|
|
ITEM 7.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion and analysis of our financial condition and results of operations should be read together with “Selected Financial Data” and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the section entitled Risk Factors and elsewhere in this Annual Report.
Overview
We are a medical technology company focused on developing and commercializing products utilizing our proprietary controlled cooling technology platform. Our first commercial product, the CoolSculpting System, is designed to selectively reduce stubborn fat bulges that may not respond to diet or exercise. We generate revenues from sales of our CoolSculpting System and from sales of consumables when our physician customers pay for each CoolSculpting procedure they perform. We received clearance from the FDA in September 2010 to market CoolSculpting for the selective reduction of fat around the flanks, an area commonly referred to as the “love handles.” In May 2012, CoolSculpting was cleared by the FDA for treatment of "belly fat" or non-surgical reduction of fat for the abdomen area. We may seek additional regulatory clearances from the FDA to expand our U.S. marketed indications for CoolSculpting to areas on the body other than the flanks and abdomen. We have received regulatory approval or are otherwise free to market CoolSculpting in
55
international markets where use of the product is generally not limited to specific treatment areas. Physicians in these markets commonly perform CoolSculpting procedures on the inner thighs, back, and chest, in addition to the flanks and abdomen.
As of
December 31, 2012
, our worldwide sales force consisted of
62
professionals. In the United States, Canada and four key markets in Europe (United Kingdom, Germany, France and Spain), we use our direct sales organization to selectively market
CoolSculpting. In markets outside of North America and the four key markets in Europe, we sell CoolSculpting through a network of distributors. We intend to continue developing our international sales and marketing organization to focus on increasing sales and strengthening our physician relationships. We also intend to seek regulatory approval to market CoolSculpting in key additional international markets, including China. Revenues from markets outside of North America accounted for
26%
of our total revenues for the
years ended
December 31, 2012
and
2011
.
Our ongoing research and development activities are primarily focused on improving and enhancing our CoolSculpting System and CoolSculpting procedure. In addition to these development activities related to CoolSculpting, we are exploring additional uses of our proprietary controlled cooling technology platform for the dermatology, plastic surgery, and aesthetic markets. We are also exploring potential therapeutic uses for our platform technology, either directly or through collaborative arrangements with strategic partners.
In
October 2011
, we completed our initial public offering, or IPO, at which time we sold a total of
7,743,000
shares of our common stock and certain of our stockholders sold
307,000
shares of our common stock. We received net proceeds of
$90.7 million
, net of underwriting discounts and commissions and other costs associated with the offering.
Revenues
We generate revenues from sales of our CoolSculpting System and from sales of consumables when our physician customers pay for each CoolSculpting procedure they perform. We generated revenues of
$76.2 million
,
$68.1 million
and
$25.5 million
for the
years ended
December 31, 2012
,
2011
and
2010
, respectively.
Systems revenues.
Sales of our CoolSculpting System include the CoolSculpting control unit and our CoolSculpting vacuum applicators. Some practices may purchase more than one CoolSculpting System. Our standard terms do not allow for trial or evaluation periods, rights of return, or refund payments contingent upon the customer obtaining financing or other terms that could impact the customer’s obligation.
During the year ended
December 31, 2012
, our system sales were impacted by new product launches and trial offers by our competitors that created competition for physician capital equipment dollars. Despite this, we grew our worldwide installed base by
53%
from
967
units as of
December 31, 2011
, to
1,483
units as of
December 31, 2012
.
Consumable revenues.
We generate consumable revenues through sales of CoolSculpting Procedure Packs, each of which includes our consumable CoolGels and CoolLiners and a disposable computer cartridge that we market as the CoolCard. The CoolCard contains enabling software that permits our physician customer to perform a fixed number of CoolSculpting procedures. Consumable revenues accounted for approximately
49%
,
32%
and
17%
of our total revenues for the
years ended
December 31, 2012
,
2011
and
2010
, respectively. During the years ended
December 31, 2012
and
December 31, 2011
, we shipped approximately
300,000
and
190,000
CoolSculpting Procedure Packs to our physician customers, respectively.
Our business plan focuses on expanding our base of physician customers, and increasing our consumable revenues by driving demand for CoolSculpting procedures through our physician and consumer marketing programs. We anticipate that as we implement our business plan our consumable revenues will increase as a percentage of our total revenues.
Seasonality.
Seasonal fluctuations in the number of physician customers in their offices and available to take appointments as well as their patients have affected, and are likely to continue to affect, our business. Specifically, our customers often take vacation or are on holiday during the summer months and therefore tend to perform fewer procedures, particularly in Europe. These seasonal trends have caused and will likely continue to cause, fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates.
Market in which we operate.
The medical technology and aesthetic product markets are highly competitive and dynamic, and are characterized by rapid and substantial technological development and product innovations. We compete with many other technologies for consumer demand. Further, the aesthetic industry in which we operate is particularly vulnerable to economic trends. The decision to undergo a procedure from our systems is driven by consumer demand. Most procedures performed using our systems are elective procedures, the cost of which must be borne by the patient, and are not reimbursable through government or private health insurance. In times of economic uncertainty or recession, individuals often reduce the amount of money that they spend on discretionary items, including aesthetic procedures. The general economic difficulties being experienced and the lack of availability of consumer credit for some of our customers' patients are adversely affecting the market in which we operate.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America or GAAP. The preparation of our consolidated financial statements requires management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the applicable
periods. Management bases its estimates, assumptions, and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our financial statements, which, in turn, could materially change our results from those reported. Management evaluates its estimates, assumptions, and judgments on an ongoing basis. Historically, our critical accounting estimates have not differed materially from actual results. However, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse effect on our statements of operations, liquidity, and financial condition.
The consolidated financial statements include the accounts of ZELTIQ and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated.
We believe the following critical accounting policies involve significant areas where management applies judgments and estimates in the preparation of our financial statements.
Revenue Recognition
Our revenues are derived from the sales of the CoolSculpting System, consisting of a control unit and applicators; and from Procedure Packs, consisting of consumables and CoolCards. Embedded software exists in the CoolCard product to permit our physician customers to perform a fixed number of CoolSculpting procedures. This software is not marketed separately from the CoolSculpting System or from the CoolCard. Rather, the functionality that the software provides is part of the overall CoolCard product. The CoolSculpting System is marketed as a non-invasive aesthetic device for the reduction of fat, not for its embedded software attributes included in the CoolCard that enable its use. We do not provide rights to upgrades and enhancements or post contract customer support for the embedded software. In addition, we do not incur significant software development costs or capitalize our software development costs. Based on this assessment, we consider the embedded software in the CoolCard incidental to the CoolCard product as a whole and determined that revenue recognition should not be governed by the provisions of Topic 985 of the FASB Accounting Standards Codification, or ASC. We earn revenue from the sale of our products to physicians and to distributors. We recognize revenue when persuasive evidence of an arrangement exists, transfer of title to the customer has occurred, the sales price is fixed or determinable, and collectability is probable. Revenues are deferred in the event that any of the revenue recognition criteria is not met.
Persuasive Evidence of an Arrangement
. We use contracts or customer purchase orders to determine the existence of an arrangement.
Transfer of title
. Our standard terms generally specify that title transfers upon shipment to the customer. We use third party shipping documents to verify that title has transferred.
Sales Price Fixed or Determinable.
We assess whether the sales price is fixed or determinable at the time of the transaction. Sales prices are documented in the executed sales contract or purchase order received prior to shipment. Our standard terms do not allow for trial or evaluation periods, rights of return or refund, payments contingent upon the customer obtaining financing or other terms that could impact the customer's obligation.
Collectability.
We assess whether collection is reasonably assured based on a number of factors, including the customer's past transaction history and credit worthiness.
Multiple-Element Arrangements
. Typically, all products sold to a customer are delivered at the same time. If a partial delivery occurs as authorized by the customer, we allocate revenue to the various products based on their vendor-specific objective evidence of fair value, or VSOE, if VSOE exists according to ASC 605-25 as the basis of determining the relative selling price of each element. If VSOE does not exist, we may use third party evidence of fair value, or TPE, to determine the relative selling price of each element. If neither VSOE nor TPE exists, we may use management's best estimate of the sales price, or ESP, of each element to determine the relative selling price. The relative selling prices for control units, applicators and CoolCards are based on established price lists and separate, stand-alone sales of these elements. We establish best estimates within a range of selling prices considering multiple factors including, but not limited to, factors such as size of transaction, pricing strategies and market conditions. We believe the use of the ESP allows revenue recognition in a manner consistent with the underlying economics of the transaction. Our products do not require maintenance or support.
Shipping and handling costs.
Shipping and handling costs are expensed as incurred and included in cost of revenues. In those cases where we bill shipping and handling costs to customers, the amounts billed are classified as revenue.
Investments
We invest our excess cash balances primarily in certificates of deposit, commercial paper, corporate bonds, and U.S. Government agency securities. Investments with original maturities greater than 90 days that mature less than one year from the consolidated balance sheet date are classified as short-term investments. We classify all of our investments as available-for-sale and record such assets at estimated fair value in the consolidated balance sheets, with unrealized gains and losses, if any, reported as a component of accumulated other comprehensive income (loss) in stockholders' equity. Realized gains and losses from maturities of all such securities are reported in earnings and computed using the specific identification cost method. Realized gains or losses and charges for other-than-temporary declines in value, if any, on available-for-sale securities are reported in other income (expense) as incurred. We periodically evaluate these investments for other-than-temporary impairment.
Product Warranty
For 2012, we provided a three-year standard warranty on our CoolSculpting control units and a one-year warranty on our CoolSculpting applicators. In addition to these product warranties, we offered two years of extended warranty service on our control units and applicators. For our direct customers in Europe, we offered a one-year standard warranty on our CoolSculpting control units and applicators with an option for two years of extended warranty service on both. In 2013, we will transition to offering a one-year standard warranty on all of our CoolSculpting control units worldwide.In the event of a warranty claim, our Customer Care department arranges for a prompt service call. Our goal is to minimize the disruption caused by a service event, and we strive to repair a customer's CoolSculpting System or provide the customer with a replacement CoolSculpting System promptly after notifying us of a problem. In markets outside of North America, our CoolSculpting System is serviced and supported through our independent distributors and certified third-party service providers.
We estimate and provide for future costs for initial product warranties upon shipment. We base product warranty costs on related freight, material, technical support labor, and overhead costs. We provide for the estimated product warranty costs by considering our historical costs and applying the experience rates to each product sold over the outstanding warranty period. We must exercise judgment in estimating our expected product warranty costs. If actual product failure rates, freight, material, technical support, labor, and overhead costs differ from our estimates, we will be required to revise our estimated warranty liability. We have recorded a liability of
$0.9 million
and
$0.7 million
as of
December 31, 2012
and
2011
, respectively, for future warranty expense.
We offer an extended warranty of up to two years on both our CoolSculpting control units and CoolSculpting vacuum applicators. We recognize the revenues from the sale of an extended warranty over the extended warranty coverage period. Our revenue and related obligations from sale of extended warranties to date has not been significant.
Stock-Based Compensation
We recognize stock-based compensation cost for only those shares ultimately expected to vest on a straight-line basis over the requisite service period of the award. We estimate the fair value of stock options using a Black-Scholes valuation model, which requires the input of highly subjective assumptions, including the option’s expected term and stock price volatility. In addition, judgment is also required in estimating the number of stock-based awards that are expected to be forfeited. Forfeitures are estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.
Income Taxes
We are subject to income taxes in multiple jurisdictions, including but not limited to the United States and United Kingdom, and we use estimates in determining our provision for income taxes. We use the asset and liability method of accounting for income taxes. Under this method, we calculate deferred tax asset or liability account balances at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect our taxable income.
Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. We recognize a valuation allowance against our net deferred tax assets if it is more likely than not that some portion of the deferred tax assets will not be fully realizable. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction. At
December 31, 2012
, we had a
$44.9 million
valuation allowance against
$45.0 million
of deferred tax assets.
We follow the accounting guidance for uncertainties in income taxes, which prescribes a recognition threshold and measurement process for recording uncertain tax positions taken, or expected to be taken in a tax return, in the consolidated financial statements. None of our currently unrecognized tax benefits would affect our effective income tax rate if recognized, due to the valuation allowance that currently offsets our deferred tax assets. We do not anticipate the total amount of unrecognized income tax benefits relating to tax positions existing at
December 31, 2012
, will significantly increase or decrease in the next 12 months.
We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position's sustainability and is measured at the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and we will determine whether the factors underlying the sustainability assertion have changed and whether the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Our judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.
Utilization of net operating losses and tax credit carryforwards may be limited by “ownership change” rules, as defined in Section 382 of the Internal Revenue Code. Similar rules may apply under state tax laws. In the event we experience any subsequent changes in ownership, the amount of net operating losses and research and development credit carryovers available in any taxable year could be limited and may expire unutilized.
Results of Operations
Comparison of Years Ended December 31, 2012 and 2011
Revenues (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
$ Change
|
|
% Change
|
Revenues
|
|
|
|
|
|
|
|
|
Systems
|
|
$
|
39,145
|
|
|
$
|
46,552
|
|
|
$
|
(7,407
|
)
|
|
(16
|
)%
|
Consumable revenues
|
|
37,049
|
|
|
21,592
|
|
|
15,457
|
|
|
72
|
%
|
Total revenues
|
|
$
|
76,194
|
|
|
$
|
68,144
|
|
|
$
|
8,050
|
|
|
12
|
%
|
Total revenues increased by
$8.1 million
, or
12%
, to
$76.2 million
in
2012
compared to
$68.1 million
in
2011
.
Systems revenues.
Systems revenues decreased by
$7.4 million
to
$39.1 million
in
2012
compared to
$46.6 million
in
2011
. Systems revenues represented
51%
and
68%
of total revenues for the years ended
December 31, 2012
and
2011
, respectively. The systems revenues in
2012
were impacted by new product launches and trial offers by our competitors that created competition for physician capital equipment dollars as well as by changes in our sales force in the North American market. Our rest of the world systems sales were impacted by the transition to a direct sales model.
Consumable revenues.
Consumable revenues increased by
$15.5 million
to
$37.0 million
in
2012
compared to
$21.6 million
in
2011
. Consumable revenues represented
49%
and
32%
of total revenues for the
years ended
December 31, 2012
and
2011
, respectively. The increase in consumable revenues was primarily due to the growth of our installed base of worldwide CoolSculpting Systems, and an increased number of procedures performed by our physician customers driven by our targeted physician and consumer marketing programs.
Cost of Revenues and Gross Profit (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
$ Change
|
|
% Change
|
Cost of revenues
|
|
$
|
25,506
|
|
|
$
|
26,101
|
|
|
$
|
(595
|
)
|
|
(2
|
)%
|
% of total revenues
|
|
33
|
%
|
|
38
|
%
|
|
|
|
|
Gross profit
|
|
$
|
50,688
|
|
|
$
|
42,043
|
|
|
$
|
8,645
|
|
|
21
|
%
|
Gross profit %
|
|
67
|
%
|
|
62
|
%
|
|
|
|
|
Gross profit as a percentage of revenues typically fluctuates with product mix, selling prices, material costs and revenue levels. Gross profit was
$50.7 million
, or
67%
of revenues, in
2012
, compared to gross profit of
$42.0 million
, or
62%
of revenues, in
2011
. The increase in gross profit as a percentage of revenues was driven by an increase in consumable revenues as a percentage
of total revenues and a decrease in the per unit manufacturing cost of systems primarily due to lower direct material costs driven by our continued focus on product cost reductions and negotiations with suppliers.
