|
Non-deductible
items
|
|
|
2.54
|
%
|
|
5.46
|
%
|
|
2.92
|
%
|
Return to
provision differences
|
|
|
(3.83
|
)%
|
|
(2.44
|
)%
|
|
―
|
|
Change in
valuation allowance
|
|
|
40.77
|
%
|
|
36.66
|
%
|
|
35.13
|
%
|
Other, net
|
|
|
0.30
|
%
|
|
(0.19
|
)%
|
|
0.23
|
%
|
Effective
income tax rate
|
|
|
0.29
|
%
|
|
0.00
|
%
|
|
0.00
|
%
|
In
accordance with ASC 740, the Company has decided to classify any interest and
penalties as a component of income tax expense. To date, there have been no
interest or penalties charged to the Company in relation to the underpayment of
income taxes. The Companys primary tax jurisdictions are in the United States
and in multiple state jurisdictions. The tax years from 2008 through 2011
remain open and are subject to examination by the appropriate governmental
agencies.
10. Selected Quarterly Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
2011
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Revenue
|
|
$
|
13,026
|
|
$
|
18,579
|
|
$
|
20,014
|
|
$
|
32,888
|
|
Gross profit
|
|
|
8,931
|
|
|
13,101
|
|
|
13,179
|
|
|
22,413
|
|
Loss from operations
|
|
|
(11,047
|
)
|
|
(10,028
|
)
|
|
(9,585
|
)
|
|
(5,623
|
)
|
Net loss
|
|
|
(10,995
|
)
|
|
(9,909
|
)
|
|
(9,655
|
)
|
|
(5,584
|
)
|
Net loss per share basic
and diluted
|
|
|
(0.27
|
)
|
|
(0.24
|
)
|
|
(0.24
|
)
|
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
2010
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
(1)
|
|
Revenue
|
|
$
|
7,249
|
|
$
|
10,251
|
|
$
|
12,014
|
|
$
|
14,782
|
|
Gross profit
|
|
|
3,253
|
|
|
6,580
|
|
|
7,455
|
|
|
8,835
|
|
Loss from operations
|
|
|
(11,470
|
)
|
|
(8,587
|
)
|
|
(9,006
|
)
|
|
(9,873
|
)
|
Net loss
|
|
|
(11,408
|
)
|
|
(8,524
|
)
|
|
(8,938
|
)
|
|
(9,817
|
)
|
Net loss per share basic
and diluted
|
|
|
(0.34
|
)
|
|
(0.26
|
)
|
|
(0.27
|
)
|
|
(0.26
|
)
|
|
|
|
|
(1)
|
During the
fourth quarter of 2010, the Company determined that it had incorrectly
recognized revenue and expenses associated with the initial warranty
obligation and maintenance services included in all previous RIO system
sales. Accordingly, in the fourth quarter of 2010, the Company recorded an
adjustment to decrease revenue by $1.2 million, to reverse the accrual for
its warranty and maintenance obligation by $552,000 and to increase net loss
by $644,000, or $(0.02) per basic and diluted share. The adjustment arose
over the quarters throughout 2009 and
2010 and did not materially
affect the Companys trend in earnings. As the adjustment was related
to the correction of an error, the Company performed the analysis required by
Staff Accounting Bulletin 99,
Materiality
,
and Staff Accounting Bulletin 108,
Considering
the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements
.
Based on this analysis, the Company concluded that the effect of the error
was not material to the quarters and
years in the two year period ended December 31, 2010 from both a
quantitative and qualitative perspective.
|
113
Table of Contents
|
|
I
TEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
I
TEM 9A.
|
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 December
31, 2011. Based upon their evaluation of these disclosure controls and
procedures, our Certifying Officers concluded that the disclosure controls and
procedures were effective as of December 31, 2011 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 SEC 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.
Managements Report on Internal Control Over
Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities
Exchange Act of 1934, as amended, as a process designed by, or under the
supervision of, a companys principal executive and financial officers, or the
certifying officers, and effected by a companys board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Internal
control over financial reporting includes policies and procedures that pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
our financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in
accordance with the authorization of our board of directors and management; and
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on our financial statements.
Under
the supervision and with the participation of our management, including the
certifying officers, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this evaluation
under the criteria established in Internal Control Integrated Framework, our
management concluded that our internal control over financial reporting was effective
as of December 31, 2011. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
The
effectiveness of our internal control over financial reporting as of December
31, 2011 has been audited by our independent registered public accounting firm,
as stated in their report, which is included herein.
