Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
LCDX > SEC Filings for LCDX > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for LUCID INC

Form 10-Q for LUCID INC


9-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes. In addition to historical information, some of the information in this discussion and analysis contains forward-looking statements reflecting our current expectations and involves risk and uncertainties. For example, statements regarding our expectations as to our plans and strategy for our business, future financial performance, expense levels and liquidity sources are forward-looking statements. Our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under "Risk Factors" in

Part I, Item 1A in our Annual Report on Form 10-K for the year ended
December 31, 2011, as updated in Part II, Item 1A, of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012 and in this Quarterly Report on Form 10-Q.

Overview

We are a medical device company that designs, manufactures and sells non-invasive cellular imaging devices enabling physicians to image and diagnose skin disease in real time without a biopsy. Devices using our Rapid Cell ID technology allow physicians to detect and diagnose skin disease, including basal cell carcinoma, melanoma, and inflammatory and pigmentary disorders. Rapid Cell ID technology offers physicians the option to non-invasively diagnose, monitor and follow-up the non-invasive treatment of basal cell carcinoma, and includes the capacity to visualize the margins of the disease prior to surgery, improving patient outcomes. We have developed an integrated platform of tools, including the VivaScope® 1500 and VivaScope® 3000 Rapid Cell ID Imagers along with our telepathology service that can be used by doctors, surgeons, and research laboratories. Our tools are already in use by doctors and researchers in major academic hospitals as well at pharmaceutical and large cosmetic companies.


Table of Contents

Our telepathology server, when connected to a physician's VivaScope imager, transfers images from a physician's office or operating room to another physician, pathologist or other diagnostic reader for near real-time diagnosis and reporting. In addition, the telepathology server stores images and pathology reports as a part of a patient's HIPAA compliant permanent, electronic, medical record increasing efficiency and reducing costs for medical institutions compared to current histology record retention processes.

We have devoted substantially all of our resources to the development of our Rapid Cell ID technology and telepathology service, which expenses have included research and development, conducting clinical investigation for our product candidates, protecting our intellectual property and the general and administrative support of these operations. While we have generated revenue through product sales, we have funded our operations largely through multiple rounds of private debt and equity financings. We believe that our existing cash and cash equivalents will allow us to fund our operating plan into the first quarter of 2013. We have never been profitable and we reported net losses of approximately $8.8 million and $6.5 million for the nine months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, we had an accumulated deficit of approximately $7.3 million. We expect to incur operating losses for the foreseeable future as we invest substantial resources to promote the commercialization, and attempt to achieve widespread adoption, of our products. We will require additional financing to support these and other operating activities. Adequate additional funding may not be available to us on acceptable terms, or at all. We expect that research and development expenses and sales and marketing expenses will increase along with general and administrative costs, as we grow and operate as a public company. We will need to generate significant revenues to achieve profitability and we may never do so.

Our revenues consist of product revenue and non-product revenue. Product revenues consist of revenues derived from the sale of our products and services, primarily VivaScopes, as well as an immaterial amount of revenue from maintenance and support services. We recognize product revenue when evidence of an agreement exists, title has passed (generally upon shipment) or services have been rendered. When product sales do not include installation or training, such as for all distributor sales and many direct sales, revenue is recognized upon shipment. Certain direct sales contracts require installation at the customer's location prior to acceptance. As such, revenue recognition on these contracts is delayed until all aspects of delivery, including installation, are complete. In addition, should the contract include training, revenue recognition is delayed until training is complete. Non-product revenue, which to date has been in the form of a payment from a European distributor for certain rights including a license to use certain technology in defined geographic areas, is recognized as earned.

Our Rapid Cell ID technology platform includes:

º •
º In-Vivo Confocal Imagers. The VivaScope 1500 and the VivaScope 3000 handheld confocal imagers are cleared with a FDA 510(k) to acquire, store, retrieve, display and transfer in-vivo images of tissue, including blood collagen and pigment, in exposed unstained epithelium and the supporting stroma for review by physicians to assist in forming a clinical judgment. We designed our VivaScope System to support the capture of: (i) clinical images of the patient;
(ii) images of the patient's lesions; and (iii) confocal images of the patient's lesions that can be evaluated at the point of care or transmitted over our HIPAA compliant telepathology network to a pathologist.