Operating Expenses (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
$ Change
|
|
% Change
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
12,693
|
|
|
$
|
10,488
|
|
|
$
|
2,205
|
|
|
21
|
%
|
% of total revenues
|
|
17
|
%
|
|
15
|
%
|
|
|
|
|
Sales and marketing
|
|
$
|
51,167
|
|
|
$
|
28,953
|
|
|
$
|
22,214
|
|
|
77
|
%
|
% of total revenues
|
|
67
|
%
|
|
42
|
%
|
|
|
|
|
General and administrative
|
|
$
|
16,867
|
|
|
$
|
11,299
|
|
|
$
|
5,568
|
|
|
49
|
%
|
% of total revenues
|
|
22
|
%
|
|
17
|
%
|
|
|
|
|
Total operating expenses
|
|
$
|
80,727
|
|
|
$
|
50,740
|
|
|
$
|
29,987
|
|
|
59
|
%
|
Research and development.
Research and development expenses increased by
$2.2 million
, or
21%
, to
$12.7 million
in
2012
compared to
$10.5 million
in
2011
. The increase in research and development expenses was primarily due to an increase of
$1.2 million
in payroll related costs and higher stock-based compensation expenses by approximately
$0.4 million
. The increase in payroll related costs was attributed to a higher headcount and severance costs incurred during the year ended
December 31, 2012
, while the increase in stock-based compensation expenses were related to new grants related to the higher headcount. Such increases in headcount also resulted in additional facilities and allocation charges of
$0.3 million
.
Sales and marketing.
Sales and marketing expenses increased by
$22.2 million
, or
77%
, to
$51.2 million
in
2012
compared to
$29.0 million
in
2011
. The increase in sales and marketing expenses was mostly due to a
$10.1 million
increase in advertising expenses incurred in conjunction with our direct marketing campaign and other sales and marketing initiatives, a
$6.2 million
increase in payroll related costs and a
$1.9 million
increase in sales commission expenses driven by higher sales levels. The remaining increase was attributed to higher stock-based compensation expenses, higher travel expenses and higher public relations expenses during the year ended
December 31, 2012
. The increase in these expenses is directly related to the growth of our sales and marketing organization.
General and administrative.
General and administrative expenses increased by
$5.6 million
, or
49%
, to
$16.9 million
in
2012
compared to
$11.3 million
for the same period in
2011
. The increase in general and administrative expenses was primarily due to a
$2.8 million
increase in legal expenses primarily related to our ongoing litigation and IP enforcement activities, a
$2.3 million
increase in payroll related costs and higher stock-based compensation expenses by
$2.0 million
. Consulting, recruiting and travel expenses also increased during the year ended
December 31, 2012
. The increase was partially offset by lower accounting fees of
$1.2 million
incurred during the year ended
December 31, 2012
compared to the prior year. Higher accounting fees during the year ended
December 31, 2011
, were incurred in the preparation for our initial public offering, or IPO. The increase in payroll related costs was attributed to a higher headcount and severance costs recognized during the year ended
December 31, 2012
. The stock-based compensation expense for the year ended
December 31, 2012
, included
$0.7 million
in modification charges incurred in connection with the severance packages to our former executives.
Interest Income (Expense) and Other Income (Expense), Net (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
$ Change
|
|
% Change
|
Interest income (expense), net
|
|
$
|
129
|
|
|
$
|
(93
|
)
|
|
$
|
222
|
|
|
(239
|
)%
|
% of total revenues
|
|
—
|
%
|
|
—
|
%
|
|
|
|
|
Other income (expense), net
|
|
$
|
(92
|
)
|
|
$
|
(765
|
)
|
|
$
|
673
|
|
|
(88
|
)%
|
% of total revenues
|
|
—
|
%
|
|
(1
|
)%
|
|
|
|
|
Interest income (expense), net.
Interest income (expense), net was an income of
$0.1 million
in
2012
compared to an expense of
$0.1 million
in
2011
. During
2012
, interest income was earned on our available-for-sale securities. During 2011, interest expense was incurred in relation to our note payable that was paid in full in the quarter ended March 31, 2012.
Other income (expense), net.
Other income (expense), net, in
2012
was an expense of
$0.1 million
compared to
$0.8 million
of expense in
2011
. Higher expense in prior year was related to the loss incurred on the change in the fair value of the convertible preferred stock warrant.
Comparison of Years Ended December 31, 2011 and 2010
Revenues (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
$ Change
|
|
% Change
|
Revenues
|
|
|
|
|
|
|
|
|
Systems
|
|
$
|
46,552
|
|
|
$
|
21,094
|
|
|
$
|
25,458
|
|
|
121
|
%
|
Consumable revenues
|
|
21,592
|
|
|
4,367
|
|
|
17,225
|
|
|
394
|
%
|
Total revenues
|
|
$
|
68,144
|
|
|
$
|
25,461
|
|
|
$
|
42,683
|
|
|
168
|
%
|
Total revenues increased by
$42.7 million
, or
168%
, to
$68.1 million
in
2011
compared to
$25.5 million
in
2010
.
Systems revenues.
Systems revenues increased by
$25.5 million
to
$46.6 million
in
2011
compared to
$21.1 million
in
2010
. Systems revenues represented
68%
and
83%
of total revenues for
2011
and
2010
, respectively. The increase in systems revenues was primarily due to growing physician demand for CoolSculpting Systems driven by our physician marketing programs, obtaining our 510(k) clearance to market our CoolSculpting System for the selective reduction of fat, and an increased number of direct sales representatives in North America and distributors outside of North America promoting CoolSculpting.
Consumable revenues.
Consumable revenues increased by
$17.2 million
to
$21.6 million
in
2011
compared to
$4.4 million
in
2010
. Consumable revenues represented
32%
and
17%
of total revenues for
2011
and
2010
, respectively. The increase in consumable revenues was primarily due to the growth of our installed worldwide base of CoolSculpting Systems, and an increased number of procedures performed by our physician customers driven by our targeted physician and consumer marketing programs.
Cost of Revenues and Gross Profit (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
$ Change
|
|
% Change
|
Cost of revenues
|
|
$
|
26,101
|
|
|
$
|
12,295
|
|
|
$
|
13,806
|
|
|
112
|
%
|
% of total revenues
|
|
38
|
%
|
|
48
|
%
|
|
|
|
|
Gross profit
|
|
$
|
42,043
|
|
|
$
|
13,166
|
|
|
$
|
28,877
|
|
|
219
|
%
|
Gross profit %
|
|
62
|
%
|
|
52
|
%
|
|
|
|
|
Cost of revenues increased by
$13.8 million
, or
112%
, to
$26.1 million
in
2011
compared to
$12.3 million
in
2010
. The increase in cost of revenues was primarily due to the increase in volume of CoolSculpting Systems and procedure packs sold. Cost of
revenues as a percentage of total revenues decreased from
48%
to
38%
of total revenues in
2011
compared to
2010
as a result of standard cost reduction in procedure packs as well as cost savings resulting from outsourcing the manufacture of our control units, some applicators and CoolCards to a third party starting in the second quarter of
2010
.
Gross profit was
$42.0 million
, or
62%
of total revenues, in
2011
, compared to
$13.2 million
, or
52%
of total revenues, in
2010
. Higher gross profit as a percentage of revenues was driven by an increase in consumable revenues as a percentage of total revenues and reduction of manufacturing costs.
Operating Expenses (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
$ Change
|
|
% Change
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
10,488
|
|
|
$
|
8,222
|
|
|
$
|
2,266
|
|
|
28
|
%
|
% of total revenues
|
|
15
|
%
|
|
32
|
%
|
|
|
|
|
Sales and marketing
|
|
$
|
28,953
|
|
|
$
|
11,987
|
|
|
$
|
16,966
|
|
|
142
|
%
|
% of total revenues
|
|
42
|
%
|
|
47
|
%
|
|
|
|
|
General and administrative
|
|
$
|
11,299
|
|
|
$
|
5,873
|
|
|
$
|
5,426
|
|
|
92
|
%
|
% of total revenues
|
|
17
|
%
|
|
23
|
%
|
|
|
|
|
Total operating expenses
|
|
$
|
50,740
|
|
|
$
|
26,082
|
|
|
$
|
24,658
|
|
|
95
|
%
|
Research and development.
Research and development expenses increased by
$2.3 million
, or
28%
, to
$10.5 million
in
2011
compared to
$8.2 million
in
2010
. The increase in research and development expenses was primarily due to an increase in payroll related costs of $0.6 million resulting from an increase in headcount, a higher stock-based compensation expense by approximately $0.4 million and an increase in development costs of $0.9 million, consisting mostly of $0.4 million in CoolFlex product related write-offs pursuant to the discontinuation of the CoolFlex program, $0.3 million in research and development material costs and $0.1 million in engineering design costs. The remaining increase is attributed to higher travel expenses in
2011
.
Sales and marketing.
Sales and marketing expenses increased by
$17.0 million
, or
142%
, to
$29.0 million
in
2011
compared to
$12.0 million
in
2010
. The increase in sales and marketing expenses was due to higher payroll related costs of $3.8 million resulting from an increase in headcount and higher sales commissions of $2.4 million. Additionally, we incurred higher collateral development, public relations, strategy and research, marketing materials and advertising costs primarily related to our consumer advertising campaign that we prepared to launch in 2012 as well as higher travel expenses of approximately $6.4 million. The remaining increase is attributed to higher credit card processing fees, a higher allocation of IT and facilities costs, higher stock-based compensation expenses and higher consulting expenses.
General and administrative.
General and administrative expenses increased by
$5.4 million
, or
92%
, to
$11.3 million
in
2011
, compared to
$5.9 million
in
2010
. The increase in general and administrative expenses was primarily due to an increase in payroll related costs of $1.3 million resulting from an increase in headcount, higher legal and consulting expenses of $1.4 million and higher accounting and auditing fees of approximately $2.3 million incurred in preparation for the IPO.
Interest Income (Expense) and Other Income (Expense), Net (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
$ Change
|
|
% Change
|
Interest income (expense), net
|
|
$
|
(93
|
)
|
|
$
|
(497
|
)
|
|
$
|
404
|
|
|
(81
|
)%
|
% of total revenues
|
|
—
|
%
|
|
(2
|
)%
|
|
|
|
|
Other income (expense), net
|
|
$
|
(765
|
)
|
|
$
|
(120
|
)
|
|
$
|
(645
|
)
|
|
538
|
%
|
% of total revenues
|
|
(1
|
)%
|
|
—
|
%
|
|
|
|
|
Interest income (expense), net.
Interest income (expense), net was an expense of
$0.1 million
for
2011
compared to an expense of
$0.5 million
in
2010
. The decrease in interest income (expense), net was primarily due to the conversion of our bridge loan into the Series D-1 convertible preferred stock financing in May 2010.
Other income (expense), net.
Other income (expense), net for
2011
was an expense of
$0.8 million
compared to
$0.1 million
of expense in
2010
primarily related to the loss incurred on the change in fair value of the convertible preferred stock warrant.
Liquidity and Capital Resources
Since our inception, we have financed our operations to date primarily through private placements of convertible preferred stock, promissory notes, borrowings under a loan agreement, product sales and the proceeds from our IPO.
As of December 31, 2012
, we had
$58.6 million
of cash and cash equivalents, short-term and long-term investments.
The following table summarizes our working capital, cash and cash equivalents, short-term and long-term investments as of
December 31,
2012
,
2011
and
2010
, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Cash and cash equivalents
|
$
|
22,876
|
|
|
$
|
83,908
|
|
|
$
|
12,667
|
|
Short-term investments
|
22,563
|
|
|
—
|
|
|
—
|
|
Long-term investments
|
13,141
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
58,580
|
|
|
$
|
83,908
|
|
|
$
|
12,667
|
|
|
|
|
|
|
|
Working capital
|
$
|
49,590
|
|
|
$
|
84,086
|
|
|
$
|
7,694
|
|
Summary Statement of Cash Flows
The following table summarizes our cash flows for the
years ended
December 31, 2012
,
2011
and
2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31,
|
|
2012
|
|
2011
|
|
2010
|
Net cash used in operating activities
|
$
|
(26,626
|
)
|
|
$
|
(10,296
|
)
|
|
$
|
(7,651
|
)
|
Net cash used in investing activities
|
(37,507
|
)
|
|
(8,405
|
)
|
|
(1,870
|
)
|
Net cash provided by financing activities
|
3,101
|
|
|
89,942
|
|
|
19,088
|
|
Net (decrease) increase in cash and cash equivalents
|
$
|
(61,032
|
)
|
|
$
|
71,241
|
|
|
$
|
9,567
|
|
Cash Flows for the Years Ended
December 31, 2012
,
2011
and
2010
Operating activities.
Net cash used in operating activities was
$26.6 million
during the year ended
December 31, 2012
, resulting primarily from our net loss of
$30.1 million
and a net change in operating assets and liabilities of
$3.9 million
, offset by non-cash items of
$7.4 million
. Non-cash items for the year ended
December 31, 2012
, consisted primarily of a stock-based compensation expense of
$5.0 million
and depreciation and amortization expense of
$1.6 million
. The significant items in the change in operating assets and liabilities include an increase in inventory of
$6.6 million
attributed to the preparation of our transition from the use of OnCore Manufacturing LLC, to manufacture and supply to us our CoolSculpting control units, certain of our applicators and our CoolCards to our in-sourcing of these services and an increase in accounts receivable of
$2.5 million
attributed to a larger number of customers with credit terms that reduced our cash flow from operating activities, partially offset by an increase in accounts payable, accrued and other non-current liabilities of
$5.4 million
mainly due to higher advertising expenses and physician and patient rebates that were introduced as part of certain marketing programs in fiscal year 2012 that increased our cash flow from operating activities.
Net cash used in operating activities was
$10.3 million
during the year ended
December 31, 2011
, resulting primarily from our net loss of
$9.6 million
. Non-cash items including depreciation and amortization, stock-based compensation, change in fair value of preferred stock warrant liability, amortization of debt discount and loss on disposal of property and equipment resulted in net increase of
$4.1 million
. The significant items in the change in operating assets and liabilities include an increase in accounts receivable of
$4.3 million
, an increase in inventory of
$2.3 million
and an increase in prepaid and other assets of
$1.4 million
offset by an increase of
$3.5 million
in accounts payable, accrued and other non-current liabilities. The increase in accounts receivable was attributed to a larger number of customers with credit terms in
2011
compared to
2010
. The increase in inventory was due to purchases of inventory component parts and finished goods to fulfill customer orders as demand for our systems increased. The increase in prepaid and other assets was primarily driven by additional insurance costs and higher prepayments for trade shows and other marketing and sales events. The increase in accounts payable and accrued liabilities during
2011
was due to increased expenses incurred as a result of the growth in our business activities, higher accrued compensation due to higher headcount and sales related expenses such as commissions, higher warranty and royalty accruals as a result of an increase in system sales and an increase in total revenue, respectively.
Net cash used in operating activities was
$7.7 million
during the year ended
December 31, 2010
, and consisted of a net loss of
$13.5 million
, offset by non-cash items of
$2.0 million
and a net change in operating assets and liabilities of
$3.9 million
. Non-cash items for the year ended
December 31, 2010
, consisted primarily of depreciation expense of
$0.6 million
and stock-based compensation expense of
$1.3 million
. The significant items in the change in operating assets and liabilities include an increase in inventory of
$1.2 million
offset by increases of
$5.4 million
in accounts payable, accrued and other non-current liabilities and a decrease in accounts receivable of
$0.4 million
. The increase in inventory was due to purchases of inventory component parts and finished goods to fulfill customer orders as demand for our systems increased. The increase in accounts payable and accrued liabilities during
2010
was due to the increased purchases and expenses incurred as product demand increased and higher accrued compensation due to higher headcount and sales related expenses such as commissions and bonuses.