114
Table of Contents
During
the most recently completed fiscal quarter, there was no change in our internal
control over financial reporting that has materially affected or is reasonably
likely to materially affect, our internal control over financial reporting.
|
|
I
TEM 9B.
|
OTHER INFORMATION
|
None
115
Table of Contents
P
ART III.
|
|
I
TEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The
information required by this item will be contained under the following
headings in our definitive proxy statement to be filed in connection with our
2012 annual meeting of stockholders and, upon filing with the SEC, will be
incorporated herein by reference:
|
|
|
|
|
Section
16(a) Beneficial Ownership Reporting Compliance
|
|
|
Election of
Directors
|
|
|
Board of
Directors and Corporate Governance
|
|
|
Executive
Officers
|
|
|
I
TEM 11.
|
EXECUTIVE COMPENSATION
|
The
information required by this item will be contained under the following
headings in our definitive proxy statement to be filed in connection with our
2012 annual meeting of stockholders and, upon filing with the SEC, will be
incorporated herein by reference:
|
|
|
|
|
Director
Compensation
|
|
|
Compensation
Discussion and Analysis
|
|
|
Compensation
Committee Report
|
|
|
Executive
Compensation
|
|
|
I
TEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The
information required by this item will be contained under the following heading
in our definitive proxy statement to be filed in connection with our 2012
annual meeting of stockholders and, upon filing with the SEC, will be
incorporated herein by reference:
The
information under Item 5. Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity SecuritiesEquity
Compensation Plan Information in this annual report on Form 10-K is also
incorporated herein by reference.
|
|
I
TEM 13.
|
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|
The
information required by this item will be contained under the following heading
in our definitive proxy statement to be filed in connection with our 2012
annual meeting of stockholders and, upon filing with the SEC, will be
incorporated herein by reference:
|
|
|
|
|
Board of
Directors and Corporate Governance Independent Directors
|
|
|
Certain
Relationships and Related Person Transactions
|
116
Table of Contents
|
|
I
TEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
The
information required by this item will be contained under the following heading
in our definitive proxy statement to be filed in connection with our 2012
annual meeting of stockholders and, upon filing with the SEC, will be
incorporated herein by reference:
|
|
|
|
|
Ratification
of the Appointment of Ernst & Young LLP as Independent Registered Public
Accounting Firm
|
117
Table of Contents
P
ART IV
|
|
I
TEM 15.
|
EXHIBITS, FINANCIAL STATEMENTS and
FINANCIAL STATEMENT SCHEDULES
|
|
|
|
(a) The
following documents are filed as a part of this Annual Report on Form 10-K:
|
|
|
|
1.
Financial Statements
|
|
|
|
See Item 8,
Financial Statements and Supplementary Data,
Index to Financial Statements
.
|
|
|
|
2.
Financial Statement Schedules
|
|
|
No
financial statement schedules are provided because the information called for
is not required or is shown either in the financial statements or the notes
thereto.
|
|
|
|
(b)
Exhibits
|
|
|
|
|
Exhibit
No.
|
|
Description
|
|
|
|
|
3.1
|
|
Third
Amended and Restated Certificate of Incorporation of the Registrant, dated
February 20, 2008 (2)
|
|
|
|
3.2
|
|
Fourth
Amended and Restated Bylaws of the Registrant effective October 31, 2008 (3)
|
|
|
|
4.1
|
|
Securities
Purchase Agreement by and among the Registrant and Investors named therein,
dated as of October 28, 2008 (3)
|
|
|
|
4.2
|
|
Form of
Warrant (3)
|
|
|
|
4.3
|
|
Form of Call
Warrant (3)
|
|
|
|
10.1
|
|
Lease, by
and between Registrant and Westport Business Park Associates LLP, dated
September 8, 2010 (4)
|
|
|
|
10.2
|
|
Form of
Indemnity Agreement for Directors and Executive Officers (5)
|
|
|
|
10.3+
|
|
2004 Stock
Incentive Plan and forms of agreements related thereto (6)
|
|
|
|
10.4+
|
|
2008 Omnibus
Incentive Plan (5)
|
|
|
|
10.5+
|
|
Form of
