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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
(Mark One)
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                  to                 
 
Commission file number 000-30959
 
 
RITA MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
     
94-3199149
(State or other jurisdiction of
incorporation or organization)
     
(I.R.S. Employer
Identification No.)
 
967 N. Shoreline Blvd.
Mountain View, CA 94043
(Address of principal executive offices, including zip code)
 
650-314-3400
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes  x        No  ¨
 
As of July 31, 2002, there were 14,951,180 shares of the registrant’s Common Stock outstanding.
 

Table of Contents
 
INDEX
 
    
Page
PART I. FINANCIAL INFORMATION
     
Item 1.
   
Financial Statements (unaudited)
     
       
3
       
4
       
5
       
6
Item 2.
      
9
Item 3.
      
20
PART II. OTHER INFORMATION
     
Item 1.
      
20
Item 2.
      
20
Item 3.
      
20
Item 4.
      
21
Item 5.
      
21
Item 6.
      
21
  
22
  
23

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Table of Contents
 
PART 1.    FINANCIAL INFORMATION
 
Item 1.    Financial Statements
 
RITA MEDICAL SYSTEMS, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands, except per share amounts, unaudited)
  
    
June 30, 2002
     
December 31, 2001
  
Assets
                  
Current assets:
                  
Cash and cash equivalents
   
$
5,355
 
   
$
7,297
 
Marketable securities
   
 
12,176
 
   
 
11,887
 
Accounts receivable, net of allowance for doubtful accounts of $1,220 at June 30, 2002 and $629 at December 31, 2001
   
 
4,964
 
   
 
5,056
 
Inventories, net
   
 
3,211
 
   
 
3,645
 
Prepaid assets and other current assets
   
 
844
 
   
 
1,282
 
    
  
Total current assets
   
 
26,550
 
   
 
29,167
 
Long term securities
   
 
—  
 
   
 
4,353
 
Property and equipment, net
   
 
1,853
 
   
 
1,934
 
Intangibles and other assets
   
 
1,117
 
   
 
380
 
    
  
Total assets
   
$
29,520
 
   
$
35,834
 
    
  
Liabilities and Stockholders’ Equity
                  
Current liabilities:
                  
Accounts payable
   
$
1,032
 
   
$
822
 
Accrued liabilities
   
 
2,684
 
   
 
2,675
 
Capital lease obligations
   
 
74
 
   
 
192
 
    
  
Total liabilities
   
 
3,790
 
   
 
3,689
 
    
  
Contingencies (Note 5)
                  
Stockholders’ equity
                  
Common stock, $0.001 par value
   
 
15
 
   
 
15
 
Additional paid-in capital
   
 
88,302
 
   
 
88,459
 
Deferred stock compensation
   
 
(371
)
   
 
(1,905
)
Receivable from stockholders
   
 
(63
)
   
 
(99
)
Accumulated other comprehensive income (loss)
   
 
(32
)
   
 
70
 
Accumulated deficit
   
 
(62,121
)
   
 
(54,395
)
    
  
Total stockholders’ equity
   
 
25,730
 
   
 
32,145
 
    
  
Total liabilities and stockholders’ equity
   
$
29,520
 
   
$
35,834
 
    
  
 
See accompanying notes

-3-

Table of Contents
 
RITA MEDICAL SYSTEMS, INC.
 
CONDENSED STATEMENTS OF OPERATIONS
 
(In thousands, except per share data, unaudited)
  
    
Three Months Ended
June 30,
     
Six Months Ended
June 30,
  
    
2002
     
2001
     
2002
     
2001
  
Sales
   
$
4,806
 
   
$
3,769
 
   
$
9,224
 
   
$
7,073
 
Cost of goods sold
   
 
2,040
 
   
 
1,670
 
   
 
4,042
 
   
 
3,439
 
    
  
  
  
Gross profit
   
 
2,766
 
   
 
2,099
 
   
 
5,182
 
   
 
3,634
 
    
  
  
  
Operating expenses
                                    
Research and development
   
 
1,329
 
   
 
1,744
 
   
 
2,663
 
   
 
3,210
 
Selling, general and administrative
   
 
5,304
 
   
 
3,776
 
   
 
10,527
 
   
 
7,523
 
    
  
  
  
Total operating expenses
   
 
6,633
 
   
 
5,520
 
   
 
13,190
 
   
 
10,733
 
    
  
