Add
CRDC to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| CRDC > SEC Filings for CRDC > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
three months ended September 30, 2009, we generated net revenue of $0.9 million,
including $0.1 million of development revenue, and incurred a net loss of
$2.7 million.
Since our inception, we have incurred significant net losses, and we expect
to continue to incur net losses for the foreseeable future. To date, our C-Port
and PAS-Port systems have had limited commercial adoption, and sales have not
met the levels that we had anticipated. Revenues from product sales and
milestone payments were not sufficient to support the operation of our business
as we had planned. As a result, in order to reduce our operating expenses, in
January, April and May 2009, we reduced our costs by eliminating 13, 22 and 15
positions, respectively, which impacted all functional areas, including research
and development, sales and marketing, clinical, regulatory and quality,
operations and general and administrative. We expect these reductions in force
to impair our ability to generate sales at the levels attained prior to the
reduction in force or increased levels. We are continuing to evaluate potential
additional steps to reduce our operating expenses. While we recently raised
approximately $10.0 million in net proceeds from a private placement of our
common stock and warrants to purchase our common stock, if revenues from product
sales do not increase, we may be required to delay, further reduce the scope of
or eliminate our commercialization efforts with respect to one or more of our
products or one or more of our research and development programs.
As of September 30, 2009, we had cash and cash equivalents of $13.3 million
and total short-term debt of $2.0 million. The increase in cash as of
September 30, 2009, compared to June 30, 2009, was primarily due to the
$10.0 million net proceeds from a private placement of our common stock and
warrants to purchase our common stock. We believe that our existing cash and
cash equivalents, along with the cash that we expect to generate from
operations, will be sufficient to meet our anticipated cash needs to enable us
to conduct our business substantially as currently conducted through
December 31, 2010, including repayment of the remaining $2.0 million principal
amount, plus interest, under our note to Century Medical. Our estimates and our
future capital requirements depend upon numerous factors. In addition, we have
based our estimates on assumptions that may prove to be wrong, including
assumptions with respect to the level of revenues from product sales, and we
could exhaust our available financial resources sooner than we currently expect.
While our cash resources would permit us to continue through December 31, 2010,
we would need to further reduce expenses in advance of that date in the event
that we are unable to complete a financing, strategic or commercial transaction
to ensure that we have sufficient capital to meet our obligations and continue
on a path designed to create and preserve stockholder value. The sufficiency of
our current cash resources and our need for additional capital, and the timing
thereof, will depend on many factors, including primarily the extent of our
sales and marketing efforts related to our commercialized products and the
amount of revenues that we receive from product sales, as well as other factors
described in the "Liquidity and Capital Resources" section below.
We may seek to sell additional equity or debt securities, obtain a credit
facility, enter into product development, license or distribution agreements
with third parties or divest one or more of our commercialized products or
products in development. The sale of additional equity or convertible debt
securities could result in significant dilution to our stockholders,
particularly in light of the prices at which our common stock has been recently
trading. In addition, if we raise additional funds through the sale of equity
securities, new investors could have rights superior to our existing
stockholders. If additional funds are raised through the issuance of debt
securities, these securities could have rights senior to those associated with
our common stock and could contain covenants that would restrict our operations.
Any product development, licensing, distribution or sale agreements that we
enter into may require us to relinquish valuable rights, including with respect
to commercialized products or products in development that we would otherwise
seek to commercialize or develop ourselves. We may not be able to obtain
sufficient additional financing or enter into a strategic transaction in a
timely manner. Our need to raise capital may require us to accept terms that may
harm our business or be disadvantageous to our current stockholders.
Agreements with Cook Incorporated
In June 2007, we entered into, and in September 2007 and in June 2009
amended, a license, development and commercialization agreement with Cook
Incorporated, or Cook, to develop and commercialize a specialized device,
referred to as the PFO device, designed to close holes in the heart from
genetic heart defects known as patent foramen ovales, or PFOs. Under the
agreement, Cook funds certain development activities and we and Cook jointly
develop the device. Once developed, Cook receives an exclusive, worldwide,
royalty-bearing license, with the right to grant sublicenses, to make, have
made, use, sell, offer for sale and import the PFO device. Under this agreement,
we have received payments totaling $1.0 million, $1.7 million and $500,000 in
fiscal years 2009, 2008 and 2007, respectively. We recorded as development
revenue under the agreement a total of $105,000 and $293,000 for the three month
periods ending September 30, 2009 and 2008, respectively. We recorded as
development revenue under the agreement a total of $1.4 million and $1.2 million
in fiscal years 2009 and 2008, respectively, and none in fiscal year 2007. A
total of $422,000 under this agreement has been recorded as deferred development
revenue on the balance sheet as of September 30, 2009. Amounts paid but not yet
earned on the project are refundable and are recorded as deferred revenue until
such time as the related development expenses plus overhead costs for certain
project activities are incurred. We are also entitled to receive a royalty based
on Cook's annual worldwide sales of the PFO device, if any.
