UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended March 31, 2009
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from
to
Commission
File Number: 001-33382
SENORX,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
33-0787406
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
3
Morgan
Irvine,
California 92618
(Address
of principal executive offices) (Zip Code)
(949)
362-4800
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant is a Large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated Filer
¨
|
Accelerated
filer
x
|
Non-accelerated
filer
¨
|
Smaller reporting company
¨
|
|
|
(Do not check if a smaller
reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
x
As of
April 30, 2009, 17,322,022 shares of the registrant’s common stock were
outstanding.
SENORX,
INC.
INDEX
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Page
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PART I
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FINANCIAL
INFORMATION
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|
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|
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ITEM 1.
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CONDENSED
FINANCIAL STATEMENTS (unaudited)
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|
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Condensed
Balance Sheets as of March 31, 2009 and December 31, 2008
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3
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|
|
|
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Condensed
Statements of Operations for the three months ended March 31, 2009 and
March 31, 2008
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4
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Condensed
Statements of Cash Flows for the three months ended March 31, 2009 and
March 31, 2008
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5
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Notes
to Unaudited Condensed Financial Statements
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6
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ITEM 2.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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11
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|
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ITEM 3.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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16
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ITEM 4.
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CONTROLS
AND PROCEDURES
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16
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PART II
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OTHER
INFORMATION
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ITEM 1.
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LEGAL
PROCEEDINGS
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17
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ITEM 1A.
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RISK
FACTORS
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17
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ITEM 2
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UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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28
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ITEM 3
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DEFAULTS
UPON SENIOR SECURITIES
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28
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ITEM 4
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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28
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ITEM 5
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OTHER
INFORMATION
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28
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ITEM 6.
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EXHIBITS
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29
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SIGNATURES
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31
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ITEM
I: FINANCIAL INFORMATON
SENORX,
INC.
CONDENSED
BALANCE SHEETS
(Unaudited)
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|
March
31,
2009
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|
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December
31,
2008
|
|
ASSETS
|
|
|
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Current
Assets:
|
|
|
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|
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Cash
and cash equivalents
|
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$
|
15,039,864
|
|
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$
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15,323,143
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Accounts
receivable, net of allowance for doubtful accounts of $222,884 and
$225,793, respectively
|
|
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8,340,438
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|
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8,179,099
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Inventory
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9,413,248
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9,433,184
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Prepaid
expenses and deposits
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550,065
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386,594
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Total
current assets
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33,343,615
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33,322,020
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Property
and equipment, net
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1,520,784
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|
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1,554,201
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Other
assets, net of accumulated amortization of $269,844, and $259,469,
respectively
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563,343
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|
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540,344
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TOTAL
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$
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35,427,742
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$
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35,416,565
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Current
Liabilities:
|
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|
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Accounts
payable
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$
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1,939,111
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|
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$
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2,039,280
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Accrued
expenses, including accrued employee compensation of $1,215,237 and $
1,598,338
,
respectively
|
|
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2,827,960
|
|
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2,498,911
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Deferred
revenue
|
|
|
602,265
|
|
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557,065
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Current
portion of long-term debt
|
|
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505,188
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|
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390,246
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Total
current liabilities
|
|
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5,874,524
|
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|
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5,485,502
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Long-term
debt—less current portion
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1,504,741
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1,632,410
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Total
liabilities
|
|
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7,379,265
|
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7,119,912
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Commitments
and contingencies (Note 8)
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|
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Stockholders’
Equity:
|
|
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Common
stock, $0.001 par value—100,000,000 shares authorized; 17,322,022 (2009)
and 17,327,191 (2008) issued and outstanding
|
|
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17,332
|
|
|
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17,327
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Additional
paid-in capital
|
|
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113,135,115
|
|
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112,456,924
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Accumulated
deficit
|
|
|
(85,103,970
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)
|
|
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(84,175,598
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)
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Total
stockholders’ equity
|
|
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28,048,477
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|
|
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28,298,653
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TOTAL
|
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$
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35,427,742
|
|
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$
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35,416,565
|
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SENORX,
INC.
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended March 31,
|
|
|
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2009
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|
|
2008
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Net
revenues
|
|
$
|
12,876,712
|
|
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$
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10,682,775
|
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Cost
of goods sold
|
|
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3,818,809
|
|
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4,053,450
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Gross
profit
|
|
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9,057,903
|
|
|
|
6,629,325
|
|
Operating
expenses:
|
|
|
|
|
|
|
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Selling
and marketing
|
|
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6,261,447
|
|
|
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5,089,562
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Research
and development
|
|
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1,879,622
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|
|
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1,561,904
|
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General
and administrative
|
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1,795,808
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|
|
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2,207,393
|
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Total
operating expenses
|
|
|
9,936,877
|
|
|
|
8,858,859
|
|
|
|
|
|
|
|
|
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Loss
from operations
|
|
|
(878,974
|
)
|
|
|
(2,229,534
|
)
|
Interest
expense
|
|
|
57,446
|
|
|
|
24,186
|
|
Interest
income
|
|
|
(8,048
|
)
|
|
|
(259,183
|
)
|
Loss
before provision for income taxes
|
|
|
(928,372
|
)
|
|
|
(1,994,537
|
)
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Provision
for income taxes
|
|
|
—
|
|
|
|
—
|
|
Net
loss
|
|
$
|
(928,372
|
)
|
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$
|
(1,994,537
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)
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Net
loss per share – basic and diluted
|
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$
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(0.05
|
)
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$
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(0.12
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)
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Weighted
average shares outstanding-basic and diluted
|
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17,329,469
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17,194,404
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SENORX,
INC.
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Quarter Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(928,372
|
)
|
|
$
|
(1,994,537
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
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Depreciation
and amortization
|
|
|
462,638
|
|
|
|
318,995
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Stock-based
compensation
|
|
|
674,792
|
|
|
|
554,480
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Provision
for inventory obsolescence
|
|
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48,076
|
|
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|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
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Accounts
receivable
|
|
|
(161,339
|
)
|
|
|
(464,019
|
)
|
Inventory
|
|
|
(312,576
|
)
|
|
|
(1,294,830
|
)
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Prepaid
expenses and deposits
|
|
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(163,471
|
)
|
|
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(30,653
|
)
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Other
assets
|
|
|
(989
|
)
|
|
|
(99,790
|
)
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Accounts
payable
|
|
|
(139,539
|
)
|
|
|
(105,047
|
)
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Accrued
expenses
|
|
|
329,049
|
|
|
|
(49,332
|
)
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Deferred
revenue
|
|
|
45,200
|
|
|
|
15,322
|
|
Net
cash used in operating activities
|
|
|
(146,531
|
)
|
|
|
(3,149,411
|
)
|
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|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Maturities
of short-term investments
|
|
|
—
|
|
|
|
9,126,330
|
|
Acquisition
of property and equipment
|
|
|
(127,425
|
)
|
|
|
(130,365
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
(127,425
|
)
|
|
|
8,995,965
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of common stock from stock option
exercises
|
|
|
3,404
|
|
|
|
17,202
|
|
Payment
of debt issuance costs
|
|
|
—
|
|
|
|
(30,000
|
)
|
Repayment
of other borrowings
|
|
|
(10,058
|
)
|
|
|
(1,996,149
|
)
|
Repayment
of capital leases
|
|
|
(2,669
|
)
|
|
|
(2,199
|
)
|
Net
cash used in financing activities
|
|
|
(9,323
|
)
|
|
|
(2,011,146
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(283,279
|
)
|
|
|
3,835,408
|
|
Cash
and cash equivalents—beginning of period
|
|
|
15,323,143
|
|
|
|
17,185,259
|
|
Cash
and cash equivalents—end of period
|
|
$
|
15,039,864
|
|
|
$
|
21,020,667
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash
paid for interest
|
|
$
|
35,263
|
|
|
$
|
27,078
|
|
Inventory
transferred to fixed assets and other assets
|
|
$
|
284,436
|
|
|
$
|
292,690
|
|
Property
and equipment acquired included in accounts payable
|
|
$
|
39,370
|
|
|
$
|
28,485
|
|
SENORX,
INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS
OF PRESENTATION
The
accompanying unaudited condensed financial statements have been prepared by
SenoRx, Inc. (the “Company”), pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures
included in these notes and the accompanying condensed financial statements are
adequate to make the information presented not misleading. The unaudited
condensed financial statements reflect all adjustments, consisting only of
normal recurring adjustments, that are, in the opinion of management, necessary
to fairly state the financial position as of March 31, 2009 and the results of
operations and cash flows for the related interim periods ended March 31, 2009
and 2008. The results of operations for the three months ended March 31, 2009
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2009 or for any other period.
The
accounting policies followed by the Company and other information are contained
in the notes to the Company’s audited financial statements filed on
March 16, 2009 as part of the Company’s Annual Report on Form 10-K. The
Company’s significant accounting policies have not changed as of March 31,
2009. This quarterly report should be read in conjunction with
such report.
The
Company reclassified $395,150 of warranty contracts at December 31, 2008 from
accrued expenses to deferred revenue to conform to the current presentation in
the March 31, 2009 condensed balance sheet.
2.
RECENT ACCOUNTING PRONOUNCEMENTS
On April
1, 2009, the FASB issued FASB Staff Position (“FSP”) FAS 141(R)-1,
“Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies.”
The FSP amends the guidance in FASB Statement No. 141
(Revised 2007),
“Business
Combinations,”
to: (i) require that assets acquired and liabilities
assumed in a business combination that arise from contingencies be recognized at
fair value if fair value can be reasonably estimated. If fair value of such an
asset or liability cannot be reasonably estimated, the asset or liability would
generally be recognized in accordance with FASB Statement No. 5, “
Accounting for
Contingencies,”
and FASB Interpretation No. 14,
“Reasonable Estimation of the Amount
of a Loss;”
(ii) eliminate the requirement to disclose an estimate of the
range of outcomes of recognized contingencies at the acquisition date. For
unrecognized contingencies, the FASB decided to require that entities include
only the disclosures required by Statement No. 5 and that those disclosures be
included in the business combination footnote; and (iii) require that contingent
consideration arrangements of an acquiree assumed by the acquirer in a business
combination be treated as contingent consideration of the acquirer and should be
initially and subsequently measured at fair value in accordance with Statement
No. 141R. This FSP is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company is currently evaluating the impact, if any,
that the adoption of FSP FAS 141(R)-1 will have on its results of operations,
financial position, and cash flows.
On
April 9, 2009, the FASB has issued FSP FAS 157-4,
“Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly.”
This FSP
(i) affirms that the objective of fair value when the market for an asset is not
active is the price that would be received to sell the asset in an orderly
transaction; (ii) clarifies and includes additional factors for determining
whether there has been a significant decrease in market activity for an asset
when the market for that asset is not active; (iii) eliminates the proposed
presumption that all transactions are distressed (not orderly) unless proven
otherwise. The FSP instead requires an entity to base its conclusion about
whether a transaction was not orderly on the weight of the evidence; (iv)
includes an example that provides additional explanation on estimating fair
value when the market activity for an asset has declined significantly; and (v)
requires an entity to disclose a change in valuation technique (and the related
inputs) resulting from the application of the FSP and to quantify its effects,
if practicable. This FSP applies to all fair value measurements when
appropriate. FSP FAS 157-4 must be applied prospectively and retrospective
application is not permitted. FSP FAS 157-4 is effective for interim and annual
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. An entity early adopting FSP FAS 157-4 must also
early adopt FSP FAS 115-2 and FAS 124-2, “
Recognition and Presentation of
Other-Than-Temporary Impairments.”
The Company is currently evaluating
the impact, if any, that the adoption of FSP FAS 157-4 will have on its results
of operations, financial position, and cash flows.
On April
9, 2009, the FASB has issued FSP FAS 115-2 and FAS 124-2,
“Recognition and Presentation of
Other-Than-Temporary Impairments.”