º •
º Ex-Vivo Confocal Imagers. The VivaScope 2500 produces electro-optically enlarged images of unstained and unsectioned excised surgical tissue for medical purposes. The VivaScope 2500 is exempt from FDA 510K. We are developing the VivaScope 2500 confocal imager for the rapid imaging of tissue that has been surgically excised from the body. We expect these devices, which are intended to require little or no tissue preparation to render images similar to those obtained


Table of Contents

using traditional histology techniques will streamline the practice of conventional laboratory pathology for excised tissue analysis.

º •
º Telepathology. Our telepathology server is a DICOM compliant medical grade server that stores, retrieves and transfers images between physicians, and diagnostic readers, typically pathologists. It is registered with the FDA as a Class I medical image storage device, which categorizes it as a radiology diagnostic device.

During the first quarter of 2012, we began a program to enhance the functionality of our existing In-Vivo Confocal Imagers (the "2012 Enhancement Program") which was substantially completed by September 30, 2012. During the 2012 Enhancement Program we redesigned many optical and electrical components to our in-vivo confocal imagers to increase speed and functionality. Our redesigned products generate images of the highest level of optical quality with greater reliability and repeatability. We have also improved the user interface with a touch-screen monitor and an ergonomic redesign of the handheld device. During the 2012 Enhancement Program, sales of our existing products slowed, as our customers waited to place orders for the redesigned products.

We are an "emerging growth company", or "EGC" as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation, from which we are currently exempt as a smaller reporting company, and stockholder approval of any golden parachute payments not previously approved in connection with a transaction resulting in a change of control. We expect to take advantage these exemptions. If we do take advantage of any of these exemptions, we do not know if some investors will find our common stock less attractive as a result. The result may be a less active trading market for our common stock and the stock price may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We could remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period. Please see Part II, Item 1A Risk Factors.

Reimbursement

We have retained the services of a medical reimbursement firm, Scott Taylor & Associates (STA), which has commenced discussions with the medical directors of third-party private payers in an effort to verify positive coverage decisions and routine reimbursement. We have also started formulating a public-payer strategy for the coverage of procedures that we expect, at some date in the future, will be approved for reimbursement by The Centers of Medicare and Medicaid Services.

A skin biopsy is typically performed by a dermatologist. We believe confocal imaging procedures can be performed by physician extenders (physician assistants, nurses and medical technicians) who


Table of Contents

already work in the physician's office. We have designed our VivaScope and telepathology system to facilitate the detection of skin disease which we believe may over time make medical practices more productive by shifting physician procedures from surgical biopsies that confirm malignancy to the direct surgical excision of lesions known to be cancerous as determined by confocal imaged optical biopsies. There is also the possibility that our technology will reduce the number of unnecessary biopsies, infections, and additional physician visits leading to a significant cost reduction to the health plan.

The technical component for preparation of a pathology slide in a laboratory, CPT (Current Procedural Terminology) code 88305-TC, covers reimbursement for the cost of material, labor and overhead for placing the tissue on the slides and subsequently storing the slides and any remaining tissue as components of the patient's medical record. The storage time for these slides and tissue varies from state to state but is often in the range of 7 to 20 years. We believe Lucid may receive a "per image", or license fee for the technical component as a direct payment from an insurance company. However, as we have recently initiated the reimbursement contracting process, we have not yet received any such reimbursement under existing CPT codes.

A pathologist also receives a professional fee reimbursement under CPT code 88305-26 for the diagnosis of the slides associated with a single lesion. We believe that a pathologist may receive a comparable reimbursement fee for the review of "optical biopsy" slides from Lucid's technology platform. We believe that a pathologist over time may find that the use of Lucid's confocal imaging products as compared to traditional glass slides provides a compelling value proposition to pathologists because the system gives pathologists much greater flexibility, since a traditional laboratory setting is not necessarily required and overhead expenses can be substantially reduced. Since the system is available at all times, moreover, and not geographically dependent, the services can be rendered from such places and at such times as the pathologist may select.

Scott Taylor & Associates has advised the Company that it has made submissions on behalf of the Company with third-party private payers covering approximately 148 million lives and that the Company can reasonably expect to begin contracting with such third-party private payers in six to twelve months.