On December 9, 2005, we entered into, and in September 2007 amended and in
July 2009 amended and partially terminated, an agreement with Cook to develop
the Cook Vascular Closure Device. Under the agreement, Cook funded certain
development activities, and we and Cook jointly developed the device, under the
direction of a Development Committee that included representatives from each
party. Under the original agreement and the first amendment in September 2007,
Cook received an exclusive, worldwide, royalty-bearing license, with the right
to grant sublicenses, to make, have made, use, sell, offer for sale and import
the Cook Vascular Closure Device for medical procedures in any part of the body.
Under this agreement, we received payments totaling approximately $5.3 million.
We recorded as development revenue under the agreement a total of $0 and
$230,000 for the three month periods ending September 30, 2009 and 2008,
respectively. In July 2009, we entered into a partial termination and second
amendment of this agreement to terminate Cook's participation in the project and
to provide to Cook a royalty on net sales of the Cook Vascular Closure Device if
Cardica successfully commercializes the product. The remaining deferred revenue
balance related to this project was recognized as revenue in the fourth quarter
of fiscal 2009 as we had completed all of our activities under the agreement and
no amounts are refundable to Cook under the partial termination agreement. In
addition, during the first quarter of fiscal year 2009, we recognized a total of
$251,000 of product sales to Cook of the Cook Vascular Closure Device.
Deficiency letter from The NASDAQ Global Market
On May 22, 2009, we announced that we received a letter, dated May 19, 2009,
from the Listing Qualifications Department of The NASDAQ Stock Market notifying
us that we did not comply with the $10.0 million minimum stockholders' equity
requirement for continued listing on The NASDAQ Global Market set forth in
NASDAQ Marketplace Rule 5450(b)(1)(A). NASDAQ's determination was based on a
review of our Quarterly Report on Form 10-Q for the period ended March 31, 2009.
As provided in the NASDAQ rules, we timely submitted to the NASDAQ Staff a plan
to continue listing on The NASDAQ Global Market. NASDAQ granted us an extension
until September 1, 2009 to regain compliance with the listing standards.
On September 2, 2009, we received a second letter from the Listing
Qualifications Department of The NASDAQ Stock Market notifying us of its
determination that we had failed to meet the terms of the extension because we
failed to publicly disclose a compliant stockholders' equity balance by
September 1, 2009. Pursuant to the NASDAQ rules we appealed the decision to a
NASDAQ Listing Qualifications Panel and requested a hearing.
On September 30, 2009, we issued an aggregate of 8,142,082 shares of common
stock and warrants to purchase up to 4,071,046 shares of common stock for
aggregate gross proceeds of approximately $10.2 million. As a result of the
proceeds from this issuance, we have regained compliance with the $10.0 minimum
stockholders' equity requirement for continued listing on The NASDAQ Global
Market set forth in NASDAQ Marketplace Rule 545(b)(1)(A). NASDAQ will continue
to monitor our ongoing compliance with the stockholders' equity requirement and,
if at future periodic reports we do not evidence compliance, we may be subject
to delisting.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and
results of operations are based on our financial statements which have been
prepared in accordance with accounting principles generally accepted in the
United States, or GAAP. The preparation of our financial statements requires
management to make estimates and assumptions that affect the amounts reported in
our financial statements and accompanying notes. Actual results could differ
materially from those estimates.
We believe that the following critical accounting policies to be the most
critical to an understanding of our financial statements because they require us
to make significant judgments and estimates that are used in the preparation of
our financial statements.
Revenue Recognition. We recognize revenue when four basic criteria are met:
(1) persuasive evidence of an arrangement exists; (2) title has transferred;
(3) the fee is fixed or determinable; and (4) collectability is reasonably
assured. We generally use contracts and customer purchase orders to determine
the existence of an arrangement. We use shipping documents and third-party proof
of delivery to verify that title has transferred. We assess whether the fee is
fixed or determinable based upon the terms of the agreement associated with the
transaction. To determine whether collection is probable, we assess a number of
factors, including past transaction history with the customer and the
creditworthiness of the customer. If we determine that collection is not
reasonably assured, then the recognition of revenue is deferred until collection
becomes reasonably assured, which is generally upon receipt of payment.
We record product sales net of estimated product returns and discounts from
the list prices for our products. The amounts of product returns and the
discount amounts have not been material to date.