This FSP (i) changes existing guidance
for determining whether an impairment is other than temporary to debt
securities; (ii) replaces the existing requirement that the entity’s management
assert it has both the intent and ability to hold an impaired security until
recovery with a requirement that management assert: (a) it does not have the
intent to sell the security; and (b) it is more likely than not it will not have
to sell the security before recovery of its cost basis; (iii) incorporates
examples of factors from existing literature that should be considered in
determining whether a debt security is other-than-temporarily impaired; (iv)
requires that an entity recognize noncredit losses on held-to-maturity debt
securities in other comprehensive income and amortize that amount over the
remaining life of the security in a prospective manner by offsetting the
recorded value of the asset unless the security is subsequently sold or there
are additional credit losses; (v) requires an entity to present the total
other-than-temporary impairment in the statement of earnings with an offset for
the amount recognized in other comprehensive income; and (vi) requires an entity
to record a cumulative-effect adjustment as of the beginning of the period of
adoption to reclassify the noncredit component of a previously recognized
other-temporary impairment from retained earnings to accumulated other
comprehensive income if the entity does not intend to sell the security and it
is not more likely than not that the entity will be required to sell the
security before recovery. FSP FAS 115-2 and FAS 124-2 is effective for interim
and annual periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. An entity may early adopt this FSP only if
it also elects to early adopt FSP FAS 157-4. The Company is currently
evaluating the impact, if any, that the adoption of FSP FAS 115-2 and FAS 124-2
will have on its results of operations, financial position, and cash
flows.
On April
9, 2009, the FASB has issued FSP FAS 107-1 and APB 28-1,
“Interim Disclosures about Fair
Value of Financial Instruments.”
This FSP amends FASB Statement No. 107,
“Disclosures about Fair Value
of Financial Instruments”
to require an entity to provide disclosures
about fair value of financial instruments in interim financial information. This
FSP also amends Accounting Principles Board Opinion No. 28,
“Interim Financial Reporting”
to require those disclosures in summarized financial information at interim
reporting periods. Under this FSP, a publicly traded company shall include
disclosures about the fair value of its financial instruments whenever it issues
summarized financial information for interim reporting periods. In addition, an
entity shall disclose in the body or in the accompanying notes of its summarized
financial information for interim reporting periods and in its financial
statements for annual reporting periods the fair value of all financial
instruments for which it is practicable to estimate that value, whether
recognized or not recognized in the statement of financial position, as required
by Statement No. 107. FSP 107-1 and APB 28-1 is effective for interim periods
ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. However, an entity may early adopt these interim fair
value disclosure requirements only if it also elects to early adopt FSP FAS
157-4 and FSP FAS 115-2 and FAS 124-2. The Company is currently evaluating the
impact, if any, that the adoption of FSP FAS 107-1 and APB 28-1 will have on its
results of operations, financial position, and cash flows.
On April
13, 2009,
the
Securities and Exchange Commission’s (“SEC”) Office of the Chief Accountant and
Division of Corporation Finance issued SEC Staff Accounting Bulletin 111 (“SAB
111”). SAB 111 amends and replaces SAB Topic 5M,
“Miscellaneous Accounting - Other
Than Temporary Impairment of Certain Investments in Equity Securities”
to
reflect FSP FAS 115-2 and FAS 124-2. This FSP provides guidance for assessing
whether an impairment of a debt security is other than temporary, as well as how
such impairments are presented and disclosed in the financial statements. The
amended SAB Topic 5M maintains the prior staff views related to equity
securities but has been amended to exclude debt securities from its scope. SAB
111 is effective upon the adoption of FSP FAS 115-2 and FAS 124-2. The Company
is currently evaluating the impact, if any, that the adoption of SAB 111 will
have on its results of operations, financial position, and cash
flows.
3. INVENTORY
Inventories
consist of the following:
|
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
|
|
Raw
materials
|
|
$
|
4,141,583
|
|
|
$
|
4,261,809
|
|
|
|
Work-in-process
|
|
|
961,076
|
|
|
|
382,188
|
|
|
|
Finished
goods
|
|
|
4,310,589
|
|
|
|
4,789,187
|
|
|
|
|
|
$
|
9,413,248
|
|
|
$
|
9,433,184
|
|
|
4. STOCK
OPTION PLANS
The
Company’s 2006 Stock Option Plan (the “2006 Plan”), which was adopted by the
Company’s board of directors in May 2006 and approved by the Company’s
shareholders in June 2006 is designed to enable the Company to offer an
incentive-based compensation system to employees, officers and directors of the
Company and to consultants who do
business
with the Company. The 2006 Plan provides for the grant of incentive stock
options and nonqualified stock options to purchase up to an aggregate of
5,615,675 shares of common stock. The 2006 plan will terminate in 2016 and also
provides for annual increases in the number of shares available for issuance
thereunder on the first day of each fiscal year, beginning with the 2007 fiscal
year, equal to the lesser of:
|
•
|
3.5%
of the outstanding shares of the Company’s common stock on the first day
of the fiscal year;
|
|
•
|
Such
other amount as the board of directors may
determine.
|
As of
March 31, 2009, options to purchase a total of 2,119,267 shares of common stock
were outstanding under the 2006 Plan and options to purchase a total of
1,366,615 shares were available for issuance under the 2006 Plan
The
Company also has a 1998 Stock Option Plan (“1998 Plan”) which plan was approved
by the Company’s board of directors and shareholders in 1998. As of March 31,
2009, options to purchase a total of 675,879 shares of common stock were
outstanding under the 1998 Plan and no options to purchase shares were available
for issuance under the 1998 Plan.
The 2006
Plan and the 1998 Plan are administered by a committee appointed by the board of
directors that determines the recipients and the terms of the options granted.
Options may be granted to eligible employees, directors and consultants to
purchase shares of the Company’s common stock at a price that is at least equal
to the fair market value of the common stock on the date of grant for incentive
stock options (or 110% of the fair market value in the case of an optionee who
holds more than 10% of the voting power of the Company on the date of grant).
Subject to termination of employment, options may expire up to ten years from
the date of grant.
The
exercise price, term and other conditions applicable to each option granted
under the 2006 and 1998 Plans are generally determined by the committee at the
time of grant of each option and may vary with each option granted. The stock
options granted generally vest 25% per year over a four-year period and expire
after seven to 10 years. The options are exercisable according to the vesting
schedule. Alternatively, the options may be exercised in whole or in part at any
time into restricted, unvested common shares which are subject to the risk of
forfeiture, and to the Company’s repurchase rights.
As of
March 31, 2009, there was unrecognized compensation expense of $2.7 million
related to unvested stock options, which the Company expects to recognize over a
weighted average period of 2.0 years. The weighted average grant date fair value
of stock options granted during the three months ended March 31, 2009 was
$1.23.
As of
March 31, 2009, the total number of options exercisable was 892,515 shares,
which had a weighted average exercise price of $5.79. The average remaining life
of these options was 6.1 years and the aggregate intrinsic value was $0 at
March 31, 2009.
As of
March 31, 2009, the total number of outstanding options vested or expected
to vest (considering anticipated forfeitures) was 2,655,389 shares, which had a
weighted average exercise price of $5.28. The average remaining life of these
options was 6.6 years and the aggregate intrinsic value was $0 at March 31,
2009.
5. INCOME
TAXES
Under
Accounting Principles Board Opinion No. 28, “Interim Financial Reporting,” the
Company is required to adjust its effective tax rate each quarter to be
consistent with the estimated annual effective tax rate. The Company
is also required to record the tax impact of certain discrete items, unusual or
infrequently occurring, including changes in judgment about valuation allowances
and effects of changes in tax laws or rates, in the interim period in which they
occur. In addition, jurisdictions with a projected loss for the year
or a year-to-date loss where no tax benefit can be recognized are excluded from
the estimated annual effective tax rate. The impact of such an
exclusion could result in a higher or lower effective tax rate during a
particular quarter, based upon the mix and timing of actual earnings versus
annual projections.
In
accordance with Statements of Financial Accounting Standards No. 109,
“Accounting for Income Taxes,” the Company evaluates whether a valuation
allowance should be established against its deferred tax assets based on the
consideration of all available evidence using a “more likely than not”
standard.
As of
March 31, 2009, the Company has provided a full valuation allowance and no
benefit has been recognized for net operating losses and other deferred tax
assets due to the uncertainty of future utilization.
On January 1, 2007, the Company
adopted Financial Accounting Standards Board Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (FIN 48). As of March
31, 2009, the Company had unrecognized tax benefits of $410,000. The
Company estimates that the unrecognized tax benefit will not change
significantly within the next twelve months. Future changes in the
unrecognized tax benefit will have no impact on the effective tax rate due to
the existence of the valuation allowance. The Company will continue to classify
income tax penalties and interest as part of general and administrative expense
in its Statements of Operations. Accrued interest on uncertain tax positions is
not material as of March 31, 2009. There are no penalties accrued as of March
31, 2009.
|
Jurisdiction
|
|
Open
Tax Years
|
|
|
Federal
|
|
1998
- 2008
|
|
|
|
|
|
|
|
California
|
|
1998
- 2008
|
|
Pursuant to Section 382 of
the Internal Revenue Code, use of the Company's NOL’s and credit carryforwards
may be limited if the Company experiences a cumulative change in ownership of
greater than 50% in a moving three-year period. Ownership changes
could impact the Company's ability to utilize NOL’s and credit carryforwards
remaining at the ownership change date.
6. NET
LOSS PER SHARE
Basic
loss per share is based on the weighted-average number of shares of common stock
outstanding during the period. Diluted loss per share also includes the effect
of stock options, warrants and other common stock equivalents outstanding during
the period. In periods of a net loss position, basic and diluted weighted
average shares are the same.
The
following table sets forth the computation of denominator used in the
computation of net loss per share:
|
|
|
Three Months Ended March 31
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Weighted-average
common stock outstanding
|
|
|
17,330,869
|
|
|
|
17,206,120
|
|
|
|
Less:
Unvested common shares subject to repurchase
|
|
|
(1,400
|
)
|
|
|
(11,716
|
)
|
|
|
Total
weighted-average number of shares used in computing net loss per
share-basic and diluted
|
|
|
17,329,469
|
|
|
|
17,194,404
|
|
|
7. LITIGATION
The
Company may be subject to legal proceedings, claims and litigation arising in
the ordinary course of business. While the amounts claimed may be substantial,
the ultimate liability cannot presently be determined because of considerable
uncertainties that exist.
On
January 8, 2008, Hologic and its wholly-owned subsidiaries, including Cytyc
Corporation and Cytyc LP, filed a lawsuit against the Company in the United
States District Court, Northern District of California, San Jose Division. The
complaint generally alleges patent infringement of certain Hologic brachytherapy
patent claims, seeking unspecified monetary damages and an injunction against
the Company for infringement of those claims. On February 6, 2008, Hologic
filed a motion seeking a preliminary injunction in the case and requested that
the Court stop the sale of Contura MLB. On March 7, 2008, Hologic filed an
amended complaint restating its allegations regarding patent infringement, and
adding new claims related to unfair competition under the Lanham Act and
California state unfair competition and false advertising statutes. On
April 25, 2008, the court denied Hologic’s request for a preliminary
injunction and ordered the parties to schedule a trial within 60 to 90 days of
such date. On May 22, 2008, the Court issued an order scheduling the
Markman claims construction hearing on the patent counts for June 25, 2008,
and the trial in the case to start July 14, 2008. Pursuant to an agreement
of the parties, the order also dismissed Hologic’s unfair competition and false
advertising claims under the Lanham Act and California state law, without
prejudice. On June 24, 2008, the Court granted a joint request by Hologic
and the Company to stay all proceedings, including the previously scheduled
Markman claims construction hearing and the trial, until at least
August 22, 2008 in order to provide the parties time to discuss possible
resolution of the matter. On August 22, 2008, the Company and Hologic
jointly requested that the Court resume proceedings in the pending lawsuit. On
October 15, 2008, a Markman claims construction hearing was held and a ruling
was issued on February 18, 2009. In light of the claim construction
ruling, on April 14, 2009, the parties filed a joint stipulation requesting the
Court to allow summary judgment briefing and argument as to certain validity and
infringement issues. No action has yet been taken by the Court on the
joint request for summary judgment proceeding, and no date has yet been set for
trial of this matter. As a result, the Company believes that the
probability of incurring any loss related to this litigation is not
determinable, nor is the amount of loss quantifiable at this time. Accordingly,
the Company has not accrued a loss related to this litigation as of March 31,
2009. The Company intends to continue to vigorously defend itself in this
matter.
8. SEGMENT
INFORMATION
Net
revenues by geographic area are presented based upon the country of destination.
No foreign country represented 10% or more of net revenues for any period
presented. Net revenues by geographic area were as follows:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
United
States
|
|
$
|
11,531,908
|
|
|
$
|
9,023,872
|
|
|
|
Canada
|
|
|
277,748
|
|
|
|
503,449
|
|
|
|
Rest
of world
|
|
|
1,067,056
|
|
|
|
1,155,454
|
|
|
|
Total
|
|
$
|
12,876,712
|
|
|
$
|
10,682,775
|
|
|
No
customer accounted for 10% or more of net revenues for any period
presented.
