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| CPCF.OB > SEC Filings for CPCF.OB > Form 10-Q on 10-Nov-2008 | All Recent SEC Filings |
10-Nov-2008
Quarterly Report
General
To date, our activities have included the market analysis and development of our MedClose device and counterpulsation units and the raising of development and working capital. We have developed and prepared for market our counterpulsation units, including a stand-alone unit known as the CPCA 2000. In March 2003, we received FDA clearance to market the CPCA 2000 counterpulsation unit as a Class III medical device. We are also engaged in the business of developing a patented internal puncture closure device and technique known as "MedClose". We have not commenced revenue producing operations.
During 2003 and 2004, we pursued the potential sale of CPCA 2000, Inc., our subsidiary that owns our counterpulsation technologies and products. Based on the analysis and inquiries by our investment banker, along with our own internal inquiries and analysis, we are of the opinion that there is not sufficient interest in the acquisition of CPCA 2000, Inc. or our counterpulsation technologies at this time due to declines in the amount of reimbursable patient costs for counterpulsation treatments under the Medicare program. Between 2002 and 2005, the amount of reimbursable patient costs for counterpulsation treatments under Medicare declined by approximately 30%. The decline in coverage has had a material negative impact on projected profitability of operations based on our counterpulsation technologies and products.
At the present time, we have no intention of commencing operations based on our counterpulsation technologies, and we are no longer pursuing the potential sale of CPCA 2000, Inc. While we believe that our counterpulsation technologies continue to retain value, we do not believe we will be able to negotiate a sale of CPCA 2000, Inc. or its counterpulsation technologies that will result in a meaningful return to us or our shareholders until such time as the reimbursable patient costs for counterpulsation treatments under the Medicare program are significantly increased. We have historically charged to expense all research and development costs and expenses associated with our counterpulsation technologies. As of September 30, 2008, we had no assets on our consolidated balance sheet relating to our counterpulsation products or technologies, other than trademarks of less than $1,500.
The MedClose™ VCS is a vascular closure system medical device that is designed to seal femoral arterial puncture sites in patients who have undergone diagnostic or interventional catheterization procedures. It utilizes a proprietary catheter delivery vascular closure system that is designed to enhance manual compression by delivering a biologic sealant which creates an elastic coagulum that is fully absorbed into the body within 10 to 14 days. The MedClose VCS is designed to significantly reduce the time to hemostasis (the stoppage of bleeding), thereby accelerating the patient's post-operative recovery and reducing the amount of time spent by post-operative professionals. The MedClose™ VCS applications and usage capabilities are intended for cardiac diagnostic and interventional cardiology procedures as well as interventional radiological and carotid stenting procedures. As of the date of this report, MedClose™ VCS is not available for commercial distribution. We hold three patents for both the instrument and the technique used in connection with MedClose, and have two additional patents pending.
As previously disclosed in our reports filed with the SEC, in April 2007 we received a warning letter from the FDA which expressed, among other things, that:
· The FDA believed the MedClose device was a significant risk device and not eligible for investigation in the U.S. without an IDE approved by the FDA;
· We had violated IDE regulations governing the proper conduct of clinical studies, including our failure to provide the U.S. reviewing institutional review board's and clinical review site with information they needed to conduct the clinical investigation properly;
· We failed to provide accurate information about the investigations to the FDA and failed to provide to the FDA staff access to the sites pertaining to the MedClose; and
· We provide to the FDA certain information and records concerning our clinical studies.
We disagreed with the claims made by the FDA and filed an appropriate response with the agency. Meanwhile, we suspended human clinical investigations of the MedClose device in the U.S. pending further discussions with the FDA. During the remainder of 2007 and the first part of 2008, we engaged in an ongoing dialogue with the FDA for purposes of addressing its concerns and explaining our positions taken. On May 23, 2008, the FDA advised us by letter that our responses were satisfactory and that no further response to the FDA's warning letter was required. Based on the FDA's letter dated May 23, 2008 and subsequent written correspondence and discussions with the FDA staff, we believe the matter to be closed with no prospect of fine or penalty by the FDA. We also believe that we have addressed substantially all of the FDA's concerns over our human clinical trials and we expect to resume human clinical trials in the United States subject to the FDA's review and approval of our investigative device exemption (IDE) application.