Results of Operations

Three and Nine Month Periods Ended September 30, 2012 and 2011

We reported a consolidated net loss of $3.1 million or $0.38 per share and $2.3 million or $1.08 per share for the three month periods ended September 30, 2012 and 2011, respectively. Additional net losses for the three months ended September 30, 2012 resulted from increased operating costs primarily related to the 2012 Enhancement Program, employee related termination costs, an increase in warranty costs, and an overall decrease in sales over the three months ended September 30, 2011.

We reported a consolidated net loss of $8.8 million or $1.12 per share and $6.5 million or $6.18 per share for the nine month periods ended September 30, 2012 and 2011, respectively. The increased net losses for the nine months ended September 30, 2012 as compared with the same period in 2011 resulted from increased operating costs primarily related to employee related termination costs as well as substantial increases in warranty expenses. Additional operating costs were incurred related to the 2012 Enhancement Program combined with the significant decrease in sales over the comparable period.

The following presents a more detailed discussion of our consolidated operating results:

Product sales. For the three months ended September 30, 2012 and 2011, we recorded sales of our products of $0.4 million and $0.8 million, respectively. The decrease in sales in 2012 was primarily attributed to decreases in sales of $0.5 million in Europe offset by increases in Asia and Latin America. During the nine months ended September 30, 2012 and 2011, we recorded sales of our products of


Table of Contents

$1.3 million and $2.2 million, respectively. During the nine months ended September 30, 2012, we began a significant enhancement program to increase the speed and functionality of our VivaScope confocal imagers. We believe sales of our existing products have been negatively impacted during 2012 primarily because we informed our key distributors at the end of 2011 about the 2012 Enhancement Program. We have substantially completed our 2012 Enhancement Program and have purchase orders for new products which we expect to generate in excess of $1.0 million of revenues in the fourth quarter of 2012. Percentages of total product sales by geographic region are as follows:

                               Three months Ended                                   Nine months Ended
                                  September 30,                                       September 30,
                         2012                      2011                      2012                      2011
                 Product Sales      %      Product Sales      %      Product Sales      %      Product Sales      %
                (in thousands)            (in thousands)            (in thousands)            (in thousands)
North America      $         64      16 %    $         42       6 %   $         297      23 %   $         282      13 %
Europe                       20       5 %             515      66 %             344      26 %           1,197      54 %
Asia                        287      69 %             220      28 %             465      36 %             426      19 %
Latin America                41      10 %               -       -               196      15 %             219      10 %
Australia                     1       -                 1       -                 1       -                90       4 %

Total              $        413     100 %    $        778     100 %   $       1,303     100 %   $       2,214     100 %

Cost of revenue. For the three months ended September 30, 2012 and 2011, our cost of revenue was $0.5 million and $0.6 million, respectively. For the nine months ended September 30, 2012 and 2011, our cost of revenue was $1.4 million and $1.3 million, respectively. The decrease in cost of sales for the three month period reflects a significant decrease in sales over the same three months of the prior year. The increase in cost of sales for the nine month periods reflects an increase in warranty related costs as well as charges to increase our warranty reserves.

General and administrative expenses. General and administrative expenses consist primarily of salaries and benefits, professional fees, occupancy costs for our facilities, insurance costs and general corporate expenses. For the three months ended September 30, 2012, general and administrative expenses totaled $1.2 million, a decrease of $0.3 million from the same period last year. The decrease resulted primarily from decreases of $0.3 million in professional fees after completion of our initial public offering in 2011. For the nine months ended September 30, 2012, general and administrative expenses totaled $4.2 million, staying fairly consistent with the nine months ended September 30, 2011.

Sales and marketing expenses. The Company primarily sells its products through a direct sales force in North America and through distributors outside of North America. Sales and marketing expenses consist primarily of salaries and benefits and general marketing expenses. For the three months ended September 30, 2012, sales and marketing expenses totaled $0.4 million, an increase of $0.1 million as compared to the same period of prior year resulting from the increased number of trade shows attended during the period. For the nine months ended September 30, 2012, sales and marketing expenses totaled $1.4 million, an increase of $0.4 million from the comparable period of the prior year. This increase resulted from an increase of $0.4 million in expenses related to physician education, reimbursement consulting and marketing support.