At March
31, 2009, the Company has four product classes. Biopsy disposable products
include the Company’s EnCor and SenoCor products. Biopsy capital equipment
products include the consoles and other pieces (non-disposable) of the EnCor and
SenoCor products. Diagnostic adjunct products include the Marker product, the
Gamma Finder product and the Anchor Guide product. Therapeutic
disposables include the Company’s recently commercialized Contura Multi-Lumen
Balloon (MLB) Catheter, which received FDA 510(k) clearance in May
2007.
Net
revenues by product class are as follows:
|
|
|
Three Months
Ended March 31
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Biopsy
disposable products
|
|
$
|
5,529,211
|
|
|
$
|
4,871,593
|
|
|
|
Biopsy
capital equipment products
|
|
|
825,423
|
|
|
|
1,271,586
|
|
|
|
Diagnostic
adjunct products
|
|
|
3,628,445
|
|
|
|
3,922,964
|
|
|
|
Therapeutic
disposable products
|
|
|
2,893,633
|
|
|
|
616,632
|
|
|
|
Total
|
|
$
|
12,876,712
|
|
|
$
|
10,682,775
|
|
|
Substantially
all of the Company’s assets are in the United States.
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of the federal securities laws. These statements are subject to risks
and uncertainties that could cause actual results and events to differ
materially from those expressed or implied by such forward-looking statements.
For a detailed discussion of these risks and uncertainties, see the “Risk
Factors” section in Item 1A of this Form 10-Q. We caution the reader not to
place undue reliance on these forward-looking statements, which reflect
management’s analysis only as of the date of this Form 10-Q. We undertake no
obligation to update forward-looking statements to reflect events or
circumstances occurring after the date of this Form 10-Q.
Overview
We
develop, manufacture and sell minimally-invasive medical devices that are used
in the diagnosis of breast cancer. We were incorporated in 1998. From our
inception until 2002, our principal activity was the development and regulatory
clearance of our initial products, primarily our biopsy tissue markers and our
first breast biopsy system, the EnCor 360. We launched our first biopsy tissue
markers in 2002 and our EnCor 360 in 2003. The EnCor 360 hardware subsequently
served as a platform to facilitate the later launch of the EnCor probes,
handpieces and other probes, which are compatible with the major imaging
modalities.
In 2004,
we received 510(k) clearance from the FDA to market our EnCor breast biopsy
system, our flagship product for use in breast biopsy procedures, conducting
market preference testing commencing in the fourth quarter of 2004. Over the
subsequent period ending in October 2005, we began selling the product on a
limited basis while we focused on enhancing certain components of the product to
optimize its performance, and we subsequently progressed with a full commercial
launch of our EnCor system in November 2005.
We have
and are continuing to develop minimally-invasive products for surgical excision
of lesions and for breast cancer treatment. We received 510(k) clearance for our
Contura Multi-Lumen Radiation Balloon Catheter, or Contura MLB, in May 2007 and
launched in January 2008. Contura MLB is one of a new class of devices designed
to reduce radiation treatment time to five days from six to eight weeks in
patients eligible for the treatment. We also believe that Contura MLB may
present radiation oncologists with opportunities to optimize dosing for certain
patients. We are also developing next generation tissue marker products,
additional EnCor line extensions, line extensions of Contura MLB, devices to
assist in lesion location and certain radio frequency based excision and
reconstructive tissue cutting devices.
Before
2007, we had historically derived our revenues primarily from our tissue marker
products. However, our EnCor system accounted for a majority of our revenue
growth in 2007. Our ability to continue to grow revenues is based upon a number
of assumptions, which may not ultimately occur, including retention of our sales
force, growth in the market for minimally-invasive breast biopsy procedures and
rapid adoption of the product by physicians who specialize in breast care. We
expect our Contura MLB to increasingly contribute to our revenues and we are
marketing this device as a compelling alternative to competing
devices.
For
the three months ended March 31, 2009, we generated net revenues of $12.9
million and a net loss of $928,000. As of March 31, 2009, our accumulated
deficit was $85.1 million. We have not been profitable since
inception. We expect our operating expenses to increase as we expand
our business to meet anticipated increased demand for our EnCor system, expand
sales of our Contura MLB and devote resources to our sales and marketing and
research and development activities.
Net
Revenues
We derive
our revenues primarily from the sales of our breast biopsy systems, breast
biopsy capital equipment, our tissue markers, and other products for breast
care. Our largest market for these products is in the United States and Canada,
where we employ a direct sales force. Our breast biopsy systems, the EnCor and
EnCor 360, consist of two primary components: reusable handpieces and disposable
probes, and are used in conjunction with our SenoRx Breast Biopsy Console. The
disposable probes form the basis of a recurring revenue stream and also
contribute to the sales of tissue markers. Diagnostic adjunct revenue consists
primarily of tissue marker sales, both used with our breast biopsy systems and
with competitor’s biopsy products. Our breast biopsy capital equipment includes
a reusable handpiece, a control module and vacuum source used in conjunction
with our disposable biopsy probe. We expect that the sales of biopsy disposable
products and biopsy capital equipment will grow materially in 2009. We further
expect that the sales of our adjunct products, such as our tissue markers and
Gamma Finder, will grow modestly. We anticipate that Contura MLB will provide
meaningful revenue increases during the remainder of 2009. We believe that
overall placements of EnCor systems will materially increase in 2009 but at a
modestly slower rate than previous years due to the global economic
recession.
Cost
of Goods Sold
Our cost
of goods sold consists of the cost to manufacture and assemble our products,
primarily including materials, components and labor. We assemble and package all
of our finished products with the exception of our Gamma Finder product. We
expect that our cost of goods sold as a percentage of revenues will decrease,
and, correspondingly, gross profits will increase, as a percentage of net
revenues with increased sales volume, product enhancements and outsourced
manufacturing efficiencies. At the end of 2005, we entered into an agreement
with a contract manufacturer in Thailand and began to transfer a portion of our
manufacturing for certain components of our products to this site, and we
anticipate that we will transfer additional manufacturing to this site in order
to increase gross margins. We anticipate that our gross margin will continue to
increase during the remainder of 2009 due to design and production process
improvements, changes in product mix, the manufacturing efficiencies that we
expect to see with increased production, and the continued successful transfer
of manufacturing of certain products and product components to our Thailand
contract manufacturer.
Operating
Expenses
Our
operating expenses consist of selling and marketing, research and development,
and general and administrative expenses. Stock-based compensation, a non-cash
item, is primarily included in these expenses.
Our
selling and marketing expenses consist of salaries and related expenses of our
direct sales team and sales management, travel, clinical education and training
expenses, marketing and promotional expenses, and costs associated with
tradeshows. We expect selling and marketing expenses to increase in absolute
terms as we expand our sales organization and promotional activities, although
at a rate less than our revenue growth rate.
Our
research and development expenses consist of salaries and related expenses of
our research and development personnel and consultants and costs of product
development, which include patent filing and maintenance costs, production
engineering, clinical and regulatory support and post-clearance clinical product
enhancements. We expense all our research and development costs as they are
incurred. We expect research and development expenses to increase in absolute
terms and as a percent of revenues in 2009 as we continue to develop, enhance,
obtain clinical results and commercialize existing and new
products.
Our
general and administrative expenses consist of the cost of corporate operations,
litigation and professional services. We expect general and administrative
expenses to increase in absolute dollars as we increase our infrastructure to
comply with the regulatory requirements associated with publicly-traded
companies and anticipated litigation expenses relating to the current Hologic
patent infringement lawsuit. During 2009, we incurred $264,000 in
patent litigation expenses related to alleged patent infringement by
Hologic. On October 15, 2008, a Markman claims construction hearing
was held and a ruling was issued on February 18, 2009. In light of
the claim construction ruling, on April 14, 2009 the parties filed a joint
stipulation requesting the Court allow summary judgment briefing and argument as
to certain validity and infringement issues. No action has yet been
taken by the Court on the joint request for summary judgment proceedings, and no
date has yet been set for trial of this matter. As a result, we
believe that the probability of incurring any loss related to this litigation is
not determinable, nor is the amount of loss quantifiable at this time.
Accordingly, we have not accrued a loss related to this litigation as of March
31, 2009.
We expect
to incur stock-based compensation expense for option grants, which will be
accounted for under SFAS No. 123R. We anticipate that non-cash expenses for
options accounted for under SFAS No. 123R will increase in 2009 based upon the
number of options granted. We also expect to incur stock-based compensation
expense related to the issuance of common stock under our employee stock
purchase plan.
Interest
Interest
income represents income generated from our cash and cash equivalents and
short-term investments that are invested generally in liquid money-market funds
and commercial paper. During 2008, debt obligations included a working capital
facility and an equipment facility, each resulting in interest expense. Interest
expense also includes the fair value for any equity interests, such as warrants,
granted in conjunction with the debt obligations. The fair value of the equity
interests were amortized to interest expense over the term of the related debt
obligations. Interest expense has decreased due to the retirement of certain
debt obligations in 2007 and early 2008 and lower available interest
rates.
Income
Tax Expense
Due to
uncertainty surrounding the realization of deferred tax assets through future
taxable income, we have provided a full valuation allowance and no benefit has
been recognized for our net operating loss and other deferred tax
assets.
Results
of Operations
The
following table sets forth our results of operations expressed as percentages of
revenues:
|
|
For the Three Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Net
revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost
of goods sold
|
|
|
29.7
|
|
|
|
37.9
|
|
Gross
profit
|
|
|
70.3
|
|
|
|
62.1
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
48.6
|
|
|
|
47.6
|
|
Research
and development
|
|
|
14.6
|
|
|
|
14.6
|
|
General
and administrative
|
|
|
13.9
|
|
|
|
20.7
|
|
Total
operating expenses
|
|
|
77.2
|
|
|
|
82.9
|
|
Loss
from operations
|
|
|
(6.8
|
)
|
|
|
(20.9
|
)
|
Interest
expense
|
|
|
0.4
|
|
|
|
0.2
|
|
Interest
income
|
|
|
(0.1
|
)
|
|
|
(2.4
|
)
|
Provision
for income taxes
|
|
|
—
|
|
|
|
—
|
|
Net
loss
|
|
|
(7.2
|
)%
|
|
|
(18.7
|
)%
|
Three
months ended March 31, 2009 and 2008
Net
Revenues
. Net revenues increased $2.2 million, or 20.5%, to $12.9 million
for the three months ended March 31, 2009 from $10.7 million for the three
months ended March 31, 2008. Diagnostic therapeutic revenues increased $2.3
million, or 369.3%, resulting from increased adoption of our Contura
MLB. We began sales of the Contura MLB to a limited number of
clinical sites in June 2007 following the May 2007 FDA 510(k) clearance, with
full commercialization in January 2008. Biopsy disposable revenues
increased $658,000, or 13.5%, from the three months ended March 31, 2008 due to
a larger installed base of EnCor systems. These increases were off set by
decreases in biopsy capital revenues of $446,000, or 35.1%, and a decrease of
diagnostic adjunct revenues of $295,000, or 7.5%. We believe that the decreases
in biopsy capital and gamma finder sales are as a result of the global
recession, tight credit markets and currency fluctuations negatively impacting
our global capital equipment sales.
Cost of Goods
Sold and Gross Profit
. Cost of goods sold decreased $235,000, or 5.8%, to
$3.8 million for the three months ended March 31, 2009 from $4.1 million for the
three months ended March 31, 2008. The decrease in total cost of goods sold
primarily consisted of a decrease in direct labor, manufacturing overhead and
material costs associated with our increase in product sales. Gross profit
increased $2.4 million, or 36.6% to $9.1 million or 70.3% of net revenues for
the three months ended March 31, 2009 from $6.6 million or 62.1% for the three
months ended March 31, 2008. The increase in gross profit as a percentage of net
revenues was attributable to a change in product mix that resulted primarily
from a 7.6% increase in disposable product sales, which includes our Contura
MLB, to 92.2% of net revenues for the three months ended March 31, 2009 from
84.6% for the three months ended March 31, 2008. In addition, gross
margins continue to benefit from improved efficiencies in the production of our
disposable biopsy probe and the allocation of manufacturing overhead over
greater product revenues and inventory unit production.
Selling and
Marketing Expenses.