We submitted an IDE application to the FDA on November 30, 2007, which, if approved, will facilitate a continuance of the US clinical trials that were suspended by us in November 2006. In December 2007, the FDA responded to our IDE application with a disapproval letter. We have since filed three IDE supplements to address deficiencies cited by the FDA, the third of these was submitted on September 5, 2008. On October 8, 2008, the FDA responded to our third supplemental filing with two cited deficiencies. We are presently preparing a fourth supplemental filing for purposes of addressing the FDA's remaining comments.
We estimate that the costs of conducting and completing clinical studies of the MedClose device to be between $178,000 to $430,000. We believe that we have sufficient working capital on hand to complete clinical studies. We intend to analyze our options for moving forward with the commercial exploitation of the MedClose, including licensing or sale of the product and our manufacture, marketing and sale of the product directly. If we pursue the manufacture or marketing of the MedClose product, we will, in all likelihood require significant additional capital. In that event we will endeavor to acquire the necessary working capital from the sale of our securities. However, there can be no assurance we will be able to obtain the required additional working capital on commercially reasonable terms or at all.
We expect to commence revenue producing operations subject to foreign regulatory approvals of MedClose, which is not expected to occur until the second quarter of 2009 at the earliest. We do not expect to purchase or sell significant plant or equipment during 2008, nor do we expect a significant change in the number of our employees during the year.
In order to meet our general working capital requirements and to fund the commercial exploitation of the MedClose, in September 2007, we commenced a private placement of our Series E Preferred Stock. Pursuant to the original terms of the offering, the Series E Preferred shares were being sold at $19.75 per share and each share was convertible into common shares at a conversion price of $14.80 per share until August 31, 2008, when the conversion price would have been adjusted to the lower of $14.80 or 75% of the average last sale price of the common stock for the 30 trading days immediately preceding such date on any stock exchange; provided that the conversion price shall not be adjusted to an amount below $13.00 per share.
As of January 2008, and prior to having sold any Series E Preferred shares, we amended the Series E Preferred share offering terms. Pursuant to the amended offering terms, we are selling 1,666,667 shares of our Series E Preferred Stock, at $6.00 per share. As of September 30, 2008, we had sold 546,703.24 shares of Series E Preferred shares for the gross proceeds of $3,280,220. The Series E Preferred stock has no voting rights and has a 10% annual dividend payable in cash or common stock at our option. Each Series E Preferred share is convertible into our common shares at a conversion price of $4.50 per share. In the event of the liquidation, dissolution or winding up of our corporation, each holder of Series E Preferred shares shall be paid, prior to any payments to the holders of our common stock, a liquidation preference in the amount of $6.00 per share plus all accrued and unpaid dividends. The shares of Series E Preferred Stock have not been, and will not be, registered under the 1933 Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. The Series E Preferred shares are being sold by our executive officers and the proceeds of the offering are expected to be used for clinical trials, regulatory compliance, manufacturing and marketing relating to the MedClose device, and working capital.
Results of Operations
Revenue. We have generated no revenue to date and do not expect to generate revenue until we have received commercial regulatory approval of our MedClose device in various countries and markets.
Research and Development. Our expenses related to research and development during the three and nine month periods ended September 30, 2008 increased by approximately $254,000 over the prior year periods. Research and development expenses relate to our ongoing development and testing of our internal puncture closure device and technique known as "Medclose." The increase in research and development expenses during the third quarter was due to an increased level of research and development activity following the reformulation of our strategy for effecting FDA compliance and the possible resumption of human clinical testing in the U.S. Our research and development activities are expected to increase during the remainder of 2008.
General and Administrative. During the nine month period ended September 30, 2008, general and administrative expenses increased by $7,942,581 over the prior year period. The increase consisted primarily of stock option expense in the amount of $7,585,653 incurred during the nine months ended September 30, 2008.