Investing activities.
Net cash used in investing activities was
$37.5 million
,
$8.4 million
and
$1.9 million
for the years ended
December 31, 2012
,
2011
, and
2010
, respectively. In
2012
, the net cash used in investing activities was primarily attributable to our net purchases of
$49.4 million
of short-term and long-term investments and purchases of
$1.4 million
of property and equipment and offset in part by our receipt of
$13.5 million
upon the maturity of investments. In
2011
, we made and capitalized milestone payments under our license agreement with Massachusetts General Hospital, or MGH, in the amount of
$7.0 million
and purchased
$1.6 million
of property and equipment that reduced our cash flows from investing activities. This decrease was partly offset by the change in our restricted cash by
$0.2 million
. In
2010
, we capitalized a
$1.1 million
milestone payment under our license agreement with MGH and purchased
$0.7 million
of property and equipment. Purchases of property and equipment were primarily for tooling equipment to support our research and development and manufacturing activities.
Financing activities.
Net cash provided by financing activities during the year ended
December 31, 2012
, of
$3.1 million
consisted of
$3.2 million
proceeds received from the issuance of common stock upon the exercise of stock options and
$0.2 million
of proceeds from the payment of the note receivable by a stockholder, offset in part by the repayment of notes payable of
$0.3 million
to Silicon Valley Bank.
Net cash provided by financing activities during the year ended
December 31, 2011
, of
$89.9 million
consisted primarily of IPO proceeds of
$90.7 million
, net of underwriter discount and issuance costs. Cash received for other issuances of common stock and warrants during the year amounted to
$0.6 million
, while repayment of notes payable accounted for
$1.3 million
that reduced the cash flows from financing activities.
Net cash provided by financing activities during the year ended
December 31, 2010
, of
$19.1 million
consisted of net proceeds from the sale of our Series D convertible preferred stock of
$15.1 million
, proceeds from the issuance of the second tranche of a bridge loan of
$5.0 million
, and
$0.3 million
from the issuance of common stock upon the exercise of stock options offset in part by repayment of notes payable of
$1.2 million
.
Our cash, cash equivalents and investments declined during 2012. Based on our current plans and market conditions, we believe that our existing cash, cash equivalents and short-term investments will be sufficient to satisfy our anticipated cash requirements for the foreseeable future. However, we cannot be certain that our planned levels of revenue, costs and expenses will be achieved. If our operating results fail to meet our expectations or if we fail to manage our inventory, accounts receivable or other assets, we could be required to seek additional funding through public or private financings or other arrangements. In such event, adequate funds may not be available when needed or may not be available on favorable or commercially acceptable terms, which could have a negative effect on our business and results of operations.
Contractual Obligations and Commitments
We have certain fixed contractual obligations and commitments that include operating lease obligations and purchase commitments. Changes in our business needs, fluctuating interest rates, and other factors may result in actual payments differing from the estimates. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the table to assist in the review of this information within the context of our consolidated financial position and results of operations. The following table summarizes our fixed contractual obligations and commitments, as of
December 31, 2012
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due in Fiscal Year
|
|
2013
|
|
2014-2015
|
|
2016-2017
|
|
After 2017
|
|
Total
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
$
|
1,218
|
|
|
$
|
1,198
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,416
|
|
Purchase commitments
|
2,218
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,218
|
|
Total
|
$
|
3,436
|
|
|
$
|
1,198
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,634
|
|
MGH Royalty Payments
In May 2005, we entered into an agreement with MGH to obtain an exclusive license to develop and commercialize the patent and the core technology that underlies our CoolSculpting System. As defined in the agreement, we are obligated to pay a 7% royalty on net sales of CoolSculpting.
Loan Agreement
On
January 14, 2009
, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank. The Loan Agreement provided for total borrowings of
$5.0 million
to be made available to us in three separate tranches. Tranche A, for
$1.5 million
, was received by us in January 2009. Tranche B, for
$2.0 million
, was received by us on
April 30, 2009
, and Tranche C, for
$1.5 million
, was available until
September 30, 2009
and was not drawn upon. The notes payable were collateralized by substantially all the assets of ZELTIQ, excluding intellectual property. The notes carried an interest rate of
7.28%
per annum. The repayment of principal, plus interest, was via monthly installments over a 36-month period for each tranche, beginning with the disbursement date of each tranche.
On
January 14, 2009
, in accordance with the Loan Agreement, we issued a warrant to Silicon Valley Bank to purchase
47,683
shares of Series C preferred stock at
$3.67
per share. The fair value of this warrant was recorded as a debt discount at issuance and has been amortized to interest expense over the term of the notes.
During the quarter ended
March 31, 2012
, the remaining loan balance of
$0.3 million
and the final payment of
5.75%
of the advanced amount, or
$0.2 million
, were paid in full to Silicon Valley Bank.
Lease Commitments
Our facility lease agreement was amended in
August 2012
to extend the lease term through
December 31, 2014
, for our facility in Pleasanton, California. We also occupy a manufacturing facility and a warehouse in Dublin, California, under leases which extend through December 2014. The Dublin warehouse facility's lease includes a clause which allows the landlord, in its sole discretion, to cancel the lease, in certain circumstances, upon six months written notice. We also occupy an office space in Gatwick, United Kingdom, under a lease which extends through September 2013, as well as in Dubai, United Arab Emirates, under a lease which extends through March 2013. Rent expense for non-cancellable operating leases with scheduled rent increases is recognized on a straight-line basis over the lease term. Rent expense for the
years ended
December 31, 2012
,
2011
and
2010
was
$1.2 million
,
$0.9 million
and
$0.7 million
, respectively.
Future minimum lease payments under the non-cancellable operating leases as of
December 31, 2012
, are as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
2013
|
|
1,218
|
|
2014
|
|
1,198
|
|
Total future minimum lease payments
|
|
$
|
2,416
|
|
Purchase Commitments
We had non-cancellable purchase obligations to contract manufacturers and suppliers for
$2.2 million
at
December 31, 2012
, which are all payable in 2013.
Product Warranty
We provide a standard limited warranty on our products, generally three years for control units and one year for applicators. For our direct customers in Europe, we offer a one-year standard warranty on our CoolSculpting control units. We accrue for the estimated future costs of repair or replacement upon shipment. The warranty accrual is recorded to cost of revenues and is based upon historical and forecasted trends in the volume of product failures during the warranty period and the cost to repair or replace the equipment. We base product warranty costs on related freight, material, technical support labor, and overhead costs. The estimated product warranty costs are assessed by considering historical costs and applying the experienced failure rates to the outstanding warranty period for products sold. We exercise judgment in estimating the expected product warranty costs, using data such as the actual and projected product failure rates, and average repair costs, including freight, material, technical support labor, and overhead costs, for products returned under warranty.
The estimated product warranty accrual was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Balance at the beginning of the period
|
$
|
742
|
|
|
$
|
519
|
|
Accruals for warranties issued
|
869
|
|
|
905
|
|
Adjustments to pre-existing warranties
|
108
|
|
|
—
|
|
Settlements of warranty claims
|
(817
|
)
|
|
(682
|
)
|
Balance at the end of the period
|
$
|
902
|
|
|
$
|
742
|
|
Legal Matters
On
March 13, 2012
, an alleged purchaser of our publicly traded common stock, Ivan Marcano, filed a securities class action in the Superior Court of California, County of Alameda, entitled Marcano v. Nye, et al., Case No. RG12621290. The complaint alleges that we made false and misleading statements or omitted to state facts necessary to make the disclosures not misleading in our Form S-1, and the amendments thereto, issued in connection with our initial public offering. The claims are asserted under Sections 11 and 15 of the Securities Act of 1933. On
March 15, 2012
,
April 3, 2012
, and
May 24, 2012
, three additional and substantially similar lawsuits were filed in the same court, some adding our underwriters as defendants. All four cases were consolidated and a consolidated complaint was deemed operative. On
August 24, 2012
, we filed a demurrer to the consolidated complaint. Subsequently, Plaintiffs agreed to dismiss our outside directors and our underwriters from the litigation without prejudice. On November 9, 2012, the court sustained our demurrer with leave to amend. Plaintiffs filed a second amended complaint on January 14, 2013, again asserting claims under Sections 11 and 15 of the Securities Act of 1933. The second amended complaint seeks compensatory damages and equitable relief on behalf of the class for an amount to be proven at trial. We filed our response to the second amended complaint, and we believe the lawsuit to be without merit and intend to vigorously defend it. We believe there is insufficient evidence to indicate whether there is a reasonable possibility that a loss has been incurred as of
December 31, 2012
, nor can we estimate the range of potential loss.
Severance
Effective
April 3, 2012
, our Vice President of North American Sales resigned from our company. On
April 18, 2012
, our then President and CEO resigned from the positions he held with us. As a result of these resignations, we incurred
$0.9 million
in costs associated with the termination benefits and
$0.7 million
in costs related to the modification of the employees' stock options, which were recorded during the year ended
December 31, 2012
. As of
December 31, 2012
, approximately
$0.5 million
of the termination benefits had been paid. The liability related to these costs as of
December 31, 2012
was
$0.4 million
.
Subsequent to these resignations, during the
second
quarter of
2012
, we made a decision to terminate several employees. As a result of these terminations, we incurred approximately
$0.8 million
in termination benefits, which were recorded as part of operating expenses in our consolidated statement of operations. As of
December 31, 2012
, approximately
$0.8 million
of the termination benefits had been paid. The liability remaining related to these costs as of
December 31, 2012
, is insignificant.
No similar costs were incurred during the years ended
December 31, 2011
or
2010
.
Related Party Transactions
Notes Receivable from a Stockholder
In
December 2007
, we issued
445,509
shares of its common stock to an executive in exchange for full recourse promissory notes in the aggregate amount of approximately
$0.2 million
. The promissory notes bore interest from the date of issuance until
January 1, 2010
, at a rate of
4.72%
per annum compounded annually and last bore interest at a rate of
4.00%
per annum, and were collateralized by the related common stock and the executive’s assets. The executive separated from ZELTIQ on
December 3, 2010
. The promissory notes were due and payable in full (including all accrued and unpaid interest) upon nine months following our initial public offering of our common stock. These notes receivable were related to a prior exercise of stock options and were recorded as a contra stockholders’ equity account.
In July 2012, the promissory notes were paid in full.
Brazilian Distribution Agreement
We entered into a distribution agreement with ADVANCE Medical, Inc., or ADVANCE, dated
March 18, 2011
, and amended on
February 27, 2012
, and
September 4, 2012
, appointing ADVANCE as the exclusive distributor of CoolSculpting in Brazil and Mexico. ADVANCE is required to purchase a minimum quantity of our products each calendar quarter throughout the term of the distribution agreement. Venrock, a principal stockholder of ZELTIQ, owns a significant equity interest in ADVANCE Medical, Ltd., the parent company of ADVANCE. Dr. Bryan E. Roberts, who is a member of our Board of Directors, is also a partner of Venrock Associates. The revenue recognized by us under this distribution agreement for the years ended
December 31, 2012
and
2011
, was
$2.5 million
and
$2.0 million
, respectively, and the accounts receivable balance as of
December 31, 2012
and
2011
, was
$0.1 million
and
$0.2 million
, respectively.
Recent Accounting Pronouncements
On February 5, 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This guidance is the culmination of the FASB's redeliberation on reporting reclassification adjustments from accumulated other comprehensive income. We will adopt this guidance effective January 1, 2013 and we do not anticipate the adoption to have an impact on our consolidated financial statements.
Off-balance Sheet Arrangements
As of
December 31, 2012
,
2011
and
2010
, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
In the normal course of business, we enter into contracts that contain a variety of representations and warranties and provide for general indemnifications. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future, but have not yet been made. To date, we have not paid any claims, and we believe that the estimated fair value of these indemnification obligations is minimal and we have not accrued any amounts for these obligations.
|
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of ZELTIQ Aesthetics, Inc:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders' equity (deficit), and cash flows present fairly, in all material respects, the financial position of ZELTIQ Aesthetics, Inc. and its subsidiary at
December 31, 2012
and
2011
and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2012
in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2012
, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A.. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our audits (which was an integrated audit in 2012.) We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 13, 2013
ZELTIQ Aesthetics, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
December 31,
2011
|
ASSETS
|
|
|
|
CURRENT ASSETS:
|
|
|
|
Cash and cash equivalents
|
$
|
22,876
|
|
|
$
|
83,908
|
|
Short-term investments
|
22,563
|
|
|
—
|
|
Accounts receivable, net
|
7,133
|
|
|
4,941
|
|
Inventory
|
10,871
|
|
|
4,476
|
|
Prepaid expenses and other current assets
|
3,600
|
|
|
2,385
|
|
Total current assets
|
67,043
|
|
|
95,710
|
|
Long-term investments
|
13,141
|
|
|
—
|
|
Restricted cash
|
469
|
|
|
255
|
|
Property and equipment, net
|
2,336
|
|
|
2,144
|
|
Intangible asset, net
|
7,181
|
|
|
7,882
|
|
Other assets
|
99
|
|
|
8
|
|
Total assets
|
$
|
90,269
|
|
|
$
|
105,999
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
Accounts payable
|
$
|
4,976
|
|
|
$
|
4,061
|
|
Accrued liabilities
|
11,076
|
|
|
6,878
|
|
Deferred revenue
|
1,401
|
|
|
375
|
|
Current portion of notes payable
|
—
|
|
|
310
|
|
Total current liabilities
|
17,453
|
|
|
11,624
|
|
Other non-current liabilities
|
236
|
|
|
72
|
|
Total liabilities
|
$
|
17,689
|
|
|
$
|
11,696
|
|
Commitments and contingencies (Note 8)
|
|
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
Preferred stock, $0.01 par value: 50,000,000 shares authorized and no shares issued and outstanding at December 31, 2012 and December 31, 2011
|
—
|
|
|
—
|
|
Common stock, $0.001 par value: 500,000,000 shares authorized at December 31, 2012 and December 31, 2011; 35,852,105 and 33,997,809 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively
|
39
|
|
|
37
|
|
Additional paid-in capital
|
186,287
|
|
|
178,122
|
|
Notes receivable from a stockholder
|
—
|
|
|
(245
|
)
|
Accumulated other comprehensive income
|
8
|
|
|
—
|
|
Accumulated deficit
|
(113,754
|
)
|
|
(83,611
|
)
|
Total stockholders’ equity
|
72,580
|
|
|
94,303
|
|
Total liabilities and stockholders’ equity
|
$
|
90,269
|
|
|
$
|
105,999
|
|
The accompanying notes are an integral part of these consolidated financial statements.
ZELTIQ Aesthetics, Inc.