Incentive Stock Option Agreement related to the 2008 Omnibus Incentive Plan
(7)
|
|
|
|
10.6+
|
|
Form of
Non-Qualified Stock Option Agreement related to the 2008 Omnibus Incentive
Plan (8)
|
|
|
|
10.7+
|
|
Form of
Restricted Stock Unit Agreement related to the 2008 Omnibus Incentive Plan
(8)
|
|
|
|
10.8+
|
|
2008
Employee Stock Purchase Plan (5)
|
|
|
|
10.9+
|
|
Form of
Subscription Agreement related to the 2008 Employee Stock Purchase Plan (1)
|
|
|
|
10.11+
|
|
Amended
Employment Agreement, dated as of November 12, 2007, by and between
Registrant and Maurice R. Ferré, M.D. (10)
|
|
|
|
10.12+
|
|
Amendment to
Amended Employment Agreement by and between Registrant and Maurice R. Ferré,
M.D., effective February 13, 2009 (11)
|
|
|
|
10.13+
|
|
Second
Amendment to Amended Employment Agreement by and between Registrant
and Maurice R. Ferré, M.D., effective February 17, 2010 (12)
|
118
Table of Contents
|
|
|
10.14+
|
|
Amended and
Restated Employment Agreement by and between Registrant and Fritz L. LaPorte,
effective February 13, 2009 (11)
|
|
|
|
10.15+
|
|
Employment
Agreement by and between Registrant and Ivan Delevic, effective April 27,
2009 (13)
|
|
|
|
10.16+
|
|
First
Amendment to Employment Agreement between Registrant and Ivan Delevic,
effective as of April 13, 2010 (9)
|
|
|
|
10.17+
|
|
Second
Amendment to Employment Agreement between MAKO Surgical Corp. and Ivan
Delevic, effective as of November 7, 2011 (14)
|
|
|
|
10.18+
|
|
Amended and
Restated Employment Agreement by and between Registrant and Menashe R. Frank,
effective February 13, 2009 (11)
|
|
|
|
10.19+
|
|
Employment
Agreement between Registrant and Lawrence T. Gibbons, effective as of
February 3, 2012 (15)
|
|
|
|
10.20+
|
|
Employment
Agreement between Registrant and Richard Leparmentier, effective as of March
29, 2010 (16)
|
|
|
|
10.21+
|
|
First
Amendment to Employment Agreement between MAKO Surgical Corp. and Richard
Leparmentier, effective as of November 7, 2011 (14)
|
|
|
|
10.22+
|
|
Employment
Agreement between Registrant and Duncan Moffat, effective as of April 28,
2008 (8)
|
|
|
|
10.23+
|
|
First Amendment
to Employment Agreement between MAKO Surgical Corp. and Duncan Moffat,
effective as of November 7, 2011 (14)
|
|
|
|
10.24+
|
|
Amended and
Restated Employment Agreement by and between Registrant and Steven J. Nunes,
effective February 13, 2009 (11)
|
|
|
|
10.25+
|
|
Severance
Agreement and Full and Final Release between MAKO Surgical Corp. and James E.
Keller, effective as of February 3, 2012 (15)
|
|
|
|
10.26+
|
|
Restricted
Stock Agreement dated April 13, 2010 issued to Maurice R. Ferré, M.D. (17)
|
|
|
|
10.27+
|
|
Restricted
Stock Agreement dated February 3, 2011 issued to Maurice R. Ferré, M.D. (18)
|
|
|
|
10.28+
|
|
2011
Leadership Cash Bonus Plan (18)
|
|
|
|
10.29+
|
|
2012
Leadership Cash Bonus Plan (19)
|
|
|
|
23
|
|
Consent of
Independent Registered Public Accounting Firm (1)
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange
Act (1)
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange
Act (1)
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. §1350 (1)
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. §1350 (1)
|
|
|
|
101
|
|
The
following materials from MAKO Surgical Corp.s Annual Report on Form 10-K for
the year ended December 31, 2011, formatted in XBRL (Extensible Business
Reporting Language): (i) Condensed Balance Sheets, (ii) Condensed Statements
of Operations, (iii) Condensed Statements of Cash Flows, and (iv) Notes to
Condensed Financial Statements, tagged as blocks of text (1)
|
119
Table of Contents
|
|
(2)
|
Incorporated
by reference to Registrants Annual Report on Form 10-K for the period ended
December 31, 2007 filed with the SEC on March 31, 2008
|
|
|
(3)
|
Incorporated
by reference to Registrants Current Report on Form 8-K filed with the SEC on
October 30, 2008
|
|
|
(4)
|
Incorporated
by reference to Registrants Annual Report on Form 10-K for the period ended
December 31, 2010 filed with the SEC on March 10, 2011
|
|
|
(5)
|
Incorporated
by reference to Registrants Amendment No. 4 to Registration Statement on
Form S-1, filed with the SEC on January 31, 2008 (Registration No.