Selling and marketing expenses increased $1.2
million, or 23.0%, to $6.3 million for the three months ended March 31, 2009
from $5.1 million for the three months ended March 31, 2008. The increase
primarily consisted of $893,000 in salaries and related employee costs due to
the expansion of our sales organization, a $104,000 increase in departmental
expenses, a $111,000 increase in selling and promotional related expenses and a
$64,000 increase in equity based compensation charges including deferred
compensation and the discount associated with shares purchased by employees
under our Employee Stock Purchase Plan.
Research and
Development Expenses.
Research and development expenses increased
$318,000, or 20.3%, to $1.9 million for the three months ended March 31, 2009
from $1.6 million for the three months ended March 31, 2008. The increase in
these expenses consisted primarily of patent related professional fees and
departmental costs of $199,000, $55,000 for programs related to the Contura MLB,
$44,000 in salaries and the related employee costs and $20,000 in equity based
compensation charges including deferred compensation and the discount associated
with shares purchased by employees under our Employee Stock Purchase
Plan.
General and
Administrative Expenses
. General and administrative expenses decreased
$412,000, or 18.6%, to $1.8 million for the three months ended March 31, 2009
from $2.2 million for the three months ended March 31, 2008. The decrease
primarily consisted of a $600,000 reduction in attorney and related litigation
costs, of which $502,000 of these costs were incurred responding to the
allegations by Hologic of patent infringement relating to our Contura
MLB. This decrease was partially offset by increases of $92,000 for
public company related costs, including legal and reporting expenses, $77,000
for increased professional fees and departmental costs and $19,000 in equity
based compensation charges including deferred compensation and the discount
associated with shares purchased by employees under our Employee Stock Purchase
Plan.
Interest
Expense
.
Interest expense increased $33,000 to
$57,000 for the three months ended March 31, 2009 from $24,000 for the three
months ended March 31, 2008. The increase is primarily due to the $2.0 million
advance in November 2008 from our bank term loan.
Interest Income.
Interest income decreased $251,000 to $8,000 for the three
months ended March 31, 2009 from $259,000 for the three months ended March 31,
2008 primarily due to lower interest rates and lower cash balances resulting
from working capital needs and patent litigation .
Liquidity
and Capital Resources
General
We have
incurred losses since our inception in January 1998 and, as of March 31, 2009,
we had an accumulated deficit of $85.1 million. From inception
through March 31, 2009, we generated cumulative gross profit from the sale of
our product offerings of $95.9 million. To date, our operations have
been funded primarily with proceeds from the issuance of our preferred stock,
debt issuances and our IPO that closed in April 2007. Cumulative net proceeds
from the issuance of preferred stock totaled $46.8 million. Proceeds from the
issuance of promissory notes totaled $18.0 million. Net proceeds from our IPO,
including the sale of shares pursuant to the subsequent underwriters’
overallotment and after deducting total expenses, was $44.8 million. All of our
preferred stock converted into common stock upon the closing of the IPO. In
November 2007 we used $10.3 million to retire a December 2006 Subordinated Note
and in February 2008 we used $2.0 million to repay a February 2003 convertible
subordinated note and 2002 note obligations owing to Century Medical. In
September 2008 we amended our existing loan agreement with Silicon Valley Bank
to, among other items, increase the total maximum amount available for borrowing
from $4.0 million to $12.0 million. As of March 31, 2009, $2.0 million has been
drawn down under this facility and $7.6 million was available based on the
borrowing formula for the facility.
We
believe that our cash and cash equivalents, and our ability to draw down on our
working capital and equipment facilities, will be sufficient to meet our
projected operating requirements for at least the next 12 months. We
anticipate that we may use cash to support ongoing patent litigation
costs.
Net
Cash Used in Operating Activities
Net cash
used in operating activities was $147,000, for the three months ended March 31,
2009, which was primarily a function of an increase in inventory of $313,000, an
increase in prepaid expenses of $163,000, an increase in accounts receivable of
$161,000, and an increase in other assets of $1,000. These uses of
cash were partially offset by and an increase in accounts payable and accrued
expenses of $190,000 and an increase of $45,000 in deferred revenue. The
aggregate increased investment in inventory of $313,000 resulted primarily from
two major factors, including (i) our decision to build shelf stock of our
higher volume products in order to better service our customers, and
(ii) the need to purchase longer-term quantities of certain parts due to
long lead times. We expect inventory will not materially change for the
remainder of 2009. The increase in prepaid expenses was primarily due to a
deposit for a manufacturing mold which is a result of timing. The increase in
accounts receivable was primarily due to an increase in sales outside the United
States, which include extended payment terms for initial stocking orders. While
we expect that the amount of accounts receivable will fluctuate based on the
timing of sales and collections, we expect our ratio of overall investment in
accounts receivable as compared to revenue will remain constant.
Net
Cash Used in Investing Activities
Net cash
used in investing activities amounted to $127,000 during the three months ended
March 31, 2009, which was attributable to the additions of new manufacturing
molds and demonstration units.
Net
Cash Used in Financing Activities
Net cash
used in financing activities was $9,000 during the three months ended March 31,
2009, which was primarily attributable to the repayment of a $10,000 equipment
loan.
Off-Balance
Sheet Arrangements
Since
inception, we have not engaged in material off-balance sheet activities,
including the use of structured finance, special purpose entities or variable
interest entities.
Recent
Accounting Pronouncements
On April
1, 2009, the FASB issued FASB Staff Position (“FSP”) FAS 141(R)-1,
“Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies.”
The FSP amends the guidance in FASB Statement No. 141
(Revised 2007),
“Business
Combinations,”
to: (i) require that assets acquired and liabilities
assumed in a business combination that arise from contingencies be recognized at
fair value if fair value can be reasonably estimated. If fair value of such an
asset or liability cannot be reasonably estimated, the asset or liability would
generally be recognized in accordance with FASB Statement No. 5, “
Accounting for
Contingencies,”
and FASB Interpretation No. 14,
“Reasonable Estimation of the Amount
of a Loss;”
(ii) eliminate the requirement to disclose an estimate of the
range of outcomes of recognized contingencies at the acquisition date. For
unrecognized contingencies, the FASB decided to require that entities include
only the disclosures required by Statement No. 5 and that those disclosures be
included in the business combination footnote; and (iii) require that contingent
consideration arrangements of an acquiree assumed by the acquirer in a business
combination be treated as contingent consideration of the acquirer and should be
initially and subsequently measured at fair value in accordance with Statement
No. 141R. This FSP is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company is currently evaluating the impact, if any,
that the adoption of FSP FAS 141(R)-1 will have on its results of operations,
financial position, and cash flows.
On
April 9, 2009, the FASB has issued FSP FAS 157-4,
“Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly.”
This FSP
(i) affirms that the objective of fair value when the market for an asset is not
active is the price that would be received to sell the asset in an orderly
transaction; (ii) clarifies and includes additional factors for determining
whether there has been a significant decrease in market activity for an asset
when the market for that asset is not active; (iii) eliminates the proposed
presumption that all transactions are distressed (not orderly) unless proven
otherwise. The FSP instead requires an entity to base its conclusion about
whether a transaction was not orderly on the weight of the evidence; (iv)
includes an example that provides additional explanation on estimating fair
value when the market activity for an asset has declined significantly; and (v)
requires an entity to disclose a change in valuation technique (and the related
inputs) resulting from the application of the FSP and to quantify its effects,
if practicable. This FSP applies to all fair value measurements when
appropriate. FSP FAS 157-4 must be applied prospectively and retrospective
application is not permitted. FSP FAS 157-4 is effective for interim and annual
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. An entity early adopting FSP FAS 157-4 must also
early adopt FSP FAS 115-2 and FAS 124-2, “
Recognition and Presentation of
Other-Than-Temporary Impairments.”
The Company is currently evaluating
the impact, if any, that the adoption of FSP FAS 157-4 will have on its results
of operations, financial position, and cash flows.
On April
9, 2009, the FASB has issued FSP FAS 115-2 and FAS 124-2,
“Recognition and Presentation of
Other-Than-Temporary Impairments.”
This FSP (i) changes existing guidance
for determining whether an impairment is other than temporary to debt
securities; (ii) replaces the existing requirement that the entity’s management
assert it has both the intent and ability to hold an impaired security until
recovery with a requirement that management assert: (a) it does not have the
intent to sell the security; and (b) it is more likely than not it will not have
to sell the security before recovery of its cost basis; (iii) incorporates
examples of factors from existing literature that should be considered in
determining whether a debt security is other-than-temporarily impaired; (iv)
requires that an entity recognize noncredit losses on held-to-maturity debt
securities in other comprehensive income and amortize that amount over the
remaining life of the security in a prospective manner by offsetting the
recorded value of the asset unless the security is subsequently sold or there
are additional credit losses; (v) requires an entity to present the total
other-than-temporary impairment in the statement of earnings with an offset for
the amount recognized in other comprehensive
income;
and (vi) requires an entity to record a cumulative-effect adjustment as of the
beginning of the period of adoption to reclassify the noncredit component of a
previously recognized other-temporary impairment from retained earnings to
accumulated other comprehensive income if the entity does not intend to sell the
security and it is not more likely than not that the entity will be required to
sell the security before recovery. FSP FAS 115-2 and FAS 124-2 is effective for
interim and annual periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. An entity may early adopt
this FSP only if it also elects to early adopt FSP FAS 157-4. The Company
is currently evaluating the impact, if any, that the adoption of FSP FAS 115-2
and FAS 124-2 will have on its results of operations, financial position, and
cash flows.
On April
9, 2009, the FASB has issued FSP FAS 107-1 and APB 28-1,
“Interim Disclosures about Fair
Value of Financial Instruments.”
This FSP amends FASB Statement No. 107,
“Disclosures about Fair Value
of Financial Instruments”
to require an entity to provide disclosures
about fair value of financial instruments in interim financial information. This
FSP also amends Accounting Principles Board Opinion No. 28,
“Interim Financial Reporting”
to require those disclosures in summarized financial information at interim
reporting periods. Under this FSP, a publicly traded company shall include
disclosures about the fair value of its financial instruments whenever it issues
summarized financial information for interim reporting periods. In addition, an
entity shall disclose in the body or in the accompanying notes of its summarized
financial information for interim reporting periods and in its financial
statements for annual reporting periods the fair value of all financial
instruments for which it is practicable to estimate that value, whether
recognized or not recognized in the statement of financial position, as required
by Statement No. 107. FSP 107-1 and APB 28-1 is effective for interim periods
ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. However, an entity may early adopt these interim fair
value disclosure requirements only if it also elects to early adopt FSP FAS
157-4 and FSP FAS 115-2 and FAS 124-2. The Company is currently evaluating the
impact, if any, that the adoption of FSP FAS 107-1 and APB 28-1 will have on its
results of operations, financial position, and cash flows.
On April
13, 2009,
the
Securities and Exchange Commission’s (“SEC”) Office of the Chief Accountant and
Division of Corporation Finance issued SEC Staff Accounting Bulletin 111 (“SAB
111”). SAB 111 amends and replaces SAB Topic 5M,
“Miscellaneous Accounting - Other
Than Temporary Impairment of Certain Investments in Equity Securities”
to
reflect FSP FAS 115-2 and FAS 124-2. This FSP provides guidance for assessing
whether an impairment of a debt security is other than temporary, as well as how
such impairments are presented and disclosed in the financial statements. The
amended SAB Topic 5M maintains the prior staff views related to equity
securities but has been amended to exclude debt securities from its scope. SAB
111 is effective upon the adoption of FSP FAS 115-2 and FAS 124-2. The Company
is currently evaluating the impact, if any, that the adoption of SAB 111 will
have on its results of operations, financial position, and cash
flows.
ITEM 3.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
The
primary objective of our investment activities is to preserve our capital for
the purpose of funding operations while at the same time maximizing the income
we receive from our investments without significantly increasing risk. To
achieve these objectives, our investment policy allows us to maintain a
portfolio of cash equivalents and investments in a variety of marketable
securities, including commercial paper, money market funds and corporate debt
securities and U.S. government securities. Our cash and cash equivalents as of
March 31, 2009, included liquid money market accounts. Due to the liquid nature
of our cash and cash equivalents, we believe we have no material exposure to
interest rate risk. Additionally, since the majority of our debt carries
interest at fixed rates, we also believe changes in interest rates will not
cause significant changes in our interest expense. Our revenues are denominated
in U.S. dollars. Accordingly, we have not had exposure to foreign currency rate
fluctuations. We expect to continue to realize our revenues in U.S.
dollars.
ITEM 4.