Consolidated Statements of Operations
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Revenues
|
|
$
|
76,194
|
|
|
$
|
68,144
|
|
|
$
|
25,461
|
|
Cost of revenues
|
|
25,506
|
|
|
26,101
|
|
|
12,295
|
|
Gross profit
|
|
50,688
|
|
|
42,043
|
|
|
13,166
|
|
Operating expenses:
|
|
|
|
|
|
|
Research and development
|
|
12,693
|
|
|
10,488
|
|
|
8,222
|
|
Sales and marketing
|
|
51,167
|
|
|
28,953
|
|
|
11,987
|
|
General and administrative
|
|
16,867
|
|
|
11,299
|
|
|
5,873
|
|
Total operating expenses
|
|
80,727
|
|
|
50,740
|
|
|
26,082
|
|
Loss from operations
|
|
(30,039
|
)
|
|
(8,697
|
)
|
|
(12,916
|
)
|
Interest income (expense), net
|
|
129
|
|
|
(93
|
)
|
|
(497
|
)
|
Other income (expense), net
|
|
(92
|
)
|
|
(765
|
)
|
|
(120
|
)
|
Loss before provision for income taxes
|
|
(30,002
|
)
|
|
(9,555
|
)
|
|
(13,533
|
)
|
Provision for income taxes
|
|
141
|
|
|
48
|
|
|
—
|
|
Net loss
|
|
(30,143
|
)
|
|
(9,603
|
)
|
|
(13,533
|
)
|
Cumulative dividends on convertible preferred stock
|
|
—
|
|
|
(5,099
|
)
|
|
(5,426
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(30,143
|
)
|
|
$
|
(14,702
|
)
|
|
$
|
(18,959
|
)
|
Net loss per share attributable to common stockholders, basic and diluted
|
|
$
|
(0.87
|
)
|
|
$
|
(1.96
|
)
|
|
$
|
(20.19
|
)
|
Weighted average shares of common stock outstanding used in computing net loss attributable to common stockholders, basic and diluted
|
|
34,776,380
|
|
|
7,506,282
|
|
|
939,028
|
|
The accompanying notes are an integral part of these consolidated financial statements.
ZELTIQ Aesthetics, Inc.
Consolidated Statements of Comprehensive Loss
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Net loss
|
|
$
|
(30,143
|
)
|
|
$
|
(9,603
|
)
|
|
$
|
(13,533
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
Changes in unrealized gains on available-for-sale securities
|
|
8
|
|
|
—
|
|
|
—
|
|
Other comprehensive income
|
|
8
|
|
|
—
|
|
|
—
|
|
Comprehensive loss
|
|
$
|
(30,135
|
)
|
|
$
|
(9,603
|
)
|
|
$
|
(13,533
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
ZELTIQ Aesthetics, Inc.
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Stock Preferred
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid-in Capital
|
|
Note Receivable from a Stockholder
|
|
Accumulated Other Comprehensive Income
|
|
Accumulated Deficit
|
|
Total Stockholders' Equity (Deficit)
|
Balance at December 31, 2009
|
14,331,921
|
|
|
$
|
63,054
|
|
|
864,371
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
(245
|
)
|
|
$
|
—
|
|
|
$
|
(66,900
|
)
|
|
$
|
(67,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options
|
—
|
|
|
—
|
|
|
353,669
|
|
|
1
|
|
|
272
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
273
|
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
(1,873
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Vesting of restricted shares in prior periods
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49
|
|
Issuance of Series D-1 convertible preferred stock for conversion of convertible notes payable
|
3,864,642
|
|
|
10,354
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of Series D-1 convertible preferred stock for cash, net of issuance costs of $124
|
3,046,966
|
|
|
8,039
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of Series D-2 convertible preferred stock for cash, net of issuance costs of $48
|
2,138,235
|
|
|
7,015
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,287
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,287
|
|
Cumulative dividends on Series A, Series B, Series C and Series D convertible preferred stock
|
—
|
|
|
5,426
|
|
|
—
|
|
|
—
|
|
|
(1,607
|
)
|
|
—
|
|
|
—
|
|
|
(3,819
|
)
|
|
(5,426
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,533
|
)
|
|
(13,533
|
)
|
Balance at December 31, 2010
|
23,381,764
|
|
|
$
|
93,888
|
|
|
1,216,167
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
(245
|
)
|
|
$
|
—
|
|
|
$
|
(84,252
|
)
|
|
$
|
(84,493
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
ZELTIQ Aesthetics, Inc.
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Stock Preferred
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid-in Capital
|
|
Note Receivable from a Stockholder
|
|
Accumulated Other Comprehensive Income
|
|
Accumulated Deficit
|
|
Total Stockholders' Equity (Deficit)
|
Balance at December 31, 2010
|
23,381,764
|
|
|
$
|
93,888
|
|
|
1,216,167
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
(245
|
)
|
|
$
|
—
|
|
|
$
|
(84,252
|
)
|
|
$
|
(84,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options
|
—
|
|
|
—
|
|
|
553,023
|
|
|
1
|
|
|
591
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
592
|
|
Issuance of restricted stock for services
|
—
|
|
|
—
|
|
|
11,495
|
|
|
—
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34
|
|
Revision to correct prior accretion on convertible preferred stock
|
—
|
|
|
(12,724
|
)
|
|
—
|
|
|
—
|
|
|
2,480
|
|
|
—
|
|
|
—
|
|
|
10,244
|
|
|
12,724
|
|
Exercise of common stock warrants for cash
|
—
|
|
|
—
|
|
|
58,159
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Conversion of preferred stock into common stock upon initial public offering
|
(23,381,764
|
)
|
|
(81,164
|
)
|
|
24,415,965
|
|
|
24
|
|
|
81,140
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81,164
|
|
Reclassification of preferred stock warrant liability into additional paid-in capital upon initial public offering
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
921
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
921
|
|
Issuance of common stock in initial public offering, net of underwriter discount of $7,046 and issuance costs of $2,931
|
—
|
|
|
—
|
|
|
7,743,000
|
|
|
8
|
|
|
90,674
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
90,682
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,279
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,279
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,603
|
)
|
|
(9,603
|
)
|
Balance at December 31, 2011
|
—
|
|
|
$
|
—
|
|
|
33,997,809
|
|
|
$
|
37
|
|
|
$
|
178,122
|
|
|
$
|
(245
|
)
|
|
$
|
—
|
|
|
$
|
(83,611
|
)
|
|
$
|
94,303
|
|
The accompanying notes are an integral part of these consolidated financial statements.
ZELTIQ Aesthetics, Inc.
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Stock Preferred
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid-in Capital
|
|
Note Receivable from a Stockholder
|
|
Accumulated Other Comprehensive Income
|
|
Accumulated Deficit
|
|
Total Stockholders' Equity (Deficit)
|
Balance at December 31, 2011
|
—
|
|
|
$
|
—
|
|
|
33,997,809
|
|
|
$
|
37
|
|
|
$
|
178,122
|
|
|
$
|
(245
|
)
|
|
$
|
—
|
|
|
$
|
(83,611
|
)
|
|
$
|
94,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options
|
—
|
|
|
—
|
|
|
1,612,233
|
|
|
2
|
|
|
2,667
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,669
|
|
Issuance of common stock in connection with ESPP
|
—
|
|
|
—
|
|
|
133,363
|
|
|
—
|
|
|
497
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
497
|
|
Proceeds for repayment of notes receivable from a stockholder
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
245
|
|
|
—
|
|
|
—
|
|
|
245
|
|
Issuance of common stock upon vesting of RSUs
|
—
|
|
|
—
|
|
|
106,959
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of common stock in exchange for services
|
—
|
|
|
—
|
|
|
1,741
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,989
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,989
|
|
Change in unrealized gain (loss) on marketable securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30,143
|
)
|
|
(30,143
|
)
|
Comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30,135
|
)
|
Balance at December 31, 2012
|
—
|
|
|
$
|
—
|
|
|
35,852,105
|
|
|
$
|
39
|
|
|
$
|
186,287
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
(113,754
|
)
|
|
$
|
72,580
|
|
The accompanying notes are an integral part of these consolidated financial statements.
ZELTIQ Aesthetics, Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31,
|
|
2012
|
|
2011
|
|
2010
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net loss
|
$
|
(30,143
|
)
|
|
$
|
(9,603
|
)
|
|
$
|
(13,533
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
1,602
|
|
|
826
|
|
|
565
|
|
Stock-based compensation
|
4,989
|
|
|
2,279
|
|
|
1,287
|
|
Change in fair value of preferred stock warrant liability
|
—
|
|
|
664
|
|
|
111
|
|
Deferred income tax provision (benefit)
|
(66
|
)
|
|
—
|
|
|
—
|
|
Amortization of debt discount
|
—
|
|
|
49
|
|
|
49
|
|
Amortization and accretion of discount and premium on investments
|
212
|
|
|
—
|
|
|
—
|
|
Provision for doubtful accounts receivable
|
290
|
|
|
—
|
|
|
—
|
|
Issuance of common stock for services
|
12
|
|
|
34
|
|
|
—
|
|
Provision for excess and obsolete inventory
|
183
|
|
|
—
|
|
|
—
|
|
Loss on disposal of property and equipment
|
192
|
|
|
291
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
(2,482
|
)
|
|
(4,328
|
)
|
|
418
|
|
Inventory
|
(6,578
|
)
|
|
(2,312
|
)
|
|
(1,161
|
)
|
Prepaid expenses and other assets
|
(1,240
|
)
|
|
(1,400
|
)
|
|
(740
|
)
|
Deferred revenue, net of deferred costs
|
1,026
|
|
|
(316
|
)
|
|
(45
|
)
|
Accounts payable, accrued and other non-current liabilities
|
5,377
|
|
|
3,520
|
|
|
5,398
|
|
Net cash used in operating activities
|
(26,626
|
)
|
|
(10,296
|
)
|
|
(7,651
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Purchase of investments
|
(58,658
|
)
|
|
—
|
|
|
—
|
|
Sale of investments
|
9,250
|
|
|
—
|
|
|
—
|
|
Maturity of investments
|
13,500
|
|
|
—
|
|
|
—
|
|
Purchase of property and equipment
|
(1,385
|
)
|
|
(1,575
|
)
|
|
(736
|
)
|
Purchase of intangible asset
|
—
|
|
|
(7,000
|
)
|
|
(1,050
|
)
|
Restricted cash
|
(214
|
)
|
|
170
|
|
|
(84
|
)
|
Net cash used in investing activities
|
(37,507
|
)
|
|
(8,405
|
)
|
|
(1,870
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Proceeds from convertible notes payable
|
—
|
|
|
—
|
|
|
5,000
|
|
Repayment of notes payable
|
(310
|
)
|
|
(1,335
|
)
|
|
(1,238
|
)
|
Proceeds from issuance of preferred stock, net of issuance costs
|
—
|
|
|
—
|
|
|
15,054
|
|
Proceeds from issuance of common stock in initial public offering, net of underwriter discount and issuance costs
|
—
|
|
|
90,682
|
|
|
—
|
|
Proceeds from repayment of note receivable by a stockholder
|
245
|
|
|
—
|
|
|
—
|
|
Proceeds from issuance of common stock upon exercise of stock options and common stock warrants
|
3,166
|
|
|
595
|
|
|
273
|
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
(1
|
)
|
Net cash provided by financing activities
|
3,101
|
|
|
89,942
|
|
|
19,088
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(61,032
|
)
|
|
71,241
|
|
|
9,567
|
|
CASH AND CASH EQUIVALENTS—Beginning of period
|
83,908
|
|
|
12,667
|
|
|
3,100
|
|
CASH AND CASH EQUIVALENTS—End of period
|
$
|
22,876
|
|
|
$
|
83,908
|
|
|
$
|
12,667
|
|
The accompanying notes are an integral part of these consolidated financial statements.
ZELTIQ Aesthetics, Inc.
Notes to Consolidated Financial Statements
1. The Company and Basis of Presentation
ZELTIQ Aesthetics, Inc. (“we” or the “Company”) was incorporated in the state of Delaware on
March 22, 2005
. The Company was founded to develop and commercialize a non-invasive product for the selective reduction of fat. Its first commercial product, the CoolSculpting System, is designed to selectively reduce stubborn fat bulges that may not respond to diet or exercise. CoolSculpting is based on the scientific principle that fat cells are more sensitive to cold than the overlying skin and surrounding tissues. CoolSculpting utilizes precisely controlled cooling to reduce the temperature of fat cells in the treated area, which leads to fat cell elimination through a natural biological process known as apoptosis, without causing scar tissue or damage to the skin, nerves, or surrounding tissues. The Company generates revenues from sales of our CoolSculpting System and from sales of consumables when our physician customers pay for each CoolSculpting procedure.
In
August 2011
, the Company incorporated ZELTIQ Limited as a wholly-owned subsidiary in the United Kingdom to serve as its sales office for direct sales in Europe.
Reverse Stock Split
On
October 13, 2011
, the Company filed a certificate of amendment to the Company’s amended and restated certificate of incorporation that effected a reverse stock split of the Company’s common stock in which each
3.670069
shares of common stock outstanding or held in treasury immediately prior to such time was combined into one share of common stock. The par value of the common stock remained
$0.001
per share. Accordingly, all share and per share amounts for all periods presented in these consolidated financial statements and notes thereto, have been adjusted retroactively, where applicable, to reflect this reverse stock split.
Initial Public Offering
On
October 24, 2011
, the Company completed its initial public offering, or IPO, of
8,050,000
shares of common stock at an offering price of
$13.00
per share, of which
7,743,000
shares were sold by the Company and
307,000
shares were sold by existing stockholders. The Company received net proceeds of approximately
$90.7 million
, after deducting underwriting discounts, commissions and offering related transaction costs. In connection with the IPO, the Company’s outstanding shares of convertible preferred stock were automatically converted into
24,415,965
shares of common stock.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant inter-company accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. The primary estimates underlying our financial statements include the value of revenue elements, product warranty, inventory valuation, allowance for doubtful accounts receivable, assumptions regarding variables used in calculating the fair value of our equity awards, fair value of investments, useful lives of intangibles, income taxes and contingent liabilities. Actual results could differ from those estimates.
Significant Risks and Uncertainties
The Company's future results of operations involve a number of risks and uncertainties. Factors that could affect the Company's future operating results and cause actual results to vary materially from expectations include, but are not limited to, rapid technological change, continued acceptance of the Company's products, competition from substitute products and larger companies, protection of proprietary technology, strategic relationships and dependence on key individuals. If the Company fails to adhere to ongoing FDA Quality System Regulation, the FDA may withdraw its market clearance or take other action. The Company relies on sole-source suppliers to manufacture some of the components used in its product. The Company's manufacturers and suppliers may encounter supply interruptions or problems during manufacturing due to a variety of reasons, including failure to comply
with applicable regulations, including the FDA's Quality System Regulation, equipment malfunction and environmental factors, any of which could delay or impede the Company's ability to meet demand.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, marketable securities and trade receivables. Our cash equivalents and marketable securities are held in safekeeping by large, credit worthy financial institutions. The Company invests our excess cash primarily in U.S. banks, government and agency bonds, money market funds and corporate obligations. The Company has established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity. Deposits in these banks may exceed the amounts of insurance provided on such deposits. To date, the Company has not experienced any losses on our deposits of cash and cash equivalents.
The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. The Company performs periodic credit evaluations of its customers and generally does not require collateral. Accounts receivable are recorded net of an allowance for doubtful accounts. The allowance for doubtful accounts is based on management's assessment of the collectability of specific customer accounts and the aging of the related invoices. At
December 31, 2012
and
2011
, the Company's allowance for doubtful accounts was
$0.3 million
and
$40,000
, respectively.