Revenue generated from development contracts is recognized when it is earned
and non-refundable upon receipt of milestone payments or upon incurrence of the
related development expenses in accordance with contractual terms, based on the
actual costs incurred to date plus overhead costs for certain project
activities. Amounts paid but not yet earned on the project are refundable and
are recorded as deferred revenue until such time as the related development
expenses are incurred.
Inventories. We state our inventories at the lower of cost (computed on a
standard cost basis, which approximates actual cost on a first-in, first-out
basis) or market. Standard costs are monitored on a quarterly basis and updated
as necessary to reflect changes in raw material costs and labor and overhead
rates. Inventory write-downs are established when conditions indicate that the
selling price could be less than cost due to physical deterioration, usage,
obsolescence, reductions in estimated future demand or reductions in selling
prices. Inventory write-downs are measured as the difference between the cost of
inventory and estimated market value. Inventory write-downs are charged to cost
of product sales and establish a lower cost basis for the inventory. We balance
the need to maintain strategic inventory levels with the risk of obsolescence
due to changing technology and the risk of lower customer demand levels. While
we believe the current value of inventories represents all known and estimated
changes in demand, we have recently experienced reduced demand for our C-Port
systems and further unfavorable changes in market conditions may result in a
need for additional inventory write-downs that could adversely impact our
financial results.
Clinical Trial Accounting. Clinical trial costs are a component of research
and development expenses and include fees paid to participating hospitals and
other service providers that conduct clinical trial activities with patients on
our behalf and the cost of clinical trial insurance. The various costs of the
trial are contractually based on the nature of the services, and we accrue the
costs as the services are provided. Accrued costs are based on estimates of the
work completed under the service agreements, patient enrollment and past
experience with similar contracts. Our estimate of the work completed and
associated costs to be accrued includes our assessment of information received
from our third-party service providers and the overall status of our clinical
trial activities. If we have incomplete or inaccurate information, we may
underestimate costs associated with various trials at a given point in time.
Although our experience in estimating these costs is limited, the difference
between accrued expenses based on our estimates and actual expenses have not
been material to date.
Stock-Based Compensation. We account for employee and director share-based
compensation plans, including stock options and restricted stock units, or RSUs,
pursuant to ASC 718-10 "Compensation - Stock
Compensation" (formerly "FAS 123R"). Stock-based compensation cost is measured
on the grant date, based on the fair value of the award, and is recognized as an
expense over the requisite service period. We recognize compensation expense
using the accelerated method.
The expected term of options granted is determined using the "simplified"
method. Under this approach, the expected term is presumed to be the mid-point
between the vesting date and the end of the contractual term. Since the Company
has limited historical data on volatility of its stock, the expected volatility
is based on volatility of similar entities (referred to as "guideline"
companies). In evaluating similarity, the Company considered factors such as
industry, stage of life cycle, size, and financial leverage. The risk-free
interest rate for the expected term of each option is based on a risk-free
zero-coupon spot interest rate at the time of grant. We have never declared or
paid any cash dividends and do not presently plan to pay cash dividends in the
foreseeable future. We estimate forfeitures in calculating the expense related
to stock-based compensation. We recognize stock-based compensation expense for
options and restricted stock awards using the accelerated method over the
requisite service period of the award, which generally equals the vesting period
of each grant. We recorded stock-based compensation expense of $544,000, or
$0.03 per share, and $514,000, or $0.03 per share for the three month periods
ended September 30, 2009 and 2008, respectively. Total compensation expense
related to unvested awards not yet recognized is approximately $1.3 million at
September 30, 2009 and is expected to be recognized over a weighted average
period of 2.5 years.
Results of Operations
Comparison of the three month periods ended September 30, 2009 and 2008
Net Revenue. Total net revenue decreased by $1.2 million, or 55%, to
$0.9 million for the three months ended September 30, 2009 compared to
$2.1 million for the same period in 2008. Product sales decreased by
$0.7 million, or 48%, to $0.8 million for the three months ended September 30,
2009 compared to $1.6 million for the same period in 2008. The decrease of
$0.7 million in product sales for the three months ended September 30, 2009 was
primarily attributable to the prior year $251,000 of product sales of the Cook
Vascular Closure Device to Cook, lower development revenue and lower sales of
all C-Port systems in the United States offset in part by higher revenue on the
PAS-Port system in the United States. The three month period ended September 30,
2009 did not include any product sales of the Cook Vascular Closure Device,
reflected lower development revenue due to the termination of the development
agreement related to the Cook Vascular Closure Device in July 2009, and
reflected lower sales of our C-Port systems in the United States as we
transition to third party manufacturers' representatives and distributors.