  
  
Loss from operations
   
 
(3,867
)
   
 
(3,421
)
   
 
(8,008
)
   
 
(7,099
)
Interest income and other expense, net
   
 
134
 
   
 
428
 
   
 
282
 
   
 
984
 
    
  
  
  
Net loss
   
$
(3,733
)
   
$
(2,993
)
   
$
(7,726
)
   
$
(6,115
)
    
  
  
  
Net loss per share, basic and diluted
   
$
(0.25
)
   
$
(0.21
)
   
$
(0.52
)
   
$
(0.43
)
    
  
  
  
Shares used in computing basic and diluted net loss per share
   
 
14,835
 
   
 
14,320
 
   
 
14,725
 
   
 
14,244
 
 
See accompanying notes

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Table of Contents
 
RITA MEDICAL SYSTEMS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(In thousands, unaudited)
  
    
Six Months Ended
June 30,
  
    
2002
     
2001
  
Operating activities:
                  
Net loss
   
$
(7,726
)
   
$
(6,115
)
Adjustments to reconcile net loss to net cash used in operating activities:
                  
Depreciation and amortization
   
 
713
 
   
 
441
 
Stock-based compensation
   
 
344
 
   
 
1,020
 
Allowance for doubtful accounts
   
 
591
 
   
 
62
 
Allowance for inventory reserve
   
 
479
 
   
 
224
 
Changes in operating assets and liabilities
                  
Accounts receivable
   
 
(499
)
   
 
(1,708
)
Inventory
   
 
(46
)
   
 
(84
)
Prepaid and other current assets
   
 
438
 
   
 
(98
)
Accounts payable and accrued liabilities
   
 
219
 
   
 
530
 
    
  
Net cash used in operating activities
   
 
(5,487
)
   
 
(5,728
)
    
  
Cash flows from investing activities:
                  
Purchase of property and equipment
   
 
(566
)
   
 
(588
)
Purchases of short term investments
   
 
—  
 
   
 
(8,806
)
Maturities of investments
   
 
3,963
 
   
 
20,140
 
Capitalization of patent litigation costs
   
 
(771
)
   
 
—  
 
Other assets
   
 
3
 
   
 
2
 
    
  
Net cash provided by investing activities
   
 
2,629
 
   
 
10,748
 
    
  
Cash flows from financing activities:
                  
Proceeds from issuance of common stock
   
 
1,034
 
   
 
474
 
Proceeds from revolving term loan
   
 
—  
 
   
 
25
 
Payments on revolving term loan
   
 
—  
 
   
 
(858
)
Payments on capital lease obligations
   
 
(118
)
   
 
(138
)
    
  
Net cash provided by (used in) financing activities
   
 
916
 
   
 
(497
)
    
  
Net increase (decrease) in cash and cash equivalents
   
 
(1,942
)
   
 
4,523
 
Cash and cash equivalents at beginning of period
   
 
7,297
 
   
 
12,676
 
    
  
Cash and cash equivalents at end of period
   
$
5,355
 
   
$
17,199
 
    
  
 
See accompanying notes

-5-

Table of Contents
 
RITA MEDICAL SYSTEMS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1.    Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared by RITA Medical Systems, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information. These principles are consistent in all material respects with those applied in the Company’s financial statements contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2001 and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission. However, interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (all of which are normal and recurring in nature, including the elimination of intercompany accounts) necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods indicated. Interim results of operations are not necessarily indicative of the results to be expected for the full year or any other interim periods. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and footnotes thereto for the year ended December 31, 2001 contained in the Company’s annual report on Form 10-K.
 
2.    Net loss per share
 
Basic earnings (loss) per share figures are calculated based on the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share figures include the dilutive effect of common stock equivalents consisting of stock options, warrants and shares subject to repurchase, provided that the inclusion of such common stock equivalents is not antidilutive. For the three-month and six-month periods ended June 30, 2002 and 2001 respectively, the Company has excluded the following period end potentially dilutive securities (in thousands) from earnings per share computations because their inclusion would have the effect of reducing our loss per share:
 
    
Three and Six Months
Ended June 30,
    
2002
   
2001
Options and warrants
   
2,664
   
2,422
Common shares subject to repurchase
   
37
   
74
    
  
    
2,701
   
2,496
    
  
 
The reconciliation of total outstanding common shares to shares used in determining net loss per share is as follows (in thousands):