The allowance for doubtful accounts consisted of the following activity for fiscal years ended
December 31, 2012
,
2011
and
2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at Beginning of Year
|
|
Additions
|
|
Reductions
|
|
Balance at End of Year
|
Year ended December 31, 2010
|
|
$
|
—
|
|
|
$
|
109
|
|
|
$
|
47
|
|
|
$
|
62
|
|
Year ended December 31, 2011
|
|
62
|
|
|
50
|
|
|
72
|
|
|
40
|
|
Year ended December 31, 2012
|
|
40
|
|
|
329
|
|
|
39
|
|
|
330
|
|
As of
December 31, 2012
and
2011
, no individual customer accounted for 10% or more of the Company's accounts receivable. Furthermore, no customer accounted for greater than 10% of total revenues during the years ended
December 31, 2012
,
2011
and
2010
, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Investments
The Company invests its excess cash balances primarily in certificates of deposit, commercial paper, corporate bonds, and U.S. Government agency securities. Investments with original maturities greater than 90 days that mature less than one year from the consolidated balance sheet date are classified as short-term investments. The Company classifies all of its investments as available-for-sale and records such assets at estimated fair value in the consolidated balance sheets, with unrealized gains and losses, if any, reported as a component of accumulated other comprehensive income (loss) in stockholders' equity. Realized gains and losses from maturities of all such securities are reported in earnings and computed using the specific identification cost method. Realized gains or losses and charges for other-than-temporary declines in value, if any, on available-for-sale securities are reported in other income (expense) as incurred. The Company periodically evaluates these investments for other-than-temporary impairment.
Inventory
Inventory is stated at the lower of cost (which approximates actual cost on a first-in, first-out basis) or market, computed on a standard cost basis. Inventory that is obsolete or in excess of forecasted usage is written down to its estimated net realizable value based on assumptions about future demand and market conditions. Inventory write-downs are charged to cost of revenues and establish a new cost basis for the inventory.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred. Assets not yet placed in use are not depreciated.
The useful lives of the property and equipment are as follows:
|
|
|
|
Lab equipment, tooling, and molds
|
|
5 years
|
Computer equipment
|
|
3 years
|
Computer software
|
|
3 years
|
Furniture and fixtures
|
|
5 years
|
Vehicles
|
|
5 years
|
Leasehold improvements
|
|
Shorter of lease term or estimated useful life
|
Capitalized Software
The Company capitalizes costs associated with customized internal-use software systems that have reached the application development stage and meet recoverability tests. Such capitalized costs mainly include external direct costs utilized in developing or obtaining the applications. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and is ready for its intended purpose. The capitalized costs associated with internal-use software are depreciated on a straight-line basis over each asset's estimated useful life, which is generally three years.
Restricted Cash
At
December 31, 2012
and
2011
, cash of
$0.5 million
and
$0.3 million
, respectively, was restricted from withdrawal and held by banks in the form of certificates of deposit. At
December 31, 2012
, the certificates of deposit were held as collateral for the facility lease agreement in Pleasanton, California, statutory French VAT requirement and for UK banking facilities. At
December 31, 2011
, the certificates of deposit were held primarily as collateral for the facility lease agreement in Pleasanton, California.
Intangible Asset
The intangible asset consists of an exclusive license agreement for commercializing patents and other technology. All milestone payments subsequent to the date of the FDA approval are capitalized as purchased technology when paid, and are subsequently amortized into cost of revenues using the straight-line method over the estimated remaining useful life of the technology, not to exceed the term of the agreement or the life of the patent.
Impairment of Long-lived Assets
The Company reviews property and equipment and the intangible asset for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the assets' fair value determined using the projected discounted future net cash flows arising from the asset. Thr
ough
December 31, 2012
, there have been no such impairments.
Revenue Recognition
The Company’s revenues are derived from the sales of the CoolSculpting System, consisting of a control unit and applicators, and from procedure packs, consisting of consumables and CoolCards. Embedded software exists in the CoolCard product to permit the Company’s physician customers to perform a fixed number of CoolSculpting procedures. This software is not marketed separately from the CoolSculpting System or from the CoolCard. Rather, the functionality that the software provides is part of the overall CoolCard product. The CoolSculpting System is marketed as a non-invasive aesthetic device for the reduction of fat, not for its embedded software attributes included in the CoolCard that enable its use. The Company does not provide rights to upgrades and enhancements or post-contract customer support for the embedded software. In addition, the Company does not incur significant software development costs or capitalize its software development costs. Based on this assessment, the Company considers the embedded software in the CoolCard incidental to the CoolCard product as a whole and determined that revenue recognition should not be governed by the provisions of Topic 985 of the FASB Accounting Standards Codification, or ASC. The Company earns revenue from the sale of its products to physicians and to distributors. The Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title to the customer has occurred, the sales price is fixed or determinable, and collectability is probable. Revenues are deferred in the event that any of the revenue recognition criteria is not met.
Persuasive Evidence of an Arrangement.
The Company uses contracts or customer purchase orders to determine the existence of an arrangement.
Transfer of title
. Our standard terms generally specify that title transfers upon shipment to the customer. The Company uses third party shipping documents to verify that title has transferred.
Sales Price Fixed or Determinable.
The Company assesses whether the sales price is fixed or determinable at the time of the transaction. Sales prices are documented in the executed sales contract or purchase order received prior to shipment. The Company’s standard terms do not allow for trial or evaluation periods, rights of return or refund, payments contingent upon the customer obtaining financing or other terms that could impact the customer’s obligation.
Collectability.
The Company assesses whether collection is reasonably assured based on a number of factors, including the customer’s past transaction history and credit worthiness.
Multiple-Element Arrangements.
Typically, all products sold to a customer are delivered at the same time. If a partial delivery occurs as authorized by the customer, the Company allocates revenue to the various products based on their vendor-specific objective evidence of fair value, or VSOE, if VSOE exists according to ASC 605-25 as the basis of determining the relative selling price of each element. If VSOE does not exist, the Company may use third party evidence of fair value, or TPE, to determine the relative selling price of each element. If neither VSOE nor TPE exists, the Company may use management’s best estimate of the sales price, or ESP, of each element to determine the relative selling price. The relative selling prices for control units, applicators and CoolCards are based on established price lists and separate, stand-alone sales of these elements. The Company establishes best estimates within a range of selling prices considering multiple factors including, but not limited to, factors such as size of transaction, pricing strategies and market conditions. The Company believes the use of the ESP allows revenue recognition in a manner consistent with the underlying economics of the transaction. The Company’s products do not require maintenance or support.
Cost of Revenues
Cost of revenues consists primarily of cost of finished and semi-finished products purchased from our third-party suppliers, labor, material, and overhead involved in our internal manufacturing processes, technology amortization and royalty fees and cost of product warranty. In the event that a revenue transaction is deferred, the corresponding cost associated with the transaction will also be deferred.
Shipping and Handling
Shipping and handling costs charged to customers are recorded as revenues. Shipping costs are included in cost of revenues.
Research and Development
Research and development costs primarily consist of salaries, benefits, incentive compensation, stock-based compensation, and allocated facilities costs for employees and contractors engaged in research, clinical studies, regulatory affairs, and development. The Company expenses all research and development costs in the periods in which they are incurred.
Advertising costs
The cost of advertising and media is expensed as incurred. For the
years ended
December 31, 2012
,
2011
and
2010
, advertising costs totaled
$12.0 million
,
$1.9 million
and
$0.2 million
, respectively.
Product Warranty
The Company provides a standard limited warranty on its products, three years for control units and one year for applicators. For our direct customers in Europe, the Company offers a one-year standard warranty on our CoolSculpting control units. The Company accrues for the estimated future costs of repair or replacement upon shipment. The warranty accrual is recorded to cost of revenues and is based upon historical and forecasted trends in the volume of product failures during the warranty period and the cost to repair or replace the equipment. The Company bases product warranty costs on related freight, material, technical support labor, and overhead costs. The estimated product warranty costs are assessed by considering historical costs and applying the experienced failure rates to the outstanding warranty period for products sold. The Company exercises judgment in estimating the expected product warranty costs, using data such as the actual and projected product failure rates, and average repair costs, including freight, material, technical support labor, and overhead costs, for products returned under warranty.
The Company offers an extended warranty of up to two years on both our CoolSculpting control units and CoolSculpting vacuum applicators. The Company recognizes the revenues from the sale of an extended warranty over the extended warranty coverage period. Our revenue and related obligations from sale of extended warranties to date has not been significant.
Stock-Based Compensation
The Company maintains incentive plans under which incentive and nonqualified stock options are granted primarily to employees and non-employee consultants.
Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period. The fair value of stock-based awards to employees is estimated using the Black-Scholes option pricing model. The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate assumption based on actual forfeitures, analysis of employee turnover, and other related factors.
Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock options are earned. The awards generally vest ratably over the time period the Company expects to receive services from the non-employee. The fair values attributable to these options are amortized over the service period and the unvested portion of these options is remeasured at each vesting date.
Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse and for operating losses and tax credit carryforwards. The Company estimates our provision for income taxes and amounts ultimately payable or recoverable in multiple tax jurisdictions around the world. Estimates involve interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of any fiscal year. The Company is required to evaluate the realizability of our deferred tax assets on an ongoing basis to determine whether there is a need for a valuation allowance with respect to such deferred tax assets. A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. Significant management judgment is required in determining any valuation allowance recorded against deferred tax assets. In evaluating the ability to recover deferred tax assets, the Company considers all available positive and negative evidence giving greater weight to our recent cumulative losses and our ability to carryback losses against prior taxable income and, commensurate with objective verifiability, the forecast of future taxable income including the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies.
The Company recognizes and measures uncertain tax positions taken or expected to be taken in a tax return if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company adjusts these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax provision. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet.
The Company files annual income tax returns in multiple taxing jurisdictions around the world. A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that our reserves for income taxes reflect the most likely outcome. The Company adjusts these reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position could require the use of cash.
Net Loss Per Share
Basic net loss per share of common stock is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share of common stock is computed by giving effect to all potentially dilutive securities outstanding during the period, including options, warrants, and convertible preferred stock. Basic and diluted net loss per share attributable to common stockholders was the same for all periods presented as the inclusion of all potentially dilutive securities outstanding were anti-dilutive. As such, the numerator and the denominator used in computing both basic and diluted net loss are the same for each period presented.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss), and other comprehensive income (loss). In the year ended
December 31, 2012
, other comprehensive income (loss) consisted of unrealized gains on available-for-sale securities of approximately
$8,000
. Through
December 31, 2011
, the components of other comprehensive income (loss) were not significant, individually or in the aggregate.
Recent Accounting Pronouncements
On February 5, 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This guidance is the culmination of the FASB's redeliberation on reporting reclassification adjustments from accumulated other comprehensive income. The Company will adopt this guidance effective January 1, 2013 and does not anticipate the adoption to have an impact on its consolidated financial statements.
3. Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company did not hold any Level 3 assets or liabilities at
December 31, 2012
.
The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The Company classifies its cash equivalents and investments within Level 1 and Level 2, as it uses quoted market prices or alternative pricing sources and models utilizing market observable inputs. The following tables set forth the fair value of the Company’s financial assets and liabilities by level within the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
Financial Assets
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
18,274
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,274
|
|
Short-term investments:
|
|
|
|
|
|
|
|
U.S. Agency securities
|
—
|
|
|
11,077
|
|
|
—
|
|
|
11,077
|
|
Corporate bonds
|
—
|
|
|
8,417
|
|
|
—
|
|
|
8,417
|
|
Commercial paper
|
—
|
|
|
1,998
|
|
|
—
|
|
|
1,998
|
|
Certificates of deposit
|
1,071
|
|
|
—
|
|
|
—
|
|
|
1,071
|
|
Long-term investments:
|
|
|
|
|
|
|
|
U.S. Agency securities
|
—
|
|
|
7,753
|
|
|
—
|
|
|
7,753
|
|
Corporate bonds
|
—
|
|
|
5,388
|
|
|
—
|
|
|
5,388
|
|
|
$
|
19,345
|
|
|
$
|
34,633
|
|
|
$
|
—
|
|
|
$
|
53,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
Financial Assets
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
81,022
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
81,022
|
|
During the years ended
December 31, 2012
and
2011
, the Company did not have any transfers of financial assets measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3.
The Company did not hold any Level 3 assets or liabilities at
December 31, 2012
and at
December 31, 2011
. The changes in the fair value of the Company’s Level 3 financial liabilities during the year ended
December 31, 2011
are summarized below (in thousands):
|
|
|
|
|
|
December 31, 2011
|
Fair value of convertible preferred stock warrant liability—beginning of period
|
$
|
257
|
|
Change in fair value of the convertible preferred stock warrant liability
|
664
|
|
Reclassification of fair value of convertible preferred stock warrants to additional paid-in capital upon initial public offering
|
$
|
(921
|
)
|
Fair value of convertible preferred stock warrant liability—end of period
|
$
|
—
|
|
The changes in fair value of the convertible preferred stock warrant liability are recognized as other income (expense), net.
The carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The carrying amount of convertible preferred stock warrant liability represents its estimated fair value.
4. Balance Sheet Components
Investments
The Company had no short-term and long-term investments as of
December 31, 2011
. The Company's short-term and long-term investments as of
December 31, 2012
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
U.S. Agency securities
|
$
|
11,071
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
11,077
|
|
Corporate bonds
|
8,414
|
|
|
3
|
|
|
—
|
|
|
8,417
|
|
Commercial paper
|
1,998
|
|
|
—
|
|
|
—
|
|
|
1,998
|
|
Certificates of deposit
|
1,071
|
|
|
—
|
|
|
—
|
|
|
1,071
|
|
Total
|
$
|
22,554
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
22,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
U.S. Agency securities
|
$
|
7,750
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
7,753
|
|
Corporate bonds
|
5,392
|
|
|
1
|
|
|
(5
|
)
|
|
5,388
|
|
Total
|
$
|
13,142
|
|
|
$
|
4
|
|
|
$
|
(5
|
)
|
|
$
|
13,141
|
|
For the year ended
December 31, 2012
, gains or losses realized on the sale of investments were insignificant.
The contractual maturities of the Company's short-term and long-term investments as of
December 31, 2012
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Amortized Cost
|
|
Fair Value
|
Due in one year or less
|
$
|
30,304
|
|
|
$
|
30,316
|
|
Due in one year to five years
|
5,392
|
|
|
5,388
|
|
|
$
|
35,696
|
|
|
$
|
35,704
|
|
When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time
and extent to which fair value has been below the amortized cost basis, review of current market liquidity, interest rate risk, the financial condition of the issuer, as well as credit rating downgrades. The Company believes that the unrealized losses are not other-than-temporary and none of the Company's investments have been in a loss position for greater than nine months. The Company does not have a foreseeable need to liquidate the portfolio and anticipate recovering the full cost of the securities either as market conditions improve, or as the securities mature.