Net Loss. Our net loss increased by $8,257,997 for the nine months ended September 30, 2008 over the prior year period. The increase in net loss was due to the increase in stock option expenses.
Financial Condition
As of September 30, 2008, we had a working capital deficit of ($733,197), which includes accrued dividends of $2,530,223 payable on our outstanding shares of Series C preferred stock, Series D preferred stock and Series E preferred stock as of such date. Our Series C and Series D preferred stock both have a 5% annual dividend payable in cash or shares of our common stock, at the option of the holder, and our Series E preferred stock has a 10% annual dividend payable in cash or common stock at our option. Those Series C and Series D dividends are convertible into our common shares at the rate of $3.57 per share and $6.86 per share, respectively. To date, all holders of the Series C and D preferred shares have elected to receive their dividends in common shares. However, there can be no assurance that we will not begin to receive substantial requests for the cash payment of dividends.
We commenced a private placement of our Series E Preferred Stock, and as of September 30, 2008 we had sold 546,703 shares of Series E Preferred shares for the gross proceeds of $3,280,220. Assuming that the holders of our outstanding Series C and Series D preferred shares continue to elect to receive dividends payable in common shares rather than cash and that we elect to pay Series E dividends in common shares, we believe that our working capital on hand as of the date of this report, along with our ability to raise capital and meet certain operating expense obligations through the issuance of stock or stock equivalents, provide us with the capital we need for at least the next 12 months. However, we believe that our ability to operate beyond the next 12 months will require us to raise significant additional capital, of which there can be no assurance. In the event we receive substantial requests for Series C and Series D dividend payments in cash or we encounter a material amount of unexpected expenses, we may require additional capital earlier than 12 months from the date of this report. In the event we receive substantial requests for dividend payments or encounter higher than expected expenses, there can be no assurance we will be able to access capital as and when needed or, if so, that the terms of any available financing will be subject to commercially reasonable terms.
The report of our independent registered public accounting firm for the fiscal year ended December 31, 2007 states that due to our working capital deficiency at December 31, 2007 there is a substantial doubt about our ability to continue as a going concern.
As noted above, we are currently analyzing our options for moving forward with the commercial exploitation of the MedClose, including licensing or sale of the product and our manufacture, marketing and sale of the product directly. If we pursue the direct manufacture and marketing of the MedClose product, we will, in all likelihood require up to $40 million of additional capital in order to (i) complete clinical trials and regulatory approvals in North America and designated foreign markets; (ii) commence manufacturing of the device; and (iii) commence marketing and sales of the device, including the development of a internal infrastructure necessary to support manufacturing and marketing.
We will endeavor to raise additional funds through the sale of our Series E preferred shares and any other available financing sources in order to meet our general working capital requirements and to fund the commercial exploitation of the MedClose. However, there are no agreements or understandings with any third parties at this time for our receipt of additional working capital and there can be no guarantee that such funds will be available on commercially reasonable terms, if at all. If we are unable to access additional capital on a timely basis, we will be unable to expand or continue our development of the MedClose device and our operating results will be adversely affected.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing arrangements.
Forward Looking Statements
This report contains forward-looking statements that are based on our beliefs as well as assumptions and information currently available to us. When used in this report, the words "believe," "expect," "anticipate," "estimate" and similar expressions are intended to identify forward-looking statements. These statements are subject to risks, uncertainties and assumptions, including, without limitation, the risks and uncertainties concerning FDA approval of our products; the risks and uncertainties concerning the acceptance of our services and products by our potential customers; our present financial condition and the risks and uncertainties concerning the availability of additional capital as and when required; the risks and uncertainties concerning technological changes and the competition for our services and products; and the risks and uncertainties concerning general economic conditions. These and other factors that may affect our results are discussed more fully in "Risk Factors" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008. Forward-looking statements speak only as of the date they are made. Readers are warned that we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, and are urged to review and consider disclosures we make in this and other reports that discuss factors germane to our business. See particularly our reports on Forms 10-K, 10-Q and 8-K filed from time to time with the Securities and Exchange Commission.
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