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NVIV > SEC Filings for NVIV > Form 10-Q on 13-Nov-2012All Recent SEC Filings

Show all filings for INVIVO THERAPEUTICS HOLDINGS CORP.

Form 10-Q for INVIVO THERAPEUTICS HOLDINGS CORP.


13-Nov-2012

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management's discussion and analysis should be read in conjunction with the unaudited consolidated financial statements included in this report and with the Company's historical consolidated financial statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Annual Report"). The management's discussion and analysis contains forward-looking statements of our plans, objectives, expectations and intentions that involve risks and uncertainties, including those we detailed under "Risk Factors" in Item 1A of our 2011 Annual Report. Any statements that are not statements of historical fact are forward-looking statements. When used, the words "believe," "plan," "intend," "anticipate," "target," "estimate," "expect" and the like, and/or future tense or conditional constructions ("will," "may," "could," "should," etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this quarterly report. The Company's actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this quarterly report.

The discussion and analysis of the Company's financial condition and results of operations are based on the Company's financial statements, which the Company has prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, the Company evaluates such estimates and judgments, including those described in greater detail below. The Company bases its estimates on historical experience and on various other factors that the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Overview

The Company is developing and commercializing biopolymer scaffolding devices for the treatment of spinal cord injuries and peripheral nerve injuries. For spinal cord injuries, the biopolymer devices are designed to protect the damaged spinal cord from further secondary injury and promote neuroplasticity, a process where functional recovery can occur through the rerouting of signaling pathways to the spared healthy tissue.

Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. Accordingly, the Company is considered to be in the development stage.

Recent Developments

On October 5, 2012, the Company entered into a loan agreement with the Massachusetts Development Finance Agency ("MassDev") from the Commonwealth of Massachusetts's Emerging Technology fund. The loan agreement provides the Company with a $2,000,000 line of credit, of which $200,000 may be used for working capital purposes and the remainder of which may be used for the purchase of capital equipment. The annual interest rate is fixed at 6.5% with interest payments only commencing on November 1, 2012 for the first thirty months and then equal interest and principal payments over the next fifty-four months with the final maturity on October 5, 2019. The Company was assessed commitment fees totaling $15,000 and issued MassDev a warrant for the purchase of 36,145 shares of Common Stock. The warrant has a seven year term and is exercisable at $1.66 per share. Advances under the loan agreement are secured by substantially all the assets of the Company excluding intellectual property. In October 2012, the Company drew down $1,144,000 of the line, using $200,000 for working capital purposes and $944,000 for capital equipment purchases.

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. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, we evaluate our estimates and judgments for all assets and liabilities, including those related to stock-based compensation expense and the fair value determined for stock purchase warrants classified as derivative liabilities. We base our estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no changes in our critical accounting policies and estimates from our 2011 Annual Report.


Table of Contents

We believe that full consideration has been given to all relevant circumstances that we may be subject to, and the consolidated financial statements accurately reflect our best estimate of the results of operations, financial position and cash flows for the periods presented.

Results of Operations

Comparison of the three months ended September 30, 2012 and 2011

Research and Development Expenses

Research and development expenses consist primarily of payments to contract research and development companies and payroll. Research and development expenses increased by approximately $358,000 to approximately $1,375,000 for the three months ended September 30, 2012 from approximately $1,017,000 for the three months ended September 30, 2011. The increase in expenses is primarily attributable to increased research and development activity and the resulting increase in compensation cost of $324,000 due to both additional staffing and pay raises.

General and Administrative Expenses

General and administrative expenses consist primarily of payroll, rent and professional services. General and administrative expenses increased by approximately $270,000 to approximately $1,466,000 for the three months ended September 30, 2012 from approximately $1,196,000 for the three months ended September 30, 2011. The increase in expenses is primarily attributable to an increase in compensation costs of $179,000 due to additional staffing and pay raises, an increase of $53,000 in legal costs, an increase of $100,000 of recruiting and relocation costs, an increase of $33,000 in travel and conference meeting costs, offset by a decrease of $148,000 in investor relations costs.

Interest Expense

Interest expense increased by $12,000 to approximately $12,000 for the three months ended September 30, 2012. The increase in interest expense is mainly due to an increase in borrowing under the loan payable.