Inventory
Inventory is stated at the lower of cost (which approximates actual cost on a first-in, first-out basis) or market, computed on a standard cost basis. Inventory that is obsolete or in excess of forecasted usage is written down to its estimated net realizable value based on assumptions about future demand and market conditions. Inventory write-downs of
$0.2 million
were recorded for the year ended
December 31, 2012
. There were
no
such write-downs in the years ended
December 31, 2011
and
December 31, 2010
. The components of inventory consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Raw materials
|
$
|
8,302
|
|
|
$
|
2,336
|
|
Finished goods
|
2,569
|
|
|
2,140
|
|
Total inventory
|
$
|
10,871
|
|
|
$
|
4,476
|
|
Property and equipment, net
Property and equipment, net comprised the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Lab equipment, tooling and molds
|
$
|
1,987
|
|
|
$
|
1,314
|
|
Computer software
|
1,243
|
|
|
1,064
|
|
Computer equipment
|
753
|
|
|
476
|
|
Leasehold improvements
|
636
|
|
|
329
|
|
Furniture and fixtures
|
288
|
|
|
260
|
|
Vehicles
|
35
|
|
|
35
|
|
Total property and equipment
|
4,942
|
|
|
3,478
|
|
Less: Accumulated depreciation and amortization
|
(2,610
|
)
|
|
(1,802
|
)
|
Construction in progress
|
4
|
|
|
468
|
|
Property and equipment, net
|
$
|
2,336
|
|
|
$
|
2,144
|
|
Accrued Liabilities
The following table shows the components of accrued liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Accrued payroll and employee related expenses
|
$
|
3,430
|
|
|
$
|
2,708
|
|
Accrued marketing expenses
|
3,287
|
|
|
364
|
|
Accrued royalty
|
1,343
|
|
|
1,307
|
|
Sales and other taxes payable
|
1,177
|
|
|
652
|
|
Accrued warranty
|
902
|
|
|
742
|
|
Accrued legal expenses
|
415
|
|
|
864
|
|
Other accrued liabilities
|
522
|
|
|
241
|
|
Total accrued liabilities
|
$
|
11,076
|
|
|
$
|
6,878
|
|
Product Warranty
The product warranty accrual as of December 31, 2012 and 2011 consists of the following activity (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Balance at the beginning of the period
|
$
|
742
|
|
|
$
|
519
|
|
Accruals for warranties issued
|
869
|
|
|
905
|
|
Adjustments to pre-existing warranties
|
108
|
|
|
—
|
|
Settlements of warranty claims
|
(817
|
)
|
|
(682
|
)
|
Balance at the end of the period
|
$
|
902
|
|
|
$
|
742
|
|
5. License Agreement with Massachusetts General Hospital
In May 2005, the Company entered into an exclusive license agreement with the General Hospital Corporation, a not for profit Massachusetts corporation, which owns and operates the Massachusetts General Hospital, or MGH. This agreement was amended and restated in September 2011. Under this agreement, the Company obtained an exclusive license to develop and commercialize the patent and the core technology that underlies its CoolSculpting System. The Company conducted development from 2005 through 2009, and thereafter started commercialization of the products. The agreement will remain in full force and effect for the later of (i) the life of any patents that issue from the underlying patent applications, which are expected to expire in
2023
or (ii)
one year
after the last commercial sale for which a royalty is due to MGH, unless terminated in accordance with its terms and conditions. MGH may terminate the agreement upon the Company's insolvency, failure to maintain insurance, material breach of the agreement including failure to satisfy the Company's post-sales requirements, or failure to make required payments. The Company may terminate the agreement for any reason upon
90
days' advance written notice to MGH. The Company has complied with its contractual requirements to date.
The Company is obligated to make various payments to MGH, including (i) a
7%
royalty on net sales (as defined in the agreement) of CoolSculpting and (ii) milestone payments. During the year ended December 31, 2010, the Company paid MGH a
$1.1 million
milestone payment upon receipt of FDA clearance to market its CoolSculpting System for the selective reduction of fat. The remaining milestone payments including (i)
$1 million
due upon achieving cumulative net sales (as defined in the agreement) of
$70 million
and (ii)
$6 million
due upon the earlier to occur of achieving cumulative net sales (as defined in the agreement) of
$200 million
, or the completion of a qualifying initial public offering were made during the quarter ended December 31, 2011. As of December 31, 2011, the Company had completed all the milestones associated with the license agreement with MGH and had no milestone payments to MGH outstanding.
All payments made to MGH prior to the FDA product approval were expensed as incurred as research and development costs. All milestone payments payable by the Company pursuant to the terms of the agreement subsequent to the date of the FDA approval were capitalized as purchased technology when paid, and are subsequently amortized into cost of revenues using the straight-line method over the estimated remaining useful life of the technology, not to exceed the term of the agreement or the life of the patent. Royalty payments are accrued as the Company recognizes revenues, and are included in cost of revenues.
The intangible asset, net comprised the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
December 31,
2011
|
Purchased technology
|
$
|
8,050
|
|
|
$
|
8,050
|
|
Less: Accumulated amortization
|
(869
|
)
|
|
(168
|
)
|
Intangible asset, net
|
$
|
7,181
|
|
|
$
|
7,882
|
|
The amortization expense of the intangible asset was $
0.7 million
and
$0.1 million
for the years ended
December 31, 2012
and
2011
, respectively. The total estimated annual future amortization expense of this intangible asset as of
December 31, 2012
is as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
2013
|
$
|
701
|
|
2014
|
701
|
|
2015
|
701
|
|
2016
|
701
|
|
2017
|
701
|
|
Thereafter
|
3,676
|
|
Total
|
$
|
7,181
|
|
6. Notes Payable
On
January 14, 2009
, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank. The Loan Agreement provided for total borrowings of
$5.0 million
to be made available to the Company in three separate tranches. Tranche A, for
$1.5 million
, was received by the Company in January 2009. Tranche B, for
$2.0 million
, was received by the Company on
April 30, 2009
, and Tranche C, for
$1.5 million
, was available until
September 30, 2009
and was not drawn upon. The notes payable were collateralized by substantially all the assets of the Company, excluding intellectual property. The notes carried an interest rate of
7.28%
per annum. The repayment of principal, plus interest, was via monthly installments over a 36-month period for each tranche, beginning with the disbursement date of each tranche.
On
January 14, 2009
, in accordance with the Loan Agreement, the Company issued a warrant to Silicon Valley Bank to purchase
47,683
shares of Series C preferred stock at
$3.67
per share. The fair value of this warrant was recorded as a debt discount at issuance and has been amortized to interest expense over the term of the notes.
During the quarter ended
March 31, 2012
, the remaining loan balance of
$0.3 million
and the final payment of
5.75%
of the advanced amount, or
$0.2 million
, were paid in full to Silicon Valley Bank.
7. Related Party Transactions
Notes Receivable from a Stockholder
In
December 2007
, the Company issued
445,509
shares of its common stock to an executive in exchange for full recourse promissory notes in the aggregate amount of approximately
$0.2 million
. The promissory notes bore interest from the date of issuance until
January 1, 2010
at a rate of
4.72%
per annum compounded annually and last bore interest at a rate of
4.00%
per annum, and were collateralized by the related common stock and the executive’s assets. The executive separated from the Company on
December 3, 2010
. The promissory notes were due and payable in full (including all accrued and unpaid interest) upon nine months following the Company’s initial public offering of its common stock. These notes receivable were related to a prior exercise of stock options and were recorded as a contra stockholders’ equity account.
In July 2012, the promissory notes were paid in full.
Brazilian Distribution Agreement
The Company entered into a distribution agreement with ADVANCE Medical, Inc., or ADVANCE, dated
March 18, 2011
and amended on
February 27, 2012
and
September 4, 2012
, appointing ADVANCE as the exclusive distributor of CoolSculpting in Brazil and Mexico. ADVANCE is required to purchase a minimum quantity of the Company’s products each calendar quarter throughout the term of the distribution agreement. Venrock, a principal stockholder of the Company, owns a significant equity interest in ADVANCE Medical, Ltd., the parent company of ADVANCE. Dr. Bryan E. Roberts, who is a member of the Company's Board of Directors, is also a partner of Venrock Associates. The revenue recognized by the Company under this distribution agreement for the years ended
December 31, 2012
and
2011
was
$2.5 million
and
$2.0 million
, respectively, and the accounts receivable balance as of
December 31, 2012
and
2011
was
$0.1 million
and
$0.2 million
.
8. Commitments and Contingencies
Lease Commitments
The Company's facility lease agreement was amended in
August 2012
to extend the lease term through
December 31, 2014
for the Company's facility in Pleasanton, California. The Company also occupies a manufacturing facility and a warehouse in Dublin, California, under leases which extend through December 2014. The Dublin warehouse facility's lease includes a clause which allows the landlord, in its sole discretion, to cancel the lease, in certain circumstances, upon six months written notice. The Company also occupies an office space in Gatwick, United Kingdom, under a lease which extends through September 2013, as well as in Dubai, United Arab Emirates, under a lease which extends through March 2013. Rent expense for non-cancellable operating leases with scheduled rent increases is recognized on a straight-line basis over the lease term. Rent expense for the
years ended
December 31, 2012
,
2011
and
2010
was
$1.2 million
,
$0.9 million
and
$0.7 million
, respectively.
Future minimum lease payments under the non-cancellable operating leases as of
December 31, 2012
are as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
2013
|
|
$
|
1,218
|
|
2014
|
|
1,198
|
|
Total future minimum lease payments
|
|
$
|
2,416
|
|
Purchase Commitments
The Company had non-cancellable purchase obligations to contract manufacturers and suppliers for
$2.2 million
at
December 31, 2012
, which were all payable in 2013.
Legal Matters
From time to time, the Company may be involved in legal and administrative proceedings and claims of various types. The Company records a liability in its consolidated financial statements for these matters when a loss is known and considered probable and the amount can be reasonably estimated. Management reviews these estimates in each accounting period as additional information becomes known and adjusts the loss provision when appropriate. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the consolidated financial statements. If a loss is probable but the amount of loss cannot be reasonably estimated, the Company discloses the loss contingency and an estimate of possible loss or range of loss (unless such an estimate cannot be made). The Company does not recognize gain contingencies until they are realized. Legal costs incurred in connection with loss contingencies are expensed as incurred.
On
March 13, 2012
, an alleged purchaser of the Company's publicly traded common stock, Ivan Marcano, filed a securities class action in the Superior Court of California, County of Alameda, entitled Marcano v. Nye, et al., Case No. RG12621290. The complaint alleges that the Company made false and misleading statements or omitted to state facts necessary to make the disclosures not misleading in its Form S-1, and the amendments thereto, issued in connection with the Company's initial public offering. The claims are asserted under Sections 11 and 15 of the Securities Act of 1933. On
March 15, 2012
,
April 3, 2012
, and
May 24, 2012
, three additional and substantially similar lawsuits were filed in the same court, some adding the Company's underwriters as defendants. All four cases were consolidated and a consolidated complaint was deemed operative. On
August 24, 2012
, the Company filed a demurrer to the consolidated complaint. Subsequently, Plaintiffs agreed to dismiss the Company's outside directors and its underwriters from the litigation without prejudice. On November 9, 2012, the court sustained the Company's demurrer with leave to amend. Plaintiffs filed a second amended complaint on January 14, 2013, again asserting claims under Sections 11 and 15 of the Securities Act of 1933. The second amended complaint seeks compensatory damages and equitable relief on behalf of the class for an amount to be proven at trial. The Company has filed its response to the second amended complaint, and believes the lawsuit to be without merit and intends to vigorously defend it. The Company believes there is insufficient evidence to indicate whether there is a reasonable possibility that a loss has been incurred as of
December 31, 2012
, nor can it estimate the range of potential loss.
Indemnifications
In the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and provide for general indemnifications. The Company's exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims , and the Company believes that the estimated fair value of these indemnification obligations is minimal and has not accrued any amounts for these obligations.
Severance
Effective
April 3, 2012
, the Company's Vice President of North American Sales resigned from the Company. On
April 18, 2012
, our President and CEO resigned from the positions he held with the Company. As a result of these resignations, the Company incurred
$0.9 million
in costs associated with the termination benefits and
$0.7 million
in costs related to the modification of the employees' stock options, which were recorded during the year ended
December 31, 2012
. As of
December 31, 2012
, approximately
$0.5 million
of the termination benefits had been paid. The liability related to these costs as of
December 31, 2012
was
$0.4 million
.
Subsequent to these resignations, during the
second
quarter of
2012
, the Company made a decision to terminate several employees. As a result of these terminations, the Company incurred approximately
$0.8 million
in termination benefits, which were recorded as part of operating expenses in our consolidated statement of operations. As of
December 31, 2012
approximately
$0.8 million
of the termination benefits had been paid. The liability remaining related to these costs as of
December 31, 2012
is insignificant.
No similar costs were incurred during the years ended
December 31, 2011
or
2010
.
9. Stockholders' Equity
Preferred Stock
The Company's Certificate of Incorporation, as amended in October 2011, authorizes the Company to issue
50,000,000
shares of preferred stock with a par value of
$0.01
per share. In connection with the IPO, all of the Company's outstanding shares of convertible preferred stock were automatically converted into
24,415,965
shares of common stock. At
December 31, 2012
and
2011
, the Company had
no
preferred stock issued or outstanding. The rights, preferences and privileges of the Series A, Series B, Series C and Series D convertible preferred were as follows:
Voting
Each holder of outstanding shares of Series A, Series B, Series C, and Series D convertible preferred stock was entitled to cast the number of votes equal to the number of whole shares of common stock into which such holder's shares of Series A, Series B, Series C, and Series D were convertible as of the record date.
Dividends
The holders of the outstanding shares of Series A, Series B, and Series C convertible preferred stock were entitled to receive, when and if declared by the Board of Directors, a cumulative dividend at the annual rate of
$0.29
per share. The holders of the outstanding shares of Series D-1 and Series D-2 convertible preferred stock were entitled to receive, when and if declared by the Board of Directors, a cumulative dividend at the annual rate of
$0.21
and
$0.26
per share. Such dividends were payable in preference to any dividends for common stock declared by the Board of Directors.
No
dividends have been declared to date.
During the year ended December 31, 2011, it was determined that, on April 18, 2008, an amendment to the Company's Articles of Incorporation had removed a previously stated redemption date from its provisions. As a result, accretion of cumulative dividends on convertible preferred stock was no longer required. The statement of convertible preferred stock and stockholders' deficit includes the revision to correct amounts accreted between April 18, 2008 and December 31, 2010 as a result of this matter.
Conversion
Each share of Series A, Series B, Series C, and Series D convertible preferred stock was convertible, at the option of the holder, at any time, into shares of common stock. Each share of Series A, Series B, and Series C convertible preferred stock was convertible into approximately
1.072
shares of common stock, following an adjustment of the conversion rate upon issuance of Series D-1 convertible preferred stock during 2010. Each share of Series D-1 and Series D-2 convertible preferred stock was convertible into
one
share of common stock. The conversion price was subject to adjustments.
Each share of Series A, Series B, Series C, and Series D convertible preferred stock was to convert into shares of common stock at the then effective conversion price for each such share immediately upon the earlier of (i) the Company's sale of its common stock in an underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, which has a Company valuation above
$175 million
and results in aggregate gross proceeds to the Company of at least
$30 million
, or (ii) the date specified by the written consent or agreement of the holders of at least
60%
of the then outstanding shares of Series A, Series B, Series C, and Series D convertible preferred stock.
Liquidation
Upon liquidation, dissolution, or winding up of the Company, or upon a change of control or a sale of substantially all of the Company's assets, the holders of outstanding Series D convertible preferred stock were entitled to receive, prior and in preference
to any distribution to the holders of shares of common stock or Series A, Series B, or Series C convertible preferred stock, an amount per share equal to the greater of (i) Series D original issue price (
$2.68
for Series D-1 shares and
$3.30
for Series D-2 shares) plus cumulative dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid, or (ii) an amount that would have been paid had such share been converted into common stock immediately prior to such liquidation. After distribution to the holder of Series D convertible preferred stock, the holders of outstanding Series A, Series B, and Series C convertible preferred stock were entitled to receive, prior and in preference to any distribution to the holders of shares of common stock, an amount per share equal to the greater of (i) the Series A, Series B, or Series C original issue price plus dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon, or (ii) an amount that would have been payable had such share been converted into common stock immediately prior to such liquidation. The remaining assets would be distributed to holders of the Company's common stock.
Other Matters
The Company recorded the convertible preferred stock at fair value on the dates of issuance, net of issuance costs. The convertible preferred stock was not redeemable. The Company classified the convertible preferred stock outside of stockholders' deficit because the shares contain liquidation features that are not solely within the Company's control.
