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, 2004
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨
As of July 28, 2004, there were 18,039,158 shares of the registrant’s Common Stock outstanding.
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CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
| June 30, 2004 |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 4,404 | $ | 4,580 | ||||
| Marketable securities |
1,881 | 4,022 | ||||||
| Accounts and note receivable, net |
3,101 | 2,990 | ||||||
| Inventories |
1,664 | 2,192 | ||||||
| Prepaid and other current assets |
699 | 1,028 | ||||||
| Total current assets |
11,749 | 14,812 | ||||||
| Long term marketable securities |
— | 933 | ||||||
| Long term note receivable, net |
316 | 338 | ||||||
| Property and equipment, net |
754 | 1,089 | ||||||
| Intangible assets |
5,967 | 4,814 | ||||||
| Other assets |
47 | 47 | ||||||
| Total assets |
$ | 18,833 | $ | 22,033 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 1,178 | $ | 757 | ||||
| Accrued liabilities |
2,445 | 2,169 | ||||||
| Total current liabilities |
3,623 | 2,926 | ||||||
| Deferred maintenance revenue, less current portion |
24 | 23 | ||||||
| Total liabilities |
3,647 | 2,949 | ||||||
| Stockholders’ equity |
||||||||
| Common stock |
18 | 18 | ||||||
| Additional paid-in capital |
98,317 | 98,037 | ||||||
| Accumulated other comprehensive income |
(3 | ) | 2 | |||||
| Accumulated deficit |
(83,146 | ) | (78,973 | ) | ||||
| Total stockholders’ equity |
15,186 | 19,084 | ||||||
| Total liabilities and stockholders’ equity |
$ | 18,833 | $ | 22,033 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Sales |
$ | 4,659 | $ | 4,049 | $ | 9,303 | $ | 8,546 | ||||||||
| Cost of goods sold |
1,670 | 1,702 | 3,285 | 3,276 | ||||||||||||
| Gross profit |
2,989 | 2,347 | 6,018 | 5,270 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
981 | 1,061 | 1,824 | 2,419 | ||||||||||||
| Selling, general and administrative |
4,018 | 4,736 | 8,384 | 9,300 | ||||||||||||
| Total operating expenses |
4,999 | 5,797 | 10,208 | 11,719 | ||||||||||||
| Loss from operations |
(2,010 | ) | (3,450 | ) | (4,190 | ) | (6,449 | ) | ||||||||
| Interest income and other expense, net |
7 | 50 | 17 | 125 | ||||||||||||
| Net loss |
$ | (2,003 | ) | $ | (3,400 | ) | $ | (4,173 | ) | $ | (6,324 | ) | ||||
| Net loss per common share, basic and diluted |
$ | (0.11 | ) | $ | (0.19 | ) | $ | (0.23 | ) | $ | (0.36 | ) | ||||
| Shares used in computing net loss per common share, basic and diluted |
18,025 | 17,578 | 18,012 | 17,402 | ||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Six months ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (4,173 | ) | $ | (6,324 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
792 | 784 | ||||||
| Loss on disposal of property and equipment |
23 | — | ||||||
| Revaluation of common stock warrants for services received |
— | (42 | ) | |||||
| Amortization of stock-based compensation |
101 | — | ||||||
| Allowance for doubtful accounts |
(47 | ) | 55 | |||||
| Provision for obsolete inventories |
39 | 247 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts and note receivable |
(102 | ) | (316 | ) | ||||
| Inventories |
489 | 547 | ||||||
| Prepaid and other current assets |
329 | 332 | ||||||
| Accounts payable and accrued liabilities |
(349 | ) | (1,450 | ) | ||||
| Deferred maintenance revenue |
1 | — | ||||||
| Net cash used in operating activities |
(2,897 | ) | (6,167 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(198 | ) | (409 | ) | ||||
| Purchase of marketable securities |
(312 | ) | (6,871 | ) | ||||
| Sales and maturities of marketable securities |
3,381 | 4,367 | ||||||
| Capitalization of patent litigation costs |
— | (621 | ) | |||||
| Acquisition of intangibles |
— | (2,650 | ) | |||||
| Capitalization of merger-related costs |
(389 | ) | — | |||||
| Note receivable and other assets |
60 | 68 | ||||||
| Net cash provided by (used in) investing activities |
2,542 | (6,116 | ) | |||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
179 | 9,152 | ||||||
| Net cash provided by financing activities |
179 | 9,152 | ||||||
| Net decrease in cash and cash equivalents |
(176 | ) | (3,131 | ) | ||||
| Cash and cash equivalents at beginning of period |
4,580 | 6,888 | ||||||
| Cash and cash equivalents at end of period |
$ | 4,404 | $ | 3,757 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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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, 2003 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 of a normal recurring 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, 2003 contained in the Company’s annual report on Form 10-K.
2. Liquidity
As of June 30, 2004, the Company’s total assets were $18.8 million, total liabilities were $3.6 million, working capital was $8.1 million and cash and cash equivalents totaled $4.4 million. Current and anticipated demand for the Company’s products as well as procurement and production affect the need for capital. Also, the Company’s merger with Horizon Medical Products will require significant cash payments over the last six months of 2004 and further require service of acquired debt, which totaled approximately $17.7 million as of the merger date, July 29, 2004. Approximately $6.5 million of this debt will come due in July of 2005. If the cash we expect to generate from operations is insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities or obtain an additional credit facility. There can be no assurance that additional financing will be available to us or, if available, that such financing will be available on terms favorable to the Company and our stockholders. In addition, future equity financings could result in dilution to shareholders, and future debt financings could result in certain financial and operational restrictions.
3. Net loss per share
Basic earnings per share figures are calculated based on the weighted-average number of common shares outstanding during the period less the weighted-average number of any common shares subject to repurchase by the Company. Diluted earnings per share further includes the dilutive effect of potentially dilutive securities consisting of stock options and warrants provided that the inclusion of such securities is not antidilutive; the Company has reported net losses and therefore has excluded such potentially dilutive securities from its calculation of diluted earnings per share.
The reconciliation of total weighted average outstanding common shares to shares used in determining net loss per share is as follows (in thousands):
| Three months ended June 30, |
Six months ended June 30, |
|||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||
| Weighted average shares of common stock outstanding |
18,025 | 17,582 | 18,012 | 17,410 | ||||||
| Less: weighted-average shares subject to repurchase |
— | (4 | ) | — | (8 | ) | ||||
| Weighted average shares used in basic and diluted net loss per common share |
18,025 | 17,578 | 18,012 | 17,402 | ||||||
The following numbers of shares represented by options and warrants (prior to application of the treasury stock method) and shares subject to repurchase were excluded from the computation of diluted net loss per share as their effect was antidilutive (in thousands):
| June 30, | ||||
| 2004 |
2003 | |||
| Effect of potentially dilutive securities: |
||||
| Options |
2,743 | 2,182 | ||
| Warrants |
25 | 25 | ||
| Total potentially dilutive securities excluded from the computation of net loss per common share as their effect was antidilutive |
2,768 | 2,207 | ||
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4. Inventories
The components of the Company’s inventories at June 30, 2004 and December 31, 2003, respectively, were as follows (in thousands):
| June 30, 2004 |
December 31, 2003 | |||||
| Raw materials |
$ | 622 | $ | 719 | ||
| Work-in-process |
150 | 214 | ||||
| Finished goods |
892 | 1,259 | ||||
| $ | 1,664 | |||||