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CONTROLS
AND PROCEDURES
|
Evaluation of Disclosure Controls and
Procedures
. Our management evaluated, with the participation of our Chief
Executive Officer and our Chief Financial Officer, the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) of the
Exchange Act of 1934, as amended) as of the end of the period covered by this
Quarterly Report on Form 10-Q. Based on this evaluation, our Chief
Executive Officer and our Chief Financial Officer have concluded that our
disclosure controls and procedures are effective to ensure that information we
are required to disclose in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms,
and that such information is accumulated and communicated to management as
appropriate to allow for timely decisions regarding required
disclosure.
Changes in Internal Control Over
Financial Reporting
. There was no change in our internal control over
financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the
Exchange Act of 1934, as amended) that occurred during the period covered by
this Quarterly Report on Form 10-Q that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II – OTHER INFORMATION
ITEM 1.
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LEGAL
PROCEEDINGS
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On
January 8, 2008, Hologic and its wholly-owned subsidiaries, including Cytyc
Corporation and Cytyc LP, filed a lawsuit against us in the United States
District Court, Northern District of California, San Jose Division. The
complaint generally alleges patent infringement of certain Hologic brachytherapy
patent claims, seeking unspecified monetary damages and an injunction against us
for infringement of those claims. On February 6, 2008, Hologic filed a motion
seeking a preliminary injunction in the case and requested that the Court stop
the sale of Contura MLB. On March 7, 2008, Hologic filed an amended complaint
restating its allegations regarding patent infringement, and adding new claims
related to unfair competition under the Lanham Act and California state unfair
competition and false advertising statutes. On April 25, 2008, the court denied
Hologic’s request for a preliminary injunction and ordered the parties to
schedule a trial within 60 to 90 days of such date. On May 22, 2008, the Court
issued an order scheduling the Markman claims construction hearing on the patent
counts for June 25, 2008, and the trial in the case to start July 14, 2008.
Pursuant to an agreement of the parties, the order also dismissed Hologic’s
unfair competition and false advertising claims under the Lanham Act and
California state law, without prejudice. On June 24, 2008, the Court granted a
joint request by the parties to stay all proceedings, including the previously
scheduled Markman claims construction hearing and the trial, until at least
August 22, 2008 in order to provide the parties time to discuss possible
resolution of the matter. On August 22, 2008, both parties jointly requested
that the Court resume proceedings in the pending lawsuit. On October 15, 2008, a
Markman claims construction hearing was held and a ruling was issued on February
18, 2009. In light of the claim construction ruling, on April 14,
2009, the parties filed a joint stipulation requesting the Court to allow
summary judgment briefing and argument as to certain validity and infringement
issues. No action has yet been taken by the Court on the joint
request for summary judgment proceeding, and no date has yet been set for trial
of this matter. As a result, we have taken the position that the probability of
incurring any loss related to this litigation is not determinable, nor is the
amount of loss quantifiable at this time. Accordingly, we have not accrued a
loss related to this litigation as of March 31, 2009. We intend to continue to
vigorously defend ourselves in this matter.
RISKS
RELATED TO OUR BUSINESS
We
have a limited history of operations and a history of net losses, and we may not
be able to achieve profitability even if we are able to generate significant
revenues.
We have a
limited history of operations upon which you can evaluate our
business. We began selling our first products in 2002, fully launched
our flagship product for use in breast biopsy procedures, the EnCor system, in
November 2005, and launched our flagship radiation therapy product, the Contura
MLB, in January 2008. We incurred net losses of $8.7 million in 2008,
$9.9 million in 2007 and, as of March 31, 2009, had an accumulated deficit of
approximately $85.1 million. In addition, we expect our operating
expenses to increase as we expand our business to meet anticipated increased
demand for our EnCor system, continue with the full commercialization of the
Contura MLB, and devote resources to our sales and marketing and research and
development activities. In order for us to become profitable, we believe that
our EnCor system and Contura MLB must be widely adopted. We cannot assure you
that we will be able to achieve or sustain profitability even if we are able to
generate significant revenues. Our failure to achieve and sustain profitability
would negatively impact the market price of our common stock and require us to
obtain additional funding. If our future funding requirements increase beyond
currently expected levels, as a result of our failure to achieve or sustain
profitability relating to sales, litigation expenses or otherwise, we cannot
make any assurance that additional funding will be available on a timely basis
on terms acceptable to us, or at all, particularly in the short-term due to the
current credit and equity market funding environments.
Our
success depends upon market adoption of our EnCor system and Contura MLB,
without which our results of operations will suffer.
Until
2007, we derived our revenues primarily from our tissue marker products.
However, our EnCor system and Contura MLB now account for a majority of our
revenue growth, and we expect this to continue for the foreseeable future. Our
ability to meet this expectation is based upon a number of assumptions,
including:
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•
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we
have limited experience selling to radiological oncologists, the primary
market for Contura MLB;
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•
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attracting
and retaining qualified sales professionals to sell
it;
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•
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differentiating
Contura MLB from competing products and obtaining a significant share of
this market;
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•
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protecting
our products with intellectual property
rights;
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•
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sustaining
adequate third-party reimbursement
;
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•
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producing
compelling clinical data on safety and
effectiveness;
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•
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partnering,
as necessary, with suppliers; and
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•
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manufacturing
it consistently within our specifications and in accordance with the FDA’s
Quality System Regulations.
|
Even if
we are able to present potential customers with compelling clinical data,
technological advancements or influential user experiences, they may be
reluctant to switch from a competing device to which they have grown accustomed.
We may not be successful in our near-term strategy of marketing EnCor and
Contura MLB to our existing customer base of tissue marker users, and users of
our earlier vacuum-assisted breast biopsy system. Our commercial success also
depends on the continued general market shift to less invasive biopsy
procedures.
Our
future success will depend in part upon our ability to successfully
commercialize our
Contura
MLB.
We expect
our Contura MLB, which we received FDA 510(k) clearance in May 2007, to rapidly
become a significant contributor to our revenues. The Contura MLB development
has been completed, but there remain significant challenges that must be
overcome before we can obtain significant revenues from this product,
including:
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•
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we
have limited experience selling to radiological oncologists, the primary
market for this product;
|
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•
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attracting
and retaining qualified sales professionals to sell
it;
|
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•
|
differentiating
Contura MLB from competing products and obtaining a significant share of
this market;
|
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•
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protecting
it with intellectual property
rights;
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•
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obtaining
adequate third-party reimbursement;
|
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•
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producing
compelling clinical data on safety and
effectiveness;
|
|
•
|
partnering,
as necessary, with suppliers; and
|
|
•
|
manufacturing
it consistently within our specifications and in accordance with the FDA’s
Quality System Regulations.
|
If we are
able to overcome these challenges, we may nevertheless be unable to convince
potential customers that the Contura MLB represents a compelling alternative to
competing products. It has been reported that new short-term brachytherapy
products from Cianna Medical and Xoft began to be commercialized in 2008. Our
commercial success will also depend on a general market shift from whole to
partial breast radiation. If we are unable to obtain a significant share of the
brachytherapy market for the reasons listed above, or that competing products
are more compelling and achieve better acceptance by the market, our long-term
commercialization experience with the Contura MLB could be significantly below
expectations or not achieved at all, which would have a material adverse effect
on our future financial performance. Additionally, the adoption of conformal
radiotherapy may grow at a faster rate than the overall market for partial
breast radiation therapies, and as a result, could impact the speed of adoption
of balloon brachytherapy devices, including Contura MLB.
We
are currently and may in the future be subject to costly claims of infringement
or misappropriation of the intellectual property rights of others, which could
impact our business and harm our operations.
Our
industry has been characterized by frequent demands for licenses and litigation.
In January 2008, Hologic and its wholly-owned subsidiaries, including Cytyc
Corporation and Cytyc LP, filed a lawsuit against us in the United States
District Court, Northern District of California, San Jose Division. The
complaint generally alleges patent infringement of certain Hologic brachytherapy
patent claims, seeking unspecified monetary damages and an injunction against us
for infringement of those claims. This litigation is still ongoing and because
the outcome is undetermined, we cannot reasonably estimate the possible loss or
range of loss that may arise from the litigation or the likelihood of success.
If we lose this law suit, we may be completely prevented from selling Contura
MLB and as a result, our future prospects will be significantly
harmed.
Our
competitors, potential competitors or other patent holders may, in the future,
assert that our products and the methods we employ are covered by their patents
or misappropriate their intellectual property. In addition, we do not know
whether our competitors will apply for and obtain patents that will prevent,
limit or interfere with our ability to make, use, sell or import our products.
Because patent applications may take years to issue, there may be applications
now pending of which we are unaware that may later result in issued patents that
our products infringe. There also could be existing patents that one or more
components of our systems may inadvertently infringe. Although we may seek to
settle any future claims, we may not be able to do so on reasonable terms, or at
all. If we lose a claim against us, we may be ordered to pay substantial
damages, including compensatory damages, which may be trebled in certain
circumstances, plus prejudgment interest. We also could be enjoined,
temporarily, preliminarily or permanently, from making, using, selling, offering
to sell or importing our products or technologies essential to our products,
which could significantly harm our business and operating
performance.
We may
become involved in litigation not only as a result of alleged infringement of a
third party’s intellectual property rights but also to protect our own
intellectual property. Enforcing our patent rights against infringers, even when
such litigation is resolved in our favor, could involve substantial costs and
divert management’s attention from our core business and harm our
reputation.
We
are in a difficult economic period, which may increase stock price volatility,
reduce customer demand for our products, and cause potential customers to delay
their purchase decisions.
We are in
a global recession and the uncertainty associated therewith may increase the
volatility of our stock price, cause potential customers to delay their capital
equipment purchases, and make it more difficult for potential customers to
obtain financing necessary to purchase our products, each of which can have a
material adverse effect on our revenue, profitability and business. Our capital
equipment revenues have historically ranged between 10% and 20% of annualized
revenues. Credit constraints for institutions, distributors and
individual physicians may slow the purchase of EnCor systems and Gamma Finders
and may, as a result, have a negative effect on the purchase of disposables
related to delays in capital equipment purchases or lead to a reduction in the
overall number of biopsy procedures. The number of mammograms
performed in the United States has declined since 2007, which in turn reduced
the number of number of biopsy procedures performed domestically.
We
have limited clinical data regarding the safety and efficacy of our products. If
future data or clinical experience is negative, we may lose significant market
share.
Our
success depends on the acceptance of our products by the medical community as
safe and effective. Physicians that may be interested in using our products may
hesitate to do so without long-term data on safety and efficacy. The limited
clinical studies on some of our products that have been published or presented
as abstracts at major medical meetings typically have been based on the work of
a small number of physicians examining small patient populations over relatively
short periods. Accordingly, the results of these clinical studies do not
necessarily predict long-term clinical results, or even short-term clinical
results from the broader physician community. If future safety or efficacy data
or clinical experience is negative, we may lose significant market
share.
We
compete against companies that have more established products and greater
resources, which may prevent us from achieving significant market penetration or
improved operating results.
Many of
our products compete, and our future products may compete, against products that
are more established and accepted within our target markets. With fewer
resources and operating history than many of our competitors and potential
future competitors, and a less-established reputation, it may be difficult for
our products to gain significant market penetration. We may be unable to
convince physicians to switch their practice away from competing devices.
Competing effectively will require us to distinguish our company and our
products from our competitors and their products, and turns on factors such
as:
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•
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ease
of use and performance;
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•
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quality
and scale of our sales and marketing
efforts;
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•
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our
ability to offer a broad portfolio of products across the continuum of
breast care;
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•
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establishing
a strong reputation through compelling clinical study publications and
endorsements from influential physicians;
and
|
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•
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brand
and name recognition.
|
Competition
could result in price-cutting, reduced profit margins and loss of market share,
any of which could have a material adverse effect on our results of operations.
In addition, our competitors with greater financial resources could acquire
other companies that would enhance their name recognition and market share, and
allow them to compete more effectively by bundling together related products.
For example one competitor provides incentives for the purchase of its biopsy
capital equipment and disposables when purchased with its digital mammography
and stereotactic tables. Certain potential customers may view this value
proposition as attractive, which could result in their decision not to purchase
our products. We also anticipate that new products and improvements to existing
products could be introduced that would compete with our current and future
products. If we are unable to compete effectively, we will not be able to
generate expected sales and our future financial performance will
suffer.
Our
ability to compete depends upon our ability to innovate, develop and
commercialize new products and product enhancements.