The Company has performed ongoing assessments
of all terms and features of its convertible preferred stock to identify any potential embedded features that would require bifurcation or any beneficial conversion features. As part of this analysis, the Company assessed the economic characteristics and risks of its convertible preferred stock, including conversion, liquidation and redemption features, as well as dividend and voting rights. Based on the Company's determination that each series of its convertible preferred stock was an “equity host,” the Company determined that the features of the convertible preferred stock were most closely associated with an equity host and, although the convertible preferred stock included conversion features, such conversion features did not require bifurcation as a derivative liability. The Company also determined that the conversion option with a contingent reduction in the conversion price, upon occurrence of certain dilutive events, was a potential contingent beneficial conversion feature. In accordance with certain anti-dilution provisions contained in the Series D-1 and Series D-2 convertible preferred stock agreements, issuances of Series D-1, and Series D-2 convertible preferred stock resulted in an anti-dilution adjustment of the conversion prices for the Series A, Series B and Series C convertible preferred stock during the year ended December 31, 2010. As a result, the Company performed a calculation to determine if a beneficial conversion feature was triggered. The fair value of common stock, as determined by management and the Board of Directors, on the corresponding issuance dates of Series D-1 and Series D-2 convertible preferred stock in each instance was below the adjusted conversion prices. Therefore, no beneficial conversion feature was identified.
Convertible Preferred Stock Warrants
In connection with obtaining a credit facility (see Note 6), the Company issued a warrant to Silicon Valley Bank to purchase
47,683
shares of Series C convertible preferred stock at
$3.67
per share. These warrants were issued on
January 14, 2009
and expire on the 10-year anniversary after the issue date. The fair value of the warrants on the date of issuance was
$0.1 million
. The exercise price and number of warrants were subject to change upon the closing of a Series D-1 convertible preferred stock financing agreement. Upon the issuance of Series D-1 convertible preferred stock at
$2.68
per share, the warrants were automatically adjusted to instead be exercisable for
65,319
shares of Series D-1 convertible preferred stock with the warrants price adjusted to record the per share purchase price of Series D-1 convertible preferred stock.
Upon the closing of the Company’s IPO in
October 2011
, the convertible preferred stock warrants were automatically converted into common stock warrants to purchase
65,319
shares of common stock. In addition, the fair value of the convertible preferred stock warrants as of
October 24, 2011
, estimated to be
$0.9 million
using the Black-Scholes option pricing model, was reclassified to additional paid in capital. These warrants were exercised in
December 2011
.
The Company determined the fair value of the preferred stock warrants at
October 24, 2011
(the final valuation date of the preferred stock warrants before they converted to common stock warrants) using the Black-Scholes option pricing model with the following assumptions:
|
|
|
|
|
October 24, 2011
|
Remaining contractual life (in years)
|
7.2
|
|
Risk-free interest rate
|
1.8
|
%
|
Expected volatility
|
59.3
|
%
|
Expected dividend rate
|
0
|
%
|
Fair Value of Series D-1 Convertible Preferred Stock.
The fair value of the shares of Series D-1 convertible preferred stock underlying the preferred stock warrants had historically been determined by the Board of Directors. Because there had been no public market for the Company’s convertible preferred stock, the Board of Directors had determined fair value of the Series D-1 convertible preferred stock at each balance sheet date by considering a number of objective and subjective factors including valuation of comparable companies, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock, and general and industry specific economic outlook, among other factors. To determine the fair value of the preferred stock warrant at
October 24, 2011
, the Company made an assumption that the fair value per share of the Series D-1 convertible preferred stock approximated the closing price per share of the Company’s common stock on
October 24, 2011
.
Remaining Contractual Life.
The Company derived the remaining contractual life based on the time from the balance sheet date until the preferred stock warrant’s expiration date, the 10-year anniversary from the issue date.
Volatility.
Since the Company was a private entity with no historical data regarding the volatility of its preferred stock, the expected volatility used is based on volatility of a group of similar entities, referred to as “guideline” companies. In evaluating similarity, the Company considered factors such as industry, stage of life cycle and size.
Risk-Free Interest Rate.
The risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.
Dividend Yield.
The Company has never paid any dividends and does not plan to pay dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.
Common Stock
Each share of common stock has the right to
one
vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends.
No
dividends have been declared or paid as of
December 31, 2012
.
Common Stock Warrants
In May 2007, the Company issued to consultants immediately vested warrants to purchase
5,340
shares of the Company's common stock at an exercise price of
$0.55
per share, exercisable until the earlier of (i)
May 24, 2014
, (ii) the closing of an initial public offering, or (iii) the sale of the Company. These warrants were exercised in
July 2011
.
10. Stock-Based Compensation Plans
2005 Stock Option Plan
In 2005, the Company established its 2005 Stock Option Plan (the “ 2005 Plan”), which provided for the granting of stock options to employees and consultants of the Company. Options granted under the Plan were either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). ISOs were granted only to Company employees (including officers and directors who are also employees). NSOs were granted to Company employees and consultants.
Options under the Plan were granted for periods of up to ten years. The exercise price of an ISO and NSO should not be less than
100%
and
85%
of the estimated fair value of the shares on the date of grant, as determined by the Board of Directors. The exercise price of an ISO and NSO granted to a
10%
stockholder should not be less than
110%
of the estimated fair value of the shares on the date of grant, as determined by the Board of Directors. To date, options granted generally vested over four years at a rate of
25%
upon the first anniversary of the issuance date and monthly thereafter. Cash received from employees for early exercise of unvested options was treated as a liability. Amounts so recorded were transferred into common stock and additional paid-in capital as the shares vested. The number of unvested shares and the associated liability amounts were immaterial at all reporting dates presented. As of
December 31, 2012
,
no
shares of the Company's common stock remained available for issuance under the 2005 Plan as a result of the adoption of the 2011 Equity Incentive Plan (the "2011 Plan").
2011 Equity Incentive Plan
In September 2011, the Company's Board of Directors approved the 2011 Plan that became effective upon the completion of the IPO.
The 2011 Plan serves as the successor equity incentive plan to our 2005 Plan and started with
89,234
shares of common stock available for issuance plus any shares of common stock issued pursuant to the 2005 Plan or subject to awards granted under the 2005 Plan that are forfeited, repurchased, returned or otherwise become available for issuance in accordance with the terms of the 2005 Plan. In addition, this plan reserve automatically increases on January 1 and each subsequent anniversary through January 1, 2021, by an amount equal to the smaller of
five
percent of the number of shares of common stock issued and outstanding on the
immediately preceding December 31, or an amount determined by the Company's Board of Directors. The 2011 Plan provides for granting awards in the form of options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards. Options granted under the 2011 Plan may be either ISOs or NSOs. ISOs may be granted only to the Company's employees. Any person who is not an employee of the Company on the effective date of the grant of an option may be granted only a NSO. Options under the 2011 Plan may be granted for periods of up to
ten
years and generally vest over a period of four years. The exercise price of an ISO and NSO shall not be less than
100%
of the fair value of the shares on the date of grant. The exercise price of an ISO granted to a
10%
stockholder shall not be less than
110%
of the fair value of the underlying stock on the date of grant.
2012 Stock Plan
In April 2012, the Company's Board of Directors approved the 2012 Stock Plan ("2012 Plan") that became effective upon approval by the stockholders of the Company on June 15, 2012. The purpose of the 2012 Plan is to advance the interests of the Company and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company. The 2012 Plan seeks to achieve this purpose by providing for awards in the form of options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units, cash-based awards, other stock-based awards, and deferred compensation awards.
The 2012 Plan started with
1,500,000
shares of common stock available for issuance and there are no provisions in the 2012 Plan to increase the shares available for issuance. Options granted under the 2012 Plan may be either ISOs or NSOs. ISOs may be granted only to the Company's employees. Any person who is not an employee of the Company on the effective date of the grant of an option may be granted only a NSO. Options under the 2012 Plan may be granted for periods of up to
ten
years and generally vest over a period of four years. The exercise price of an ISO and NSO shall not be less than
100%
of the fair value of the shares on the date of grant. The exercise price of an ISO granted to a
10%
stockholder shall not be less than
110%
of the fair value of the underlying stock on the date of grant.
Stock Plan Activity
Activity of the stock options and restricted stock units under the 2011 Plan and the 2012 Plan is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Shares
Available
for Grant
|
|
Number of
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-Average Remaining Contractual Life (in Years)
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Balance, December 31, 2010
|
224,862
|
|
|
4,291,406
|
|
|
$
|
1.54
|
|
|
|
|
|
Additional shares reserved
|
953,659
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Options granted
|
(1,305,620
|
)
|
|
1,305,620
|
|
|
6.72
|
|
|
|
|
|
Restricted stock awards granted
|
(11,495
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
Options exercised
|
—
|
|
|
(553,023
|
)
|
|
1.07
|
|
|
|
|
|
Options canceled
|
196,031
|
|
|
(196,031
|
)
|
|
1.56
|
|
|
|
|
|
Balance, December 31, 2011
|
57,437
|
|
|
4,847,972
|
|
|
3.00
|
|
|
|
|
|
Additional shares reserved
|
3,199,890
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Options granted
|
(2,989,279
|
)
|
|
2,989,279
|
|
|
5.87
|
|
|
|
|
|
Restricted stock awards granted
|
(4,083
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
Restricted stock units granted
|
(1,540,417
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
Options exercised
|
—
|
|
|
(1,612,233
|
)
|
|
1.65
|
|
|
|
|
|
Options canceled
|
2,096,684
|
|
|
(2,096,684
|
)
|
|
4.28
|
|
|
|
|
|
Restricted stock award canceled
|
2,342
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Restricted stock units canceled
|
281,262
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Balance, December 31, 2012
|
1,103,836
|
|
|
4,128,334
|
|
|
$
|
4.96
|
|
|
8.4
|
|
|
$
|
3,118
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest, December 31, 2012
|
|
|
3,841,325
|
|
|
$
|
4.92
|
|
|
8.3
|
|
|
$
|
3,067
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2012
|
|
|
1,274,485
|
|
|
$
|
3.89
|
|
|
6.0
|
|
|
$
|
2,435
|
|
The following table summarizes information about stock options outstanding as of
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
Exercise Price
|
Stock Options Outstanding
|
|
Weighted-Average Remaining Contractual Life (in Years)
|
|
Options Exercisable
|
$0.55-1.54
|
457,820
|
|
|
5.4
|
|
|
328,433
|
|
1.95-2.42
|
488,960
|
|
|
6.0
|
|
|
480,562
|
|
2.83-4.30
|
443,134
|
|
|
8.8
|
|
|
94,504
|
|
4.62-5.06
|
1,628,782
|
|
|
9.7
|
|
|
—
|
|
5.82-6.50
|
629,330
|
|
|
9.5
|
|
|
162,917
|
|
10.20-12.12
|
480,308
|
|
|
7.5
|
|
|
208,069
|
|
|
4,128,334
|
|
|
|
|
1,274,485
|
|
2011 Employee Stock Purchase Plan
In September 2011, the Company's Board of Directors approved the 2011 Employee Stock Purchase Plan (“2011 ESPP”) that became effective upon the completion of the IPO. The 2011 ESPP is designed to enable eligible employees to purchase shares of the Company's common stock at a discount. Each offering period consists of one six-month purchase period. The purchase price for shares of common stock under the 2011 ESPP is
85%
of the of lesser of the fair market value of the Company's common stock on the first day of the applicable offering period or the purchase date.
There were
470,018
shares of the Company's common stock initially reserved for future purchase under our 2011 ESPP. On the first day of each year, beginning January 1, 2012 and through and including January 1, 2021, the maximum aggregate number of shares of common stock that may be issued under the 2011 ESPP will be increased by a number of shares equal to the smallest of a)
one
percent of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or b) an amount determined by the Company's Board of Directors.
The initial offering period commenced on October 19, 2011, and ended on May 31, 2012. The future offering periods will commence on or about the first trading days of December and June of each year and end on or about the last trading days of the next May and November, respectively.
During the year ended
December 31, 2012
, employees purchased
133,363
shares under the 2011 ESPP at a weighted average exercise price of
$3.73
. As of
December 31, 2012
, there were
336,655
shares of the Company's common stock available for future purchase under our 2011 ESPP.
Stock-Based Compensation Expense
The stock-based compensation expense related to all of our stock-based awards and employee stock purchases was allocated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Cost of revenues
|
|
$
|
131
|
|
|
$
|
54
|
|
|
$
|
39
|
|
Research and development
|
|
894
|
|
|
542
|
|
|
100
|
|
Sales and marketing
|
|
827
|
|
|
533
|
|
|
89
|
|
General and administrative
|
|
3,137
|
|
|
1,150
|
|
|
1,059
|
|
Total stock-based compensation
|
|
$
|
4,989
|
|
|
$
|
2,279
|
|
|
$
|
1,287
|
|
Stock-based compensation expense for the year ended
December 31, 2012
includes
$0.3 million
in charges related to market-performance based stock options and restricted stock units granted to the Company's Chief Executive Officer. The stock-based
compensation expense for the year ended
December 31, 2012
includes
$0.7 million
in modification charges incurred in connection with the severance packages to the Company's former executives.
As of December 31, 2012, the total unrecognized compensation cost related to outstanding stock options, awards and employee stock purchases was
$11.8 million
, which will recognized using the straight-line attribution method over
3.2
years.
Stock-Based Compensation Associated with Awards to Employees
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. The valuation model for stock compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation including the expected term (weighted-average period of time that the options granted are expected to be outstanding); volatility of the Company's common stock, an assumed-risk-free interest rate and the estimated forfeitures of unvested stock options. The fair value of employee stock options was estimated using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Expected term (in years)
|
5.2
|
|
|
6.0
|
|
|
5.9
|
|
Expected volatility
|
61
|
%
|
|
59
|
%
|
|
61
|
%
|
Risk-free interest rate
|
0.76
|
%
|
|
1.05-2.65%
|
|
|
1.90
|
%
|
Expected dividend yield
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Fair Value of Common Stock
. The fair value of the underlying common stock was determined by the Board of Directors until the IPO when the Company's common stock started trading in the NASDAQ Global Select Market under ticker symbol ZLTQ on October 19, 2011. Consequently, after the IPO the fair value of the shares of common stock underlying the stock options is the closing price on the option grant date. Prior to the IPO, the fair value of the shares of common stock underlying the stock options was determined by the Board of Directors. Because there was no public market for the Company's common stock, the Board of Directors determined fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including valuation of comparable companies, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock, and general and industry specific economic outlook, amongst other factors.
Expected Term
. Prior to the IPO, the Company derived the expected term using the “simplified” method (the expected term is determined as the average of the time-to-vesting and the contractual life of the options), as the Company had limited historical information to develop expectations about future exercise patterns and post-vesting employment termination behavior. Subsequent to the IPO, the expected term used was based on expected term of a group of similar entities, referred to as “guideline” companies. In evaluating similarity, the Company considered factors such as industry, stage of life cycle and size.
Volatility
. Prior to the IPO, because the Company was a private entity with no historical data regarding the volatility of its common stock, the expected volatility used was based on volatility of a group of similar entities, referred to as “guideline” companies. In evaluating similarity, the Company considered factors such as industry, stage of life cycle and size. Subsequent to the IPO, the Company has continued to estimate its volatility based on this group of similar entities as the Company does not have sufficient historical data regarding its specific volatility.
Risk-Free Interest Rate
. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.
Dividend Yield
. The Company has never paid any dividends and does not plan to pay dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.
Forfeitures.
The Company is required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and record stock based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period that the estimates are revised.