Derivatives Gain

Derivatives gain increased by $5,593,000 to $10,869,000 for the three months ended September 30, 2012 from $5,276,000 for the three months ended September 30, 2011. The increase in this non-cash gain during the three months ended September 30, 2012 reflects the decrease in the fair value of derivative warrant liability due primarily to the decrease in the fair value of the underlying Common Stock.

Comparison of the nine months ended September 30, 2012 and 2011

Research and Development Expenses

Research and development expenses increased by approximately $578,000 to approximately $3,623,000 for the nine months ended September 30, 2012 from approximately $3,045,000 for the nine months ended September 30, 2011. The increase in expenses is primarily attributable to increased research and development activity and the resulting an increase in compensation costs of $637,000 due to both additional staffing and raises offset by a reduction in stock compensation expense of $104,000.

General and Administrative Expenses

General and administrative expenses increased by approximately $1,338,000 to approximately $4,434,000 for the nine months ended September 30, 2012 from approximately $3,096,000 for the nine months ended September 30, 2011. The increase in expenses is primarily attributable to an increase in compensation costs of $424,000 due to additional staffing and raises, an increase of $183,000 in legal costs, an increase of $128,000 in recruiting and relocation costs, an increase of $204,000 in travel and conference meeting costs, an increase of $306,000 in stock compensation costs and an increase in rent and facilities costs of $133,000.

Interest expense

Interest expense increased by $21,000 to approximately $28,000 for the nine months ended September 30, 2012 from approximately $7,000 for the nine months ended September 30, 2011. The increase in interest expense is due to an increase in borrowing under the loan payable.


Table of Contents

Derivatives Gain

Derivatives gain increased by $14,877,000 to $21,437,000 for the nine months ended September 30, 2012 from $6,560,000 for the nine months ended September 30, 2011. The increase in this non-cash gain for the nine months ended September 30, 2012 reflects the decrease in the fair value of derivative warrant liability due primarily to the decrease in the fair value of the underlying Common Stock.

Liquidity and Capital Resources

Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. Accordingly, the Company is considered to be in the development stage.

Since inception, the Company has experienced negative cash flows from operations. The Company has financed its operations primarily through the sale of equity-related securities. At September 30, 2012, the deficit accumulated during the development stage was approximately $34,437,000.

At September 30, 2012, we had total current assets of approximately $16,311,000 and current liabilities of approximately $12,848,000 resulting in a working capital of approximately $3,462,000. At September 30, 2012, the Company had total assets of approximately $18,488,000 and total liabilities of approximately $12,999,000, resulting in a stockholders' equity of $5,489,000.

Net cash used by operating activities for the nine months ended September 30, 2012 was approximately $6,321,000. The operating loss used $8,057,000, increases in accounts payable and accrued expenses provided $718,000, non-cash stock share based compensation provided $824,000 and depreciation and amortization provided $219,000. Significant commitments that will require the use of cash in operating activities in future periods include obligations under operating leases. Gross committed lease obligations amount to $7,446,000. Total commitments due for the remainder of fiscal 2012 under operating leases are approximately $251,000.

Net cash used by investing activities for the nine months ended September 30 2012 totaled $1,710,000 for purchases of capital equipment.

Net cash provided by financing activities was approximately $19,216,000 for the nine months ended September 30, 2012, due mainly to approximately $18,155,000 proceeds from a public offering. In addition, the Company received $969,000 from the exercise of stock options and warrants and approximately $112,000 from loans, net of repayments.

At September 30, 2012, the Company had cash of approximately $15,550,000, which the Company expects to be sufficient to meet its operating and capital requirements into the first quarter of 2014. However, the Company will need to raise substantial additional capital in the future to complete clinical trials, obtain marketing approvals and commercialize its products, potentially through debt or equity financings. The sale of debt or equity securities may cause dilution to existing stockholders. Furthermore, there can be no assurance that we will be able to raise such funds if and when they are required. Failure to obtain future funding when needed or on acceptable terms would materially adversely affect our results of operations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, including unrecorded derivative instruments that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We have certain warrants and options outstanding but we do not expect to receive sufficient proceeds from the exercise of these instruments unless and until the trading price of our Common Stock is significantly greater than the applicable exercise prices of the options and warrants and mainly following any necessary registering of underlying securities.

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