UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 MARCH 31, 2005
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: 000-50939
INTRALASE CORP.
(Exact name of registrant as specified in its charter)
| DELAWARE | 38-3380954 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
| 3 Morgan, Irvine, CA | 92618 | |
| (Address of principal executive offices) | (zip code) | |
(949) 859-5230
(Registrant’s telephone number, including area code)
N/A
Former name, former address and former fiscal year, if changed since last report
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 Exchange Act) Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 27,238,753 shares of common stock, $0.01 par value, outstanding as of May 9, 2005.
INTRALASE CORP.
| Page No | ||||
| PART I |
FINANCIAL INFORMATION | |||
| Item 1 |
Financial Statements (unaudited) | |||
| Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004 | 2 | |||
| Condensed Consolidated Statements of Operations – Three Month Periods Ended March 31, 2005 and 2004 | 3 | |||
| Condensed Consolidated Statements of Cash Flows – Three Month Periods Ended March 31, 2005 and 2004 | 4 | |||
| Notes to Condensed Consolidated Financial Statements | 5 | |||
| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||
| Item 3 |
Quantitative and Qualitative Disclosures about Market Risk | 29 | ||
| Item 4 |
Controls and Procedures | 30 | ||
| PART II |
OTHER INFORMATION | |||
| Item 1 |
Legal Proceedings | 30 | ||
| Item 2 |
Unregistered Sales of Equity Securities and Use of Proceeds | 31 | ||
| Item 6 |
Exhibits | 31 | ||
| Signatures | 32 | |||
PART I FINANCIAL INFORMATION
| Item 1 | Financial Statements |
Condensed Consolidated Balance Sheets
(unaudited)
| March 31, 2005 |
December 31, 2004 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 7,261,056 | $ | 26,014,926 | ||||
| Marketable securities |
70,000,000 | 66,000,000 | ||||||
| Accounts receivable—Net of allowance for doubtful accounts of $163,725 (March 31, 2005) and $151,604 (December 31, 2004) |
10,688,694 | 7,186,163 | ||||||
| Inventories, Net |
9,129,126 | 8,901,684 | ||||||
| Prepaid expenses and other current assets |
3,573,070 | 1,868,186 | ||||||
| Total current assets |
100,651,946 | 109,970,959 | ||||||
| Marketable securities |
12,000,000 | |||||||
| Property, plant and equipment—Net |
5,349,097 | 4,597,546 | ||||||
| Equipment under operating leases—Net of accumulated depreciation of $768,973 (March 31, 2005) and $682,889 (December 31, 2004) |
2,780,837 | 2,224,785 | ||||||
| Other assets |
1,282,320 | 1,418,774 | ||||||
| Total |
$ | 122,064,200 | $ | 118,212,064 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 5,989,771 | $ | 5,685,565 | ||||
| Accrued expenses |
7,186,452 | 6,030,507 | ||||||
| Deferred revenues |
3,228,837 | 3,232,272 | ||||||
| Total current liabilities |
16,405,060 | 14,948,344 | ||||||
| Deferred revenues-Long-term |
1,033,219 | 970,115 | ||||||
| Total liabilities |
17,438,279 | 15,918,459 | ||||||
| Commitments and Contingencies (Note 6) |
||||||||
| Stockholders’ Equity: |
||||||||
| Preferred stock, $0.01 par value — 10,000,000 shares issued and authorized and no shares outstanding at March 31, 2005 and December 31, 2004 |
||||||||
| Common stock, $0.01 par value—45,000,000 shares authorized; 26,840,082 (March 31, 2005) and 26,769,185 (December 31, 2004) shares issued and outstanding |
268,401 | 267,692 | ||||||
| Additional paid-in capital |
168,897,834 | 170,567,316 | ||||||
| Deferred stock-based compensation |
(2,646,744 | ) | (4,302,631 | ) | ||||
| Receivable from sale of stock to officers and employees |
(489,704 | ) | (838,690 | ) | ||||
| Accumulated deficit |
(61,403,866 | ) | (63,400,082 | ) | ||||
| Total stockholders’ equity |
104,625,921 | 102,293,605 | ||||||
| Total |
$ | 122,064,200 | $ | 118,212,064 | ||||
See accompanying notes to financial statements.