333-146162)
|
|
|
(6)
|
Incorporated
by reference to Registrants Registration Statement on Form S-1, as amended,
filed with the SEC on September 19, 2007 (Registration No. 333-146162)
|
|
|
(7)
|
Incorporated
by reference to Registrants Current Report on Form 8-K filed with the SEC on
February 26, 2008
|
|
|
(8)
|
Incorporated
by reference to Registrants Current Report on Form 8-K filed with the SEC on
April 29, 2008
|
|
|
(9)
|
Incorporated
by reference to Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2010 filed with the SEC on May 7, 2010
|
|
|
(10)
|
Incorporated
by reference to Registrants Amendment No. 3 to Registration Statement on
Form S-1, filed with the SEC on November 14, 2007 (Registration No.
333-146162)
|
|
|
(11)
|
Incorporated
by reference to Registrants Current Report on Form 8-K filed with the SEC on
February 20, 2009
|
|
|
(12)
|
Incorporated
by reference to Registrants Current Report on Form 8-K filed with the SEC on
February 23, 2010
|
|
|
(13)
|
Incorporated
by reference to Registrants Current Report on Form 8-K filed with the SEC on
April 28, 2009
|
|
|
(14)
|
Incorporated
by reference to Registrants Quarterly Report on Form 10-Q for the quarter
ended September, 30, 2011 filed with the SEC on November 9, 2011
|
|
|
(15)
|
Incorporated
by reference to Registrants Current Report on Form 8-K filed with the SEC on
January 31, 2012
|
|
|
(16)
|
Incorporated
by reference to Registrants Current Report on Form 8-K filed with the SEC on
March 29, 2010
|
|
|
(17)
|
Incorporated
by reference to Registrants Current Report on Form 8-K filed with the SEC on
April 15, 2010
|
|
|
(18)
|
Incorporated
by reference to Registrants Current Report on Form 8-K filed with the SEC on
February 4, 2011
|
|
|
(19)
|
Incorporated
by reference to Registrants Current Report on Form 8-K filed with the SEC on
February 27, 2012
|
|
|
(20)
|
Incorporated
by reference to Registrants Annual Report on Form 10-K for the period ended
December 31, 2009 filed with the SEC on March 10, 2010
|
|
|
+
|
Indicates
management contract or compensatory plan.
|
120
Table of Contents
S
IGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
|
|
|
|
By:
|
/s/ Maurice
R. Ferré, M.D.
|
|
|
|
President,
Chief Executive Officer
|
|
|
|
and Chairman
of the Board
|
|
|
|
(Principal
Executive Officer)
|
|
Dated: March
8, 2012
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Maurice
R. Ferré, M.D.
|
|
President,
Chief Executive Officer and Chairman of the Board (Principal Executive
Officer)
|
|
March 8, 2012
|
Maurice R.
Ferré, M.D.
|
|
|
|
|
|
|
|
|
/s/ Fritz L. LaPorte
|
|
Senior Vice
President of Finance and Administration, Chief Financial Officer and
Treasurer (Principal Accounting and Financial Officer)
|
|
March 8, 2012
|
Fritz L. LaPorte
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ S. Morry
Blumenfeld, Ph.D.
|
|
Director
|
|
March 8, 2012
|
S. Morry
Blumenfeld, Ph.D.
|
|
|
|
|
|
|
|
|
|
/s/
Christopher C. Dewey
|
|
Director
|
|
March 8, 2012
|
Christopher
C. Dewey
|
|
|
|
|
|
|
|
|
|
/s/ Charles
W. Federico
|
|
Director
|
|
March 8, 2012
|
Charles W.
Federico
|
|
|
|
|
|
|
|
|
|
/s/ John G.
Freund, M.D.
|
|
Director
|
|
March 8, 2012
|
John G.
Freund, M.D.
|
|
|
|
|
|
|
|
|
|
/s/ Frederic
H. Moll, M.D.
|
|
Director
|
|
March 8, 2012
|
Frederic H.
Moll, M.D.
|
|
|
|
|
|
|
|
|
|
/s/ Richard R. Pettingill
|
|
Director
|
|
March 8, 2012
|
Richard R. Pettingill
|
|
|
|
|
|
|
|
|
|
/s/ William
D. Pruitt
|
|
Director
|
|
March 8, 2012
|
William D.
Pruitt
|
|
|
|
|
|
|
|
|
|
/s/ John J.
Savarese, M.D.
|
|
Director
|
|
March 8, 2012
|
John J.
Savarese, M.D.
|
|
|
|
|
121
Table of Contents
E
XHIBIT INDEX
|
|
|
|
Exhibit
No.
|
|
Description
|
|
10.9
|
|
Form of
Subscription Agreement related to the 2008 Employee Stock Purchase Plan
|
|
|
|
23
|
|
Consent of
Independent Registered Public Accounting Firm
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. §1350
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. §1350
|
122
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