For the three month periods ended September 30, 2009 and 2008, sales to
Century Medical, Inc., our distributor in Japan, accounted for approximately 30%
and 16%, respectively, of our total product sales.
The failure to obtain new significant customers or additional orders from our
existing customers will materially affect our operating results.
Development revenue was $105,000 and $523,000 for the three month periods
ended September 30, 2009 and 2008, respectively. The development revenue for the
three month period ended September 30, 2009 was for development activities on
the PFO project under our development agreement with Cook. The development
revenue for the three month period ended September 30, 2008 was comprised of
$230,000 for development activities for the Cook Vascular Access Closure Device
under our development agreement with Cook and $293,000 for development
activities on the PFO project with Cook. Our revenue-generating development
activities related to the Cook Vascular Access Closure Device were terminated
upon the partial termination of our development agreement with Cook related to
this project in June 2009.
Cost of Product Sales. Cost of product sales consists primarily of material,
labor and overhead costs. Cost of product sales decreased $270,000, or 24%, to
$840,000 for the three months ended September 30, 2009 compared to $1.1 million
for the same period in 2008. The decrease in cost of product sales in the three
months ended September 30, 2009 was primarily attributable to lower sales of our
products of
$159,000 and lower production scrap of C-Port systems totaling $285,000 and
PAS-Port systems of $120,000, offset in part by higher inventory reserves
related to lower of cost or market adjustments of $292,000.
Research and Development Expense. Research and development expense consists
primarily of personnel costs within our product development, regulatory and
clinical groups and the costs of clinical trials. Research and development
expense decreased by $1.2 million, or 51%, to $1.1 million for the three months
ended September 30, 2009 compared to $2.3 million for the same period in 2008.
The decrease in expenses for the three month period ended September 30, 2009 was
attributable to a decrease in salaries and benefits of $493,000 due primarily to
a net decrease in the number of personnel, decreased prototype project materials
for the C-Port xV and Cook projects of $266,000, lower clinical trial expense of
$265,000 as a result of completing the PAS-Port trials and European trials, and
lower molds and tooling expenses of $109,000 related to the termination of our
revenue-generating development activities under the Cook development agreement
related to the Cook Vascular Access Closure Device.
We anticipate that research and development expenses will increase slightly
in absolute terms in future periods as we begin to develop new applications of
our technology, including the Cardica Microcutter, continue to enhance our
existing product lines and conduct new clinical trials.
Selling, General and Administrative Expense. Selling, general and
administrative expense consists primarily of stock-based compensation charges,
administrative, sales and marketing personnel and marketing expenses. Selling,
general and administrative expense decreased $2.3 million, or 59%, to
$1.6 million for the three months ended September 30, 2009 compared to $3.9
million for the same period in 2008. The decrease in selling, general and
administrative expense in the three month period ended September 30, 2009 was
primarily attributable to lower personnel, recruiting and travel expenses of
$1.4 million primarily due to a net decrease in personnel, a decrease in
marketing activities of $266,000 in the United States, a decrease in
demonstration product expenses of $298,000 for training of physicians in the
United States, and a decrease in audit and investor relations expenses of
$188,000.
We expect selling, general and administrative expense to increase slightly in
absolute terms in future periods as we increase the number of manufacturers'
representatives and distributors that sell our products.
Interest Income. Interest income decreased $93,000, or 95%, to $5,000 for the
three months ended September 30, 2009 compared to $98,000 for the same period in
2008. The decrease in interest income for the three months ended September 30,
2009 was primarily due to lower cash and short-term investment balances
available for investing during the period and lower overall market interest
rates.
Interest Expense. Interest expense for the three months ended September 30,
2009 and 2008 reflects a 6% per annum interest rate payable on our $2.0 million
debt to Century Medical.
Off Balance Sheet Arrangements
As of September 30, 2009, except for a real estate operating lease for our
headquarters in Redwood City, California expiring in August 2011, we did not
have any off-balance sheet arrangements.
Liquidity and Capital Resources
As of September 30, 2009, our accumulated deficit was $112.1 million and we
had cash, cash equivalents and short-term investments of $13.3 million and total
short-term debt of $2.0 million. We currently invest our cash and cash
equivalents in money market funds. Since inception, we have financed our
operations primarily through private sales of convertible preferred stock,
long-term notes payable and public and private sales of common stock and
warrants to purchase common stock. We believe that our existing cash and cash
equivalents, along with the cash that we expect to generate from operations,
will be sufficient to meet our anticipated cash needs to enable us to conduct
. . .
|
|