2
Condensed Consolidated Statements of Operations
(unaudited)
| Three Months Ended |
||||||||
| March 31, 2005 |
March 31, 2004 |
|||||||
| Revenues – product revenues |
$ | 21,180,973 | $ | 9,484,731 | ||||
| Costs of goods sold (1) |
10,022,236 | 5,621,493 | ||||||
| Gross Margin |
11,158,737 | 3,863,238 | ||||||
| Operating expenses: |
||||||||
| Research and development (1) |
2,515,050 | 2,357,109 | ||||||
| Selling, general and administrative (1) |
7,248,465 | 3,610,408 | ||||||
| Total operating expenses |
9,763,515 | 5,967,517 | ||||||
| Income (loss) from operations |
1,395,222 | (2,104,279 | ) | |||||
| Interest and other income (expense), Net |
||||||||
| Interest expense |
(91,950 | ) | (23,893 | ) | ||||
| Interest income |
599,329 | 37,979 | ||||||
| Other income |
160,518 | 3,225 | ||||||
| Interest and other income (expense) , net |
667,897 | 17,311 | ||||||
| Income (loss) before provision for income taxes |
2,063,119 | (2,086,968 | ) | |||||
| Provision for income taxes |
66,903 | 7,500 | ||||||
| Net income (loss) |
1,996,216 | (2,094,468 | ) | |||||
| Accretion of preferred stock |
(14,949 | ) | ||||||
| Net income (loss) applicable to common stockholders |
$ | 1,996,216 | $ | (2,109,417 | ) | |||
| Net income (loss) per share applicable to common stockholders – basic |
$ | 0.07 | $ | (0.97 | ) | |||
| Net income (loss) per share applicable to common stockholders – diluted |
$ | 0.06 | $ | (0.97 | ) | |||
| Weighted average shares outstanding – basic |
26,815,190 | 2,177,806 | ||||||
| Weighted average shares outstanding – diluted |
31,126,618 | 2,177,806 | ||||||
| (1) Amounts include stock-based compensation expenses, as follows: |
||||||||
| Costs of goods sold |
$ | 34,873 | $ | 1,195 | ||||
| Research and development |
(96,715 | ) | 54,861 | |||||
| Selling, general and administrative |
3,057 | 49,503 | ||||||
| $ | (58,785 | ) | $ | 105,559 | ||||
See accompanying notes to financial statements.
3
Condensed Consolidated Statements of Cash Flows
(unaudited)
| Three Months Ended |
||||||||
| March 31, 2005 |
March 31, 2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 1,996,216 | $ | (2,094,468 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
886,884 | 695,314 | ||||||
| Loss on disposition of property, plant and equipment |
— | 2,303 | ||||||
| Provision for bad debt expense |
12,120 | 21,024 | ||||||
| Stock-based compensation |
(58,785 | ) | 105,559 | |||||
| Amortization of technology license |
72,228 | — | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(3,514,651 | ) | 584,285 | |||||
| Prepaid expenses and other current assets |
(1,704,884 | ) | 91,732 | |||||
| Inventories |
(227,442 | ) | (784,714 | ) | ||||
| Other assets |
64,226 | (13,205 | ) | |||||
| Accounts payable |
304,206 | 187,229 | ||||||
| Accrued expenses |
1,155,945 | 679,397 | ||||||
| Deferred revenues |
59,669 | (81,770 | ) | |||||
| Net cash used in operating activities |
(954,268 | ) | (607,314 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchase of property, plant and equipment |
(1,552,350 | ) | (387,770 | ) | ||||
| Purchase of equipment under operating leases |
(642,137 | ) | (821,293 | ) | ||||
| Purchase of marketable securities |
(29,000,000 | ) | (3,990,892 | ) | ||||
| Proceeds from maturities of marketable securities |
13,000,000 | 2,992,765 | ||||||
| Net cash used in investing activities |
(18,194,487 | ) | (2,207,190 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net proceeds from the exercise of stock options |
63,697 | 51,658 | ||||||
| Net proceeds from collection of receivable - sale of stock to officers and employees |
348,986 | — | ||||||
| Payments for issuance costs associated with 2004 common stock offering |
(17,798 | ) | — | |||||
| Proceeds from issuance of long-term debt |
— | 423,498 | ||||||
| Principal payments on long-term debt |
— | (89,583 | ) | |||||
| Net cash provided by financing activities |
394,885 