Engineering, research and development expenses. Engineering, research and development expenses consist primarily of salaries and benefits, engineering consulting expenses and material costs used in the development of new products and product improvements. For the three months ended September 30, 2012, engineering, research and development expenses totaled $1.2 million, an increase of $0.8 million from the same period in the prior year resulting from the 2012 Enhancement Program as well as $0.4 million relating to employee termination costs. For the nine months ended September 30, 2012, engineering, research and development expenses totaled $2.9 million, an increase of $1.8 million from


Table of Contents

the same period in the prior year. This increase primarily resulted from $0.8 million of additional expenses resulting from the 2012 Enhancement Program, increased stock-based compensation charges of $0.3 million and increases of $0.5 million of severance benefits and wages.

Interest expense. Interest expense decreased $0.5 million from $0.6 million for the three months ended September 30, 2011 to $0.1 for the three months ended September 30, 2012. Interest expense decreased $1.4 million from $1.6 million for the nine months ended September 30, 2011 to $0.3 million for the nine months ended September 30, 2012. The decrease in interest expense for the three and nine months ended September 30, 2012 was a result of the conversion to equity of the debt underlying our 2010/2011 and July 2011 Convertible Debt Offerings upon the completion of our IPO.

Loss on Extinguishment of Debt. Loss on extinguishment of debt was $56,000 and $0.4 million for the three and nine months ended September 30, 2012, respectively, as compared to no such charges for the comparable periods of 2011. Losses recognized during 2012 related to the third quarter loss of $56,000 for the 2012 Demand Note, the second quarter loss of approximately $60,000 for the 2011 Credit Facility, and the first quarter loss of $0.3 million resulting from the final consideration made for the conversion of the 2009 Convertible Debt Offering which occurred at the completion of the IPO in the fourth quarter of 2011.

Fair value adjustment of warrants expense. For the three months ended September 30, 2012 and 2011, we recognized income of $23,000 and $0.3 million, respectively, to record changes in the fair value of certain of our outstanding warrants not indexed to our own stock. For the nine months ended September 30, 2012 and 2011, we recognized income of $0.5 million and $0.2 million, respectively, to record changes in the fair value of certain of our outstanding warrants not indexed to our own stock.

Liquidity and Capital Resources

As of September 30, 2012, we had $2.6 million in current assets and $2.6 million in current liabilities. As of December 31, 2011, we had $6.1 million in current assets and $5.9 million in current liabilities, respectively, resulting in working capital of $0.2 million. Our working capital decreased during the nine months ended September 30, 2012 primarily as a result of operating losses, partially offset by a reclassification of short-term debt into long-term debt. Our current assets consist of cash, accounts receivable, inventories, prepaid expenses and other. Our current liabilities consist of the current portion of our long-term debt, accounts payable, accrued expenses, and deferred revenue.

We anticipate that we will continue to generate losses for the next year as we develop and expand our product offerings, conduct clinical trials and work to establish reimbursement for services performed with our products, seek to commercialize our products and expand our corporate infrastructure. We project a need for additional capital to fund our operations beyond 2012.

We require significant amounts of additional capital, and such capital may not be available as we need it, or on terms that we find favorable, if at all. We are currently seeking to raise these funds through debt financing and/or private equity offerings, although we may seek to raise funds through public or private equity offerings, debt financings, credit facilities, or partnering or other corporate collaborations and licensing arrangements. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, take advantage of opportunities, develop products and technologies, and otherwise respond to competitive pressures could be significantly delayed or limited, and we may need to downsize or halt our operations. Prevailing market conditions may not allow for such a fundraising or new investors may not be prepared to purchase our securities at prices acceptable to us.

Because of the numerous risks and uncertainties associated with research, development and commercialization of medical devices, we are unable to estimate the exact amounts of our working


Table of Contents

capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

º •
º the cost of development and growth of our VivaScope business;

º •
º the cost of commercialization activities of our products, and of our future product candidates, including marketing, sales and distribution costs;

º •
º the number and characteristics of any future product candidates we pursue or acquire;

º •
º the scope, progress, results and costs of researching and developing our future product candidates, conducting clinical trials and establishing reimbursement;

º •
º the timing of, and the costs involved in, obtaining regulatory approvals for our future product candidates;

º •
º the cost of manufacturing our existing VivaScope products and maintaining our telepathology server, as well as such costs associated with any future product candidates we successfully commercialize;

º •
º our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;

º •
º the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and

º •
º the timing, receipt and amount of sales of, or royalties on, our future products, if any.

  Add LCDX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for LCDX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.