During the years ended
December 31, 2012
,
2011
and
2010
, the Company granted
2,860,927
,
1,305,620
and
2,303,478
stock options, respectively, to employees with a weighted-average grant date fair value of
$3.07
,
$5.65
, and
$0.92
per share, respectively. The aggregate intrinsic value of options exercised was
$6.0 million
,
$5.7 million
and
$0.5 million
for the years ended
December 31, 2012
,
2011
, and
2010
, respectively. The aggregate intrinsic value is calculated as the difference between the exercise price and the estimated fair value of the Company's common stock at the date of exercise. The total fair value of shares vested was
$2.1 million
,
$0.9 million
and
$1.1 million
for the years ended
December 31, 2012
,
2011
and
2010
, respectively.
During the years ended
December 31, 2012
and
2011
, the Company granted
1,412,066
and
11,495
restricted stock units and restricted awards, respectively, to employees. The weighted-average fair value as of the respective grant date of restricted stock units and restricted stock awards was
$5.70
and
$10.20
for the years ended
December 31, 2012
and
2011
, respectively. There were no such awards granted for the year ended
December 31, 2010
. The fair value as of the respective vesting dates of restricted stock units and restricted stock awards was
$0.3 million
for the year ended
December 31, 2012
. The fair value as the respective vesting dates of restricted stock units and restricted stock awards for the years ended
December 31, 2011
and
2010
, were immaterial.
There was no capitalized stock-based compensation cost and no recognized stock-based compensation tax benefits during the years ended
December 31, 2012
,
2011
and
2010
.
Stock-Based Compensation for Non-employees
Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock options are earned. The Company believes that the fair value of the stock options is more reliably measurable than the fair value of the services received. The fair value of the stock options granted is calculated at each reporting date using the Black-Scholes option pricing model. During the year ended
December 31, 2012
, the Company granted
128,352
stock options and
132,434
restricted stock units to non-employees. These stock options and restricted stock units vested over
0.5
years. The Company recorded a total of
$0.8 million
in stock-based compensation expense related to these non-employee grants. Stock-based compensation expense for non-employees was insignificant for the years ended
December 31, 2011
and
2010
. The fair value as of the respective vesting dates of restricted stock units and restricted stock awards was
$0.5 million
for the year ended
December 31, 2012
.
11. Employee Benefit Plans
In 2005, the Company adopted a retirement savings plan under Section 401(k) of the Internal Revenue Code. This plan covers all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company contributions to the plan may be made at the discretion of the Board of Directors. Matching 401(k) contributions expensed were
$0.7 million
,
$0.5 million
, and
$0.3 million
for the years ended
December 31, 2012
,
2011
, and
2010
, respectively.
12. Income Taxes
The domestic and foreign components of loss before provision for income taxes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Domestic
|
$
|
(30,329
|
)
|
|
$
|
(9,051
|
)
|
|
$
|
(13,533
|
)
|
Foreign
|
327
|
|
|
(504
|
)
|
|
—
|
|
Loss before provision for income taxes
|
$
|
(30,002
|
)
|
|
$
|
(9,555
|
)
|
|
$
|
(13,533
|
)
|
The provision for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2012
|
|
2011
|
|
2010
|
Current provision:
|
|
|
|
|
|
Federal
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
37
|
|
|
48
|
|
|
—
|
|
Foreign
|
170
|
|
|
—
|
|
|
—
|
|
Total current
|
207
|
|
|
48
|
|
|
—
|
|
|
|
|
|
|
|
Deferred provision (benefit):
|
|
|
|
|
|
Federal
|
—
|
|
|
—
|
|
|
—
|
|
State
|
—
|
|
|
—
|
|
|
—
|
|
Foreign
|
(66
|
)
|
|
—
|
|
|
—
|
|
Total deferred
|
(66
|
)
|
|
—
|
|
|
—
|
|
Total provision
|
$
|
141
|
|
|
$
|
48
|
|
|
$
|
—
|
|
The following is a reconciliation of the statutory federal income tax rate to the Company's effective tax:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Tax at federal statutory rate
|
35
|
%
|
|
35
|
%
|
|
35
|
%
|
State income taxes, net of federal benefit
|
(1
|
)
|
|
(1
|
)
|
|
6
|
|
Non-deductible permanent difference
|
—
|
|
|
(3
|
)
|
|
(2
|
)
|
Change in valuation allowance
|
(34
|
)
|
|
(31
|
)
|
|
(38
|
)
|
Research & development credits
|
1
|
|
|
3
|
|
|
2
|
|
Stock-based compensation
|
(1
|
)
|
|
(5
|
)
|
|
(3
|
)
|
Other
|
—
|
|
|
2
|
|
|
—
|
|
Provision for income taxes
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Tax effects of temporary differences that give rise to significant portions of the deferred tax assets are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Net operating loss carryforwards
|
$
|
38,385
|
|
|
$
|
28,117
|
|
Research & development credits
|
2,703
|
|
|
2,709
|
|
Depreciation & amortization
|
312
|
|
|
364
|
|
Accruals & reserves
|
3,592
|
|
|
1,646
|
|
Total deferred tax assets
|
44,992
|
|
|
32,836
|
|
Valuation allowance
|
(44,926
|
)
|
|
(32,836
|
)
|
Net deferred tax assets
|
$
|
66
|
|
|
$
|
—
|
|
As of
December 31, 2012
, the Company had federal and state net operating loss carryforwards of
$98.8 million
and
$94.6 million
, respectively. Unrecognized deferred tax benefits of approximately
$4.0 million
resulted from the exercises of employee stock options will be accounted for as a credit to the additional paid-in capital if and when realized through a reduction in income tax payable. The federal net operating losses begin expiring in
2026
and state net operating losses begin expiring in
2015
. As of
December 31, 2012
, the Company had research and development credit carryforwards of approximately
$1.8 million
and
$2.5 million
available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. The federal research and development credit carryforwards expire beginning
2030
, and state credits can be carried forward indefinitely.
On January 2, 2013, the President signed into law The American Taxpayer Relief Act of 2012, or ATRA. Under prior law, a taxpayer was entitled to a research tax credit for qualifying amounts incurred through December 31, 2011. The ATRA extends the research credit for two years for qualified research expenditures incurred through the end of 2013. The extension of the research credit is retroactive and includes amounts incurred after 2011. Before considering the impact of any required valuation allowance, the Company estimates the benefit that it will receive as a result of the credit extension will be approximately
$0.3 million
. To the extent that such benefit is recognized in the statement of operations, it would be recognized in the period of the enactment, which is the first quarter of 2013.
Management believes that, based on a number of factors, which includes the Company’s historical operating performance and accumulated deficit, it is more likely than not that the U.S. deferred tax assets will not be utilized, such that a full valuation allowance has been recorded against our U.S. deferred tax assets. Valuation allowance increased by approximately
$12.1 million
, and
$3.6 million
for the years ended
December 31, 2012
and
2011
, respectively.
The valuation allowance against deferred tax assets consisted of the following activity for the fiscal years ended
December 31, 2012
,
2011
and
2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Balance at Beginning of Year
|
|
Additions
|
|
Reductions
|
|
Balance at End of Year
|
Year ended December 31, 2010
|
$
|
24,164
|
|
|
$
|
5,067
|
|
|
$
|
—
|
|
|
$
|
29,231
|
|
Year ended December 31, 2011
|
29,231
|
|
|
3,605
|
|
|
—
|
|
|
32,836
|
|
Year ended December 31, 2012
|
32,836
|
|
|
12,090
|
|
|
—
|
|
|
44,926
|
|
Utilization of net operating losses and tax credit carryforwards may be limited by to an “ownership change” rules, as defined in Section 382 of the Internal Revenue Code. Similar rules may apply under state tax laws. In the event the Company experiences any subsequent changes in ownership, the amount of net operating losses and research and development credit carryovers available in any taxable year could be limited and may expire unutilized.
During the year ended
December 31, 2012
, the amount of gross unrecognized tax benefits increased by
$0.1 million
. The total amount of unrecognized tax benefits was
$0.9 million
as of
December 31, 2012
, of which
$34,000
, if recognized, would affect the effective income tax rate due to the valuation allowance that currently offsets deferred tax assets. The Company's policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company has accrued an immaterial amount of interest and penalties as of
December 31, 2012
.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Balance as of January 1, 2010
|
$
|
571
|
|
Additions based on tax positions related to the current year
|
107
|
|
Balance as of December 31, 2010
|
678
|
|
Additions based on tax positions related to the current year
|
146
|
|
Balance as of December 31, 2011
|
824
|
|
Additions based on tax positions related to the current year
|
78
|
|
Balance as of December 31, 2012
|
$
|
902
|
|
The Company files income tax returns in the U.S. federal and state jurisdictions and in the United Kingdom and all returns since inception remain open to examination.
13. Net Loss per Share of Common Stock
Basic net loss per share of common stock is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share of common stock is computed by giving effect to all potentially dilutive securities outstanding during the period, including options, warrants, and convertible preferred stock. Basic and diluted net loss per share attributable to common stockholders was the same for all periods presented as the inclusion of all potentially dilutive securities outstanding were anti-dilutive. As such, the numerator and the denominator used in computing both basic and diluted net loss are the same for each period presented.
A reconciliation of the numerator and denominator used in the calculation of the basic and diluted net loss per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31,
|
|
2012
|
|
2011
|
|
2010
|
Historical net loss per share:
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
Net loss attributable to common stockholders (in thousands)
|
$
|
(30,143
|
)
|
|
$
|
(14,702
|
)
|
|
$
|
(18,959
|
)
|
Denominator
|
|
|
|
|
|
Weighted average shares of common stock outstanding used in computing net loss per share attributable to common stockholders - basic and diluted
|
34,776,380
|
|
|
7,506,282
|
|
|
939,028
|
|
Basic and diluted net loss per share attributable to common stockholders
|
$
|
(0.87
|
)
|
|
$
|
(1.96
|
)
|
|
$
|
(20.19
|
)
|
The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share of common stock for the periods presented, because including them would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31,
|
|
2012
|
|
2011
|
|
2010
|
Convertible preferred stock (on an as-if converted basis)
|
—
|
|
|
—
|
|
|
24,415,965
|
|
Options to purchase common stock
|
4,128,334
|
|
|
4,847,972
|
|
|
4,291,406
|
|
Restricted stock units
|
119,507
|
|
|
—
|
|
|
—
|
|
Convertible preferred stock warrants
|
—
|
|
|
—
|
|
|
65,319
|
|
Common stock issuable pursuant to the ESPP
|
21,586
|
|
|
—
|
|
|
—
|
|
Common stock warrants
|
—
|
|
|
—
|
|
|
5,340
|
|
Total
|
4,269,427
|
|
|
4,847,972
|
|
|
28,778,030
|
|
14. Supplemental Cash Flow Information
The supplemental cash flow information consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31,
|
|
2012
|
|
2011
|
|
2010
|
Cash paid for interest
|
$
|
2
|
|
|
$
|
69
|
|
|
$
|
173
|
|
Cash paid for income taxes
|
$
|
47
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
Cumulative dividends on convertible preferred stock
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,426
|
|
Issuance of Series D-1 convertible preferred stock for conversion of convertible notes payable and accrued interest
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,354
|
|
Vesting of restricted shares issued in prior periods
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
49
|
|
Changes in accounts payable and accrued liabilities related to property, plant and equipment purchases
|
$
|
(100
|
)
|
|
$
|
147
|
|
|
$
|
—
|
|
Reclassification of warrant liability to additional paid-in capital upon initial public offering
|
$
|
—
|
|
|
$
|
921
|
|
|
$
|
—
|
|
Conversion of preferred stock into common stock upon initial public offering
|
$
|
—
|
|
|
$
|
81,164
|
|
|
$
|
—
|
|
15. Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company has
one
business activity and there are no segment managers who are held accountable for operations. Accordingly, the Company has a single reportable segment structure. All of the Company’s principal operations and decision-making functions are located in the United States.
The Company’s revenues by geographic region, based on the location to where the product was shipped, are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31,
|
|
2012
|
|
2011
|
|
2010
|
North America
|
$
|
56,657
|
|
|
$
|
50,332
|
|
|
$
|
16,875
|
|
Rest of World
|
19,537
|
|
|
17,812
|
|
|
8,586
|
|
Total
|
$
|
76,194
|
|
|
$
|
68,144
|
|
|
$
|
25,461
|
|
North America includes the United States and Canada. Revenues for the United States were
$54.7 million
,
$47.5 million
and
$16.0 million
for the
years ended
December 31, 2012
,
2011
and
2010
, respectively.
The following table sets forth revenue by product expressed as dollar amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31,
|
|
2012
|
|
2011
|
|
2010
|
Systems
|
$
|
39,145
|
|
|
$
|
46,552
|
|
|
$
|
21,094
|
|
Consumable revenues
|
37,049
|
|
|
21,592
|
|
|
4,367
|
|
Total
|
$
|
76,194
|
|
|
$
|
68,144
|
|
|
$
|
25,461
|
|
Substantially all of the Company’s long-lived assets are located in the United States of America.
16. Selected Quarterly Financial Data (unaudited)
The following table presents selected unaudited consolidated financial data for each of the eight quarters in the two-year period ended
December 31, 2012
. The selected quarterly financial data should be read in conjunction with our consolidated financial statements and the related notes and "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations". This information has been derived from our unaudited consolidated financial statements that, in our opinion, reflect all recurring adjustments necessary to fairly state this information when read in conjunction with our consolidated financial statements and the related notes appearing in the section entitled "Consolidated Financial Statements". Net loss per share-basic and diluted, for the four quarters of each fiscal year may not sum to the total for the fiscal year because of the different number of shares outstanding during each period. The results of operations for any quarter are not necessarily indicative of the results to be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
(In thousands, except share and per share data)
|
Year Ended December 31, 2012
|
|
|
|
|
|
|
|
Total revenues
|
$
|
17,404
|
|
|
$
|
22,265
|
|
|
$
|
17,928
|
|
|
$
|
18,597
|
|
Gross profit
|
$
|
11,411
|
|
|
$
|
15,115
|
|
|
$
|
11,975
|
|
|
$
|
12,186
|
|
Net loss
|
$
|
(10,345
|
)
|
|
$
|
(8,101
|
)
|
|
$
|
(5,182
|
)
|
|
$
|
(6,515
|
)
|
Net loss attributable to common stockholders
|
$
|
(10,345
|
)
|
|
$
|
(8,101
|
)
|
|
$
|
(5,182
|
)
|
|
$
|
(6,515
|
)
|
Net loss attributable to common stockholders-basic and diluted
|
$
|
(0.30
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.18
|
)
|
Shares used in calculation-basic and diluted
|
34,010,432
|
|
|
34,253,357
|
|
|
35,068,076
|
|
|
35,764,666
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011
|
|
|
|
|
|
|
|
Total revenues
|
$
|
14,272
|
|
|
$
|
17,354
|
|
|
$
|
17,720
|
|
|
$
|
18,798
|
|
Gross profit
|
$
|
8,623
|
|
|
$
|
10,654
|
|
|
$
|
10,437
|
|
|
$
|
12,329
|
|
Net loss
|
$
|
(825
|
)
|
|
$
|
(559
|
)
|
|
$
|
(2,850
|
)
|
|
$
|
(5,369
|
)
|
Net loss attributable to common stockholders
|
$
|
(2,389
|
)
|
|
$
|
(2,122
|
)
|
|
$
|
(4,414
|
)
|
|
$
|
(5,777
|
)
|
Net loss attributable to common stockholders-basic and diluted
|
$
|
(1.90
|
)
|
|
$
|
(1.60
|
)
|
|
$
|
(3.17
|
)
|
|
$
|
(0.22
|
)
|
Shares used in calculation-basic and diluted
|
1,259,040
|
|
|
1,329,763
|
|
|
1,391,049
|
|
|
25,846,891
|
|