The
markets in which we compete involve rapid and substantial technological
development and product innovations. There are few barriers to prevent new
entrants or existing competitors from developing or acquiring products or
technological improvements that compete effectively against our products or
technology. If we are unable to innovate successfully to anticipate or respond
to competitive threats, obtain regulatory approvals, or protect such innovation
with defensible intellectual property, our revenues could fail to grow or could
decline. Our business strategy is in part based upon our expectation that we
will continue to make frequent new product introductions and improvements to
existing products that will be demanded by our target customers. If we are
unable to continue to develop new products and technologies as anticipated, our
ability to grow and our future financial performance could be materially harmed.
For example, we recently received 510(k) clearance from the FDA for our new
SenoSonix System, an integration of EnCor with ultra sound technology from
Ultrasonix Medical Corporation of Canada. We have yet to commercially launch
this product and there can be no assurances that we will be successful in
obtaining meaningful revenues once it has been commercialized.
Our
business strategy is heavily focused on integrated breast centers and other
large institutions.
We are
focusing our sales efforts on becoming a preferred provider to integrated breast
centers and other large customer accounts. We cannot assure you that we will be
able to secure or maintain these accounts or that this strategy will maximize
our revenue growth. These targeted customers often have a rigorous and lengthy
qualification process for approving new vendors and products. Additionally,
breast centers are in many cases not located at one physical location, but
instead involve the coordinated efforts of various geographically dispersed
offices and physicians, which may complicate the qualification process and may
strain our sales and support organizations. Further, these customers have not
entered, and we do not expect them in the future to enter, long-term contracts
to purchase our products. Therefore, obtaining approval from these potential
customers to sell them our products may not result in significant or long-term
sales of our products to them. Our strategy of focusing on large institutions
may result in relatively few customers contributing a significant amount to our
revenues. For example, Kaiser Permanente is our largest customer, and
in the three months ended March 31, 2009 and year ended December 31, 2008,
represented approximately 4.3% and 4.9%, respectively, of our total
revenues. We cannot assure you that Kaiser or other large customer
accounts will continue to purchase our products. The loss of any of
these customers could have a material adverse impact on our results of
operations.
Our
strategy of providing a broad array of products to the breast care market may be
difficult to achieve, given our size and limited resources.
We aim to
be an attractive and convenient supplier for integrated breast centers by
offering a broad product line of minimally-invasive devices for breast care
specialists. Commercializing several product lines simultaneously may be
difficult because we are a relatively small company. Additionally, offering a
broad product line will require us to manufacture, sell and support some
products that are not as profitable or in as high demand as some of our other
products, which could have a material adverse effect on our overall results of
operations. To succeed in our approach, we will need to grow our organization
considerably and enhance our relationships with third-party manufacturers and
suppliers. If we fail to make product introductions successfully or in a timely
manner because we lack resources, or if we fail to adequately manufacture, sell
and support our existing products, our reputation may be negatively affected and
our results of operations could be materially harmed.
We
believe that demand for minimally-invasive products for the diagnosis and
treatment of breast cancer must grow in order for our business to grow as
anticipated.
While
there have been trends in recent years that favor increased screening, diagnosis
and treatment of breast cancer, these trends may not continue. For example, the
incidence of breast cancer in the United States appears to have fallen from its
highest level over the last few years. Additionally, while the number of breast
biopsies performed annually has increased significantly since 1997 when the
American Cancer Society updated its guidelines for breast cancer screening,
recommending that women should begin annual screening at age 40 rather than the
previously recommended age 50, new guidance could be published that could
support a reversal of this trend. Some studies conclude that annual breast
cancer screening by mammography for women under age 50 may be more harmful, due
to increased radiation exposure, than beneficial. These factors, in addition to
possible future innovations in screening technologies or in breast cancer
treatment options, could result in a decline in breast biopsy procedures and
radiation therapy, which could reduce our overall market.
We
have limited sales and marketing experience and failure to build and manage our
sales force or to market and distribute our products effectively could have a
material adverse effect on our results of operations.
We rely
on a direct sales force to sell our products. In order to meet our anticipated
sales objectives, we expect to grow our sales organization significantly over
the next several years. There are significant risks involved in building and
managing our sales organization, including our ability to:
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hire
and successfully integrate qualified individuals as
needed;
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provide
adequate training for the effective sale of our
products;
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retain
and motivate our sales employees;
and
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integrate
our new brachytherapy sales professionals and successfully sell into the
radiation
oncology
market.
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We expect
that our Contura MLB will be a principal driver of future growth. However, our
sales force historically has primarily sold diagnostic products and therefore
has limited experience selling a therapeutic device. Our Contura MLB competes
with products that are well-established and with new entrants to the market.
Accordingly, it is difficult for us to predict how well our sales force will
perform.
Our
failure to adequately address these risks could have a material adverse effect
on our ability to sell our products, causing our revenues to be lower than
expected and harming our results of operations.
If
we are unable to obtain and maintain intellectual property protection covering
our products, others may be able to make, use or sell our products, which could
have a material adverse effect on our business and results of
operations.
We rely
on patent, copyright, trade secret and trademark laws and confidentiality
agreements to protect our technology, products and our competitive position in
the market. Additionally, our patent applications, including those covering our
EnCor system, may not result in patents being issued to us or, if they are
issued, may not be in a form that is advantageous to us. Any patents we obtain
may be challenged or invalidated by third parties. Competitors also may design
around our protected technology or develop their own technologies that fall
outside our intellectual property rights. In addition, we may not be able to
prevent the unauthorized disclosure or use of our technical knowledge or other
trade secrets by consultants, vendors, former employees or current employees,
despite the existence of confidentiality agreements and other contractual
restrictions. Monitoring unauthorized uses and disclosures of our intellectual
property is difficult, and we cannot be certain that the steps we have taken to
protect our intellectual property will be effective or that any remedies we may
have in these circumstances would be adequate. Moreover, the laws of foreign
countries may not protect our intellectual property rights to the same extent as
the laws of the United States.
We may
not have adequate intellectual property protection for some of our products and
products under development and consequently may need to obtain licenses from
third parties. If any such licenses are required, we may be unable to negotiate
terms acceptable to us and such failure could have a material adverse effect on
our future results of operations.
We
may be unsuccessful in our long-term goal of expanding our product offerings
outside the United States and Canada.
For the
three months ended March 31, 2009, we derived approximately 91.7% of our net
revenues from sales within the United States and Canada. We have entered into
distribution agreements with third parties outside the United States and Canada,
but do not anticipate sales of our products through these distributors becoming
a significant portion of our revenues in the foreseeable future. If we do begin
to offer our products more broadly outside the United States and Canada, we
expect that we will remain dependent on third-party distribution relationships
and will need to attract additional distributors to increase the number of
territories in which we sell our products. Distributors may not commit the
necessary resources to market and sell our products to the level of our
expectations. If current or future distributors do not perform adequately, or we
are unable to locate distributors in particular geographic areas, our ability to
realize long-term international revenue growth could be materially adversely
affected
Although
some of our products have regulatory clearances and approvals from jurisdictions
outside the United States and Canada, many do not. These products may not be
sold in these jurisdictions until the required clearances and approvals are
obtained. We cannot assure you that we will be able to obtain these clearances
or approvals on a timely basis, or at all. In Japan, recent changes in the laws
and regulations governing the approval process for medical devices has made it
unlikely that we will be able to obtain approvals for our products within the
foreseeable
future.
We
are dependent on sole-source and single-source suppliers for certain of our
products and components, thereby exposing us to supply interruptions that could
have a material adverse effect on our business.
We have
one product and several components of other products that we obtain from sole
suppliers. We rely on one vendor for our Gamma Finder product, one vendor for
our biopsy probe motors, one vendor for a biopsy probe coating, two vendors for
the ultrasound technology used in SenoSonix with EnCor and one vendor for
circuit boards in the Encore hardware. Other products and components come from
single suppliers, but alternate suppliers are easier to identify. However, in
many of these cases we have not yet qualified alternate suppliers and rely upon
purchase orders, rather than longer-term supply agreements. We also do not carry
a significant inventory of most components used in our products and generally
could not replace our suppliers without significant effort and delay in
production. In addition, switching components may require product redesign and
new regulatory clearances by the FDA, either of which could significantly delay
or prevent production and involve substantial costs.
Reliance
on third-party vendors may lead to unanticipated interruptions in supply or
failure to meet demand on a timely basis. Any supply interruption from our
vendors or failure to obtain additional vendors for any of the components could
limit our ability to manufacture our products and fulfill customer orders on a
timely basis, which could harm our reputation and revenues.
We
have limited experience manufacturing certain components of our products in
significant quantities, which could adversely impact the rate at which we
grow.
We may
encounter difficulties in manufacturing relating to our products and products
under development for the following reasons:
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our
limited experience in manufacturing such products in significant
quantities and in compliance with the FDA’s Quality System
Regulation;
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to
increase our manufacturing output significantly, we will have to attract
and retain qualified employees, who are in short supply, for the
manufacturing, assembly and testing operations;
and
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some
of the components and materials that we use in our manufacturing
operations are currently provided by sole and single sources of
supply.
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Our
limited manufacturing experience has in the past resulted in unexpected and
costly delays. For example, in 2006, as a part of our settlement of litigation
with Suros Surgical Systems, a wholly-owned subsidiary of Hologic, we
implemented a redesign to the EnCor system cutter. This effort resulted in a
short-term decrease in yields and a delay in implementing certain cost
improvements, which had an adverse effect on our costs of goods sold. In
addition, although we believe that our current manufacturing capabilities will
be adequate to support our commercial manufacturing activities for the
foreseeable future, we may be required to expand our manufacturing facilities if
we experience faster-than-expected growth. If we are unable to provide customers
with high-quality products in a timely manner, we may not be able to achieve
wide market adoption for our EnCor system or other products and products under
development. Our inability to successfully manufacture or commercialize our
devices could have a material adverse effect on our product sales.
We
rely on third-party manufacturers for certain components, and the loss of any of
these manufacturers, or their inability to provide us with an adequate supply of
high-quality components, could have a material adverse effect on our
business.
Although
we manufacture certain components and assemble some of our products at our
corporate headquarters in Irvine, California, we rely on third parties to
manufacture most of the components of our products and are in the process of
transferring additional manufacturing and assembly to our Thailand contract
manufacturer. Some of these relationships are new and we have not had experience
with their large commercial-scale manufacturing capabilities. For example, since
the end of 2005, we have been transferring a portion of our manufacturing
operations to a third party in Thailand. Because of the distance between
California and Thailand, we may have difficulty adequately supervising and
supporting its operations. There are several risks inherent in relying on
third-party manufacturers, including:
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failure
to meet our requirements on a timely basis as demand grows for our
products;
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errors
in manufacturing components that could negatively affect the performance
of our products, cause delays in shipment of our products, or lead to
malfunctions or returns;
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inability
to manufacture products to our quality specifications and strictly
enforced
regulatory
requirements;
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inability
to implement design modifications that we develop in the
future;
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unwillingness
to negotiate a long-term supply contract that meets our needs or to supply
components on a short-term basis on commercially reasonable
terms;
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prioritization
of other customers orders over
ours;
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inability
to fulfill our orders due to unforeseen events, including foreign
political events, that result in a disruption of their operations;
and
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continued
fluctuations in the value of the U.S. dollar could impact our future
third-party
manufacturing
costs.
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If a
manufacturer fails to meet our needs with high-quality products on a timely
basis, we may be unable to meet customer demand, which could have a material
adverse effect on our reputation and customer relationships.
Changes
in coverage and reimbursement for procedures using our products could affect the
adoption of our products and our future revenues.
Breast
biopsy procedures and markers are typically reimbursed by third-party payors,
including Medicare, Medicaid and private healthcare insurance companies. These
payors may adversely change their coverage amounts and reimbursement policies.
Also, healthcare reform legislation or regulation may be proposed or enacted in
the future that adversely affects these policies and amounts. For example, the
Federal Deficit Reduction Act of 2006 may in the future affect future
reimbursement rates for our vacuum- assisted biopsy products and Contura MLB
products. We cannot assure you that the current scope of coverage or levels of
reimbursement will continue to be available or that coverage of, or
reimbursement for, our products will be available at all. If physicians,
hospitals and other providers are unable to obtain adequate reimbursement for
our current products or future products, or for the procedures in which such
products are used, they may be less likely to purchase the products, which could
have a material adverse impact on our market share. For example, in 2009, it is
expected that there will be an increase in reimbursement rates to non hospital
based Radiation Oncology centers for multiple-dwell radiation balloon catheter
procedures, which includes Contura MLB, relative to single catheter
procedures, but a decrease for non hospital based Radiology Oncology centers in
rates relative to whole breast radiation therapy.
Any
acquisitions that we make could disrupt our business and have an adverse effect
on our
financial
condition.
We expect
that in the future we may identify and evaluate opportunities for strategic
acquisitions of complementary product lines, technologies or companies. We may
also consider joint ventures and other collaborative projects. However, we may
not be able to identify appropriate acquisition candidates or strategic
partners, or successfully negotiate, finance or integrate any businesses,
products or technologies that we acquire. Furthermore, the integration of any
acquisition and the management of any collaborative project may divert
management’s time and resources from our core business and disrupt our
operations. We do not have any experience with acquiring other product lines,
technologies or companies. We may spend time and money on projects that do not
increase our revenues. Any cash acquisition we pursue would diminish the funds
available to us for other uses, and any stock acquisition would be dilutive to
our stockholders.
Our
financial controls and procedures may not be sufficient to ensure timely and
reliable reporting of financial information, which, as a public company, could
materially harm our stock price and
NASDAQ
listing.
As a
public company, we will require greater financial resources than we have had as
a private company. We will need to hire additional employees for our finance
department. We cannot provide you with assurance that our finance department has
or will maintain adequate resources to ensure that we will not have any future
material weakness in our system of internal controls. The effectiveness of our
controls and procedures may in the future be limited by a variety of factors
including:
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faulty
human judgment and simple errors, omissions or
mistakes;
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fraudulent
action of an individual or collusion of two or more
people;
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inappropriate
management override of procedures;
and
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the
possibility that any enhancements to controls and procedures may still not
be adequate to assure timely and accurate financial
information.
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If we
fail to have effective controls and procedures for financial reporting in place,
we could be unable to provide timely and accurate financial information and be
subject to NASDAQ delisting, SEC investigation, and civil or criminal
sanctions.
Product
liability claims may lead to expensive and time-consuming litigation,
substantial damages, increased insurance rates, and may have a material adverse
effect on our financial condition.
Our
business exposes us to potential product liability claims that are inherent in
the manufacturing, marketing and sale of medical devices. For example, in the
past we experienced, and in the future could experience, an issue related to the
tip of our Gel Mark Ultra Biopsy Site Marker shearing off in the patient’s
breast during the biopsy procedure, which could lead to a claim of damages,
though none has previously been made. We may be unable to avoid product
liability claims, including those based on manufacturing defects or claims that
the use, misuse or failure of our products resulted in a misdiagnosis or harm to
a patient. Although we believe that our liability coverage is adequate for our
current needs, and while we intend to expand our product liability insurance
coverage to any products we intend to commercialize, insurance may be
unavailable, prohibitively expensive or may not fully cover our potential
liabilities. If we are unable to maintain sufficient insurance coverage on
reasonable terms or to otherwise protect against potential product liability
claims, we may be unable to continue to market our products and to develop new
products. Defending a product liability lawsuit could be costly and have a
material adverse effect on our financial condition, as well as significantly
divert management’s attention from conducting our business. In addition, product
liability claims, even if they are unsubstantiated, may damage our reputation by
raising questions about our products’ safety and efficacy, which could
materially adversely affect our results of operations, interfere with our
efforts to market our products and make it more difficult to obtain commercial
relationships necessary to maintain our business.
We
may be adversely affected by the impact of environmental and safety
regulations.
We are
subject to federal, state, local and foreign laws and regulations governing the
protection of the environment and occupational health and safety, including laws
regulating the disposal of hazardous wastes and the health and safety of our
employees. We may be required to obtain permits from governmental authorities
for certain operations. If we violate or fail to comply with these laws and
regulations, we could incur fines, penalties or other sanctions, which could
adversely affect our business and our financial condition and cause our stock
price to decline. We also may incur material expenses in the future relating to
compliance with future environmental laws. In addition, we could be held
responsible for substantial costs and damages arising from any contamination at
our present facilities or third-party waste disposal sites. We cannot completely
eliminate the risk of contamination or injury resulting from hazardous
materials, and we may incur material liability as a result of any contamination
or injury.
Our
success will depend on our ability to attract and retain key personnel,
particularly members of management and scientific staff.
We
believe our future success will depend upon our ability to attract and retain
employees, including members of management, engineers and other highly skilled
personnel. Our employees may terminate their employment with us at any time.
Hiring qualified personnel may be difficult due to the limited number of
qualified professionals and the fact that competition for these types of
employees is intense. If we fail to attract and retain key personnel, we may not
be able to execute our business plan.
Our
ability to use net operating loss carryforwards may be limited.
Section 382
of the Internal Revenue Code generally imposes an annual limitation on the
amount of net operating loss carryforwards that may be used to offset taxable
income when a corporation has undergone significant changes in its stock
ownership. We have internally reviewed the applicability of the annual
limitations imposed by Section 382 caused by previous changes in our stock
ownership and believe such limitations should not be significant. Future
ownership changes, including changes resulting from or affected by our IPO, may
adversely affect our ability to use our remaining net operating loss
carryforwards. If our ability to use net operating loss carryforwards is
limited, we may be subject to tax on our income earlier than we would otherwise
be had we been able to fully utilize our net operating loss
carryforwards.
RISKS
RELATED TO REGULATORY MATTERS
The
FDA may find that we do not comply with regulatory requirements and take action
against us.
Our
products and facilities are subject to periodic unannounced inspections by the
FDA and other regulatory bodies. In particular, we are required to comply with
the FDA’s Quality System Regulations, or QSRs, and other regulations, which
cover the methods and documentation of the design, testing, production, control,
quality assurance, labeling, packaging, storage, shipping and post-market
surveillance of our products.
We
underwent an inspection of our facilities by the FDA in April 2005, which
resulted in the issuance in July 2005 of a Warning Letter from the FDA related
to, among other things, our failure to adequately validate manufacturing changes
we undertook to prevent the tip of the Gel Mark Ultra Biopsy Site Marker from
shearing off in the patient’s breast during the biopsy procedure, which we had
experienced. The letter required us to take prompt action to strengthen our
Quality System and product engineering area. We responded to the FDA with a
comprehensive corrective action plan in August 2005. We believe we are in
compliance with the QSRs. However, during a future inspection, the FDA may
determine that we have failed to adequately or completely implement the
corrective action plan or may find additional material violations. Such a
determination could lead the FDA to commence an enforcement action against us,
which may include the following sanctions:
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injunctions,
fines, other civil penalties or additional Warning
Letters;
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the
refusal of, or delay by, the FDA in granting further 510(k) clearances or
approving further premarket approval
applications;
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suspension
or withdrawal of our FDA clearances or
approvals;
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operating
restrictions, including total or partial suspension of production,
distribution, sales and marketing of our products;
or
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product
recalls, product seizures or criminal prosecution of our company, our
officers or our employees.
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Any of
these could have a material adverse effect on our reputation, results of
operation and
financial
condition.
If
we fail to obtain or maintain necessary FDA clearances or approvals for
products, or if clearances or approvals are delayed, we will be unable to
commercially distribute and market our products in the
United
States.
Our
products are medical devices, and as such are subject to extensive regulation in
the United States and in the foreign countries where we do business. Unless an
exemption applies, each medical device that we wish to market in the United
States must first receive 510(k) clearance or premarket approval from the FDA.
Either process can be lengthy and expensive. The FDA’s 510(k) clearance process
usually takes from three to twelve months from the date the application is
complete, but it may take longer. The premarket approval process is much more
costly, lengthy and uncertain. It generally takes from one to three years from
the date the application is completed or even longer. Achieving a completed
application is a process that may require numerous clinical trials and the
filing of amendments over time. We expect that our products in the foreseeable
future will be subject to 510(k) procedures and not premarket approval, or PMA,
applications. We may not be able to obtain additional FDA clearances or
approvals in a timely fashion, or at all. Delays in obtaining clearances or
approvals could adversely affect our revenues and profitability.
Modifications
to our devices may require new 510(k) clearances, which may not be
obtained.
The FDA
requires device manufacturers to initially make and document a determination of
whether or not a modification requires a new clearance; however, the FDA can
review a manufacturer’s decision. Any modifications to an FDA-cleared device
that could significantly affect its safety or effectiveness, or that would
constitute a major change in its intended use would require a 510(k) clearance
or possibly a premarket approval.
We have
modified aspects of some of our products since receiving FDA clearance, but we
believe that new 510(k) clearances are not required. We may make additional
modifications, and in appropriate circumstances, determine that new clearance or
approval is unnecessary. The FDA may not agree with our decisions not to seek
new clearances or approvals. If the FDA requires us to seek 510(k) clearances or
approval for any modifications to a previously cleared product, we may be
required to cease marketing or recall the modified device until we obtain
clearance or approval. Also, in these circumstances we may be subject to adverse
publicity, regulatory Warning Letters and significant fines and
penalties.
Government
regulation imposes significant restrictions and costs on the development and
commercialization of our products.
Any
products cleared or approved by the FDA are subject to on-going regulation. Any
discovery of previously unknown or unrecognized problems with the product or a
failure of the product to comply with any applicable regulatory requirements can
result in, among other things:
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Warning
Letters, injunctions, fines or other civil
penalties;
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the
refusal of, or delay by, the FDA in granting further 510(k) clearances or
approving further premarket approval
applications;
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suspension
or withdrawal of our FDA clearances or
approvals;
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operating
restrictions, including total or partial suspension of production,
distribution, sales and marketing of our products;
or
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product
recalls, product seizures or criminal prosecution of our company, our
officers or our employees.
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Any of
these could have a material adverse effect on our reputation and results of
operations.
RISKS
RELATED TO THE SECURITIES MARKETS AND OWNERSHIP OF OUR COMMON STOCK
Our
common stock has been publicly traded for a short time and an active trading
market may not
be
sustained.
Prior to
March 2007, there had been no public market for our common stock. An active
trading market may not be sustained. The lack of an active market may impair the
value of your shares and your ability to sell your shares at the time you wish
to sell them. An inactive market may also impair our ability to raise capital by
selling shares and may impair our ability to acquire other companies, products
or technologies by using our shares as consideration.
If
our public guidance or our future operating performance does not meet investor
expectations, our stock price could decline.
As a
public company, we provide guidance to the investing community regarding our
anticipated future operating performance. Our business typically has a short
sales cycle, so that we do not have significant backlog of orders at the start
of a quarter, and our ability to sell our products successfully is subject to
many uncertainties. In light of these factors, it is difficult for us to
estimate with accuracy our future results. Our expectations regarding these
results will be subject to numerous risks and uncertainties that could make
actual results differ materially from those anticipated. If our actual results
do not meet our public guidance or our guidance or actual results do not meet
the expectations of third-party financial analysts, our stock price could
decline significantly.
We
expect that the price of our common stock will fluctuate
substantially.
The
market price of our common stock is likely to be highly volatile and may
fluctuate substantially due to many factors, including:
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volume
and timing of sales of our
products;
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the
introduction of new products or product enhancements by us or our
competitors;
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disputes
or other developments with respect to our intellectual property rights or
the intellectual property rights of
others;
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our
ability to develop, obtain regulatory clearance or approval for, and
market, new and enhanced products on a timely
basis;
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product
liability claims or other
litigation;
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quarterly
variations in our or our competitors’ results of
operations;
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sales
of large blocks of our common stock, including sales by our executive
officers and directors;
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announcements
of technological or medical innovations for the diagnosis and treatment of
breast cancer;
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changes
in governmental regulations or in the status of our regulatory approvals
or applications;
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changes
in the availability of third-party reimbursement in the United States or
other countries;
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changes
in earnings estimates or recommendations by securities
analysts;
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general
market conditions and other factors, including factors unrelated to our
operating performance or the operating performance of our competitors;
and
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limited
liquidity and low trading volumes for our common
stock.
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These and
other factors may make the price of our stock volatile and subject to unexpected
fluctuation.
Our
directors, executive officers and principal stockholders have significant voting
power and may take actions that may not be in the best interests of our other
stockholders.
Our
officers, directors and principal stockholders that currently hold more than 5%
of our common stock together control nearly a majority of our outstanding common
stock. As a result, these stockholders, if they act together, will be able to
exercise significant influence over the management and affairs of our company
and all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may have the effect of delaying or preventing a change in control,
might have a material adverse effect on the market price of our common stock and
may not be in the best interest of our other stockholders.
A
sale of a substantial number of shares of our common stock may cause the price
of our common stock
to
decline.
Following
the expiration of lock-up arrangements with our stockholders in September 2007
that were entered into in connection with our IPO, all shares of our common
stock that were outstanding before the IPO are now eligible for resale, subject
to compliance with Rule 144 under the Securities Act. If our stockholders sell
substantial amounts of our common stock, the market price of our common stock
could decline.
Our
Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law,
contain provisions that could discourage a takeover.
Our
Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law,
contain provisions that might enable our management to resist a takeover, and
might make it more difficult for an investor to acquire a substantial block of
our common stock. These provisions include:
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a
classified board of directors;
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advance
notice requirements to stockholders for matters to be brought at
stockholder meetings;
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a
supermajority stockholder vote requirement for amending certain provisions
of our Amended and Restated Certificate of Incorporation and
Bylaws;
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limitations
on stockholder actions by written consent;
and
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the
right to issue preferred stock without stockholder approval, which could
be used to dilute the stock ownership of a potential hostile
acquirer.
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These
provisions might discourage, delay or prevent a change in control of our company
or a change in our management. The existence of these provisions could adversely
affect the voting power of holders of our common stock and limit the price that
investors might be willing to pay in the future for shares of the common
stock.
We
do not intend to pay cash dividends.
We have
never declared or paid cash dividends on our capital stock. We currently intend
to retain all available funds and any future earnings for use in the operation
and expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future. In addition, the terms of any future debt or credit
facility may preclude us from paying any dividends. As a result, we anticipate
that capital appreciation of our common stock, if any, will be your sole source
of potential gain for the foreseeable future.
ITEM 2.
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UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
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We did
not sell any equity securities during the period covered by this
report.
ITEM 3.
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DEFAULTS
UPON SENIOR SECURITIES
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None.
ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
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None.
ITEM 5.
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OTHER
INFORMATION
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None.
Exhibit
Number
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Description
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3.2
(1)
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Amended
and Restated Certificate of Incorporation.
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3.4
(1)
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Bylaws.
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4.1
(1)
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Specimen
Common Stock certificate of the Registrant.
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4.2
(1)
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Fourth
Amended and Restated Investors’ Rights Agreement, dated May 3, 2006,
by and among the Registrant and certain stockholders.
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10.1
(1)
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Form
of Indemnification Agreement for directors and executive
officers.
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10.2
(1)
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1998
Stock Plan.
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10.3
(5)
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2006
Equity Incentive Plan.
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10.4
(1)
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Employee
Stock Purchase Plan.
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10.5
(1)
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Fourth
Amended and Restated Investors’ Rights Agreement, dated May 3, 2006,
by and among the Registrant and certain stockholders.
|
|
|
|
10.6
(1)
|
|
Standard
Industrial/Commercial Multi-Tenant Lease, dated September 15, 1999,
as amended on March 28, 2003 and November 1, 2003, by and
between the Registrant and Columbia Investors, LLC.
|
|
|
|
10.7
(1)
|
|
Loan
and Security Agreement, dated March 15, 2002, and various amendments
thereto, by and between the Registrant and Silicon Valley
Bank.
|
|
|
|
10.7.1
(1)
|
|
Amended
and Restated Loan and Security Agreement, dated February 20, 2007, by
and between the Registrant and Silicon Valley Bank.
|
|
|
|
10.8
(1)
|
|
Convertible
Subordinated Note Agreement, dated May 9, 2002, by and between the
Registrant and Century Medical, Inc.
|
|
|
|
10.9
(1)
|
|
$2,500,000
Loan and Security Agreement, dated December 27, 2004, by and between
the Registrant and Venture Lending & Leasing IV,
Inc.
|
|
|
|
10.10
(1)
|
|
Note
Purchase Agreement and Form of Subordinated Convertible Promissory Note,
each dated May 4, 2006, by and between the Registrant and certain
stockholders.
|
|
|
|
10.11
(1)
†
|
|
Agreement
for Vacuum Assisted Breast Biopsy Needle, System, and Accessory Products,
effective April 1, 2005 by and between the Registrant and KP
Select.
|
|
|
|
10.12
(1)
|
|
Executive
Employment Agreement, dated May 1, 1999, by and between the
Registrant and Lloyd Malchow.
|
|
|
|
10.13
(1)
†
|
|
Distribution
Agreement, dated June 11, 2003, and various amendments thereto, by
and among the Registrant, W.O.M. World of Medicine USA, Inc. and W.O.M.
World of Medicine AG.
|
|
|
|
10.14
(1)
|
|
Settlement
Agreement, effective as of May 22, 2006, by and between the
Registrant and Suros Surgical Systems, Inc.
|
|
|
|
10.15
(1)
|
|
Loan
and Security Agreement, dated December 8, 2006, by and between the
Registrant and Escalate Capital I, L.P.
|
|
|
|
10.16
(2)
|
|
Lease
Agreement between The Irvine Company LLC and Registrant dated March 5,
2008.
|
|
|
|
10.17
(3)
|
|
Change
in Control Agreement between Registrant and Lloyd
Malchow.
|
|
|
|
10.18
(3)
|
|
Change
in Control Agreement between Registrant and Paul
Lubock.
|
|
|
|
10.19
(3)
|
|
Change
in Control Agreement between Registrant and Kevin
Cousins.
|
|
|
|
10.20
(3)
|
|
Change
in Control Agreement between Registrant and William
Gearhart.
|
|
|
|
10.21
(3)
|
|
Change
in Control Agreement between Registrant and Eben
Gordon.
|
10.22
(4)
|
|
Amendment
dated September 30, 2008, to the Amended and Restated Loan and Security
Agreement dated February 27, 2007, by and between the Registrant and
Silicon Valley Bank.
|
|
|
|
10.23
(4)
|
|
Loan
and Security Agreement (Ex-Im Loan Facility) dated September 30, 2008, by
and between the Registrant and Silicon Valley Bank.
|
|
|
|
10.24
(4)
|
|
Export-Import
Bank of the United States Working Capital Guarantee Program Borrower
Agreement dated September 30, 2008, by and between the Registrant and
Silicon Valley Bank.
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer under Securities Exchange Act Rule
13a-14(a).
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer under Securities Exchange Act Rule
13a-14(a).
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350 and Securities Exchange Act Rule
13a-14(b).
|
_______________
(1)
|
Incorporated
by reference from our Registration Statement on Form S-1 (Registration
No. 333-134466), which was declared effective on March 28,
2007.
|
(2) Incorporated
by reference from our Current Report on Form 8-K filed on March 10,
2008.
(3) Incorporated
by reference from our Current Report on Form 8-K filed on August 29,
2008.
(4) Incorporated
by reference from our Current Report on Form 8-K filed on October 2,
2008.
(5) Incorporated
by reference from our Annual Report on Form 10-K filed on March 16,
2009.
†
|
Portions
of the exhibit have been omitted pursuant to a request for confidential
treatment. The confidential portions have been filed with the
SEC.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date:
May 6, 2009
|
/s/
Lloyd H. Malchow
|
|
|
Lloyd
H. Malchow
|
|
|
President
and Chief Executive Officer
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
Date:
May 6, 2009
|
/s/
Kevin J. Cousins
|
|
|
Kevin
J. Cousins
|
|
|
Chief
Financial Officer
|
|
|
(Principal
Financial and Accounting Officer)
|
|
INDEX
TO EXHIBITS
Exhibit
Number
|
|
Description
|
3.2
(1)
|
|
Amended
and Restated Certificate of Incorporation.
|
|
|
|
3.4
(1)
|
|
Bylaws.
|
|
|
|
4.1
(1)
|
|
Specimen
Common Stock certificate of the Registrant.
|
|
|
|
4.2
(1)
|
|
Fourth
Amended and Restated Investors’ Rights Agreement, dated May 3, 2006,
by and among the Registrant and certain stockholders.
|
|
|
|
10.1
(1)
|
|
Form
of Indemnification Agreement for directors and executive
officers.
|
|
|
|
10.2
(1)
|
|
1998
Stock Plan.
|
|
|
|
10.3
(5)
|
|
2006
Equity Incentive Plan.
|
|
|
|
10.4
(1)
|
|
Employee
Stock Purchase Plan.
|
|
|
|
10.5
(1)
|
|
Fourth
Amended and Restated Investors’ Rights Agreement, dated May 3, 2006,
by and among the Registrant and certain stockholders.
|
|
|
|
10.6
(1)
|
|
Standard
Industrial/Commercial Multi-Tenant Lease, dated September 15, 1999,
as amended on March 28, 2003 and November 1, 2003, by and
between the Registrant and Columbia Investors, LLC.
|
|
|
|
10.7
(1)
|
|
Loan
and Security Agreement, dated March 15, 2002, and various amendments
thereto, by and between the Registrant and Silicon Valley
Bank.
|
|
|
|
10.7.1
(1)
|
|
Amended
and Restated Loan and Security Agreement, dated February 20, 2007, by
and between the Registrant and Silicon Valley Bank.
|
|
|
|
10.8
(1)
|
|
Convertible
Subordinated Note Agreement, dated May 9, 2002, by and between the
Registrant and Century Medical, Inc.
|
|
|
|
10.9
(1)
|
|
$2,500,000
Loan and Security Agreement, dated December 27, 2004, by and between
the Registrant and Venture Lending & Leasing IV,
Inc.
|
|
|
|
10.10
(1)
|
|
Note
Purchase Agreement and Form of Subordinated Convertible Promissory Note,
each dated May 4, 2006, by and between the Registrant and certain
stockholders.
|
|
|
|
10.11
(1)
†
|
|
Agreement
for Vacuum Assisted Breast Biopsy Needle, System, and Accessory Products,
effective April 1, 2005 by and between the Registrant and KP
Select.
|
|
|
|
10.12
(1)
|
|
Executive
Employment Agreement, dated May 1, 1999, by and between the
Registrant and Lloyd Malchow.
|
|
|
|
10.13
(1)
†
|
|
Distribution
Agreement, dated June 11, 2003, and various amendments thereto, by
and among the Registrant, W.O.M. World of Medicine USA, Inc. and W.O.M.
World of Medicine AG.
|
|
|
|
10.14
(1)
|
|
Settlement
Agreement, effective as of May 22, 2006, by and between the
Registrant and Suros Surgical Systems, Inc.
|
|
|
|
10.15
(1)
|
|
Loan
and Security Agreement, dated December 8, 2006, by and between the
Registrant and Escalate Capital I, L.P.
|
|
|
|
10.16
(2)
|
|
Lease
Agreement between The Irvine Company LLC and Registrant dated March 5,
2008.
|
|
|
|
10.17
(3)
|
|
Change
in Control Agreement between Registrant and Lloyd
Malchow.
|
|
|
|
10.18
(3)
|
|
Change
in Control Agreement between Registrant and Paul
Lubock.
|
|
|
|
10.19
(3)
|
|
Change
in Control Agreement between Registrant and Kevin
Cousins.
|
|
|
|
10.20
(3)
|
|
Change
in Control Agreement between Registrant and William
Gearhart.
|
|
|
|
10.21
(3)
|
|
Change
in Control Agreement between Registrant and Eben
Gordon.
|
10.22
(4)
|
|
Amendment
dated September 30, 2008, to the Amended and Restated Loan and Security
Agreement dated February 27, 2007, by and between the Registrant and
Silicon Valley Bank.
|
|
|
|
10.23
(4)
|
|
Loan
and Security Agreement (Ex-Im Loan Facility) dated September 30, 2008, by
and between the Registrant and Silicon Valley Bank.
|
|
|
|
10.24
(4)
|
|
Export-Import
Bank of the United States Working Capital Guarantee Program Borrower
Agreement dated September 30, 2008, by and between the Registrant and
Silicon Valley Bank.
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer under Securities Exchange Act Rule
13a-14(a).
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer under Securities Exchange Act Rule
13a-14(a).
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350 and Securities Exchange Act Rule
13a-14(b).
|
(1)
|
Incorporated
by reference from our Registration Statement on Form S-1 (Registration
No. 333-134466), which was declared effective on March 28,
2007.
|
(2) Incorporated
by reference from our Current Report on Form 8-K filed on March 10,
2008.
(3) Incorporated
by reference from our Current Report on Form 8-K filed on August 29,
2008.
(4) Incorporated
by reference from our Current Report on Form 8-K filed on October 2,
2008.
(5) Incorporated
by reference from our Annual Report on Form 10-K filed on March 16,
2009.
†
|
Portions
of the exhibit have been omitted pursuant to a request for confidential
treatment. The confidential portions have been filed with the
SEC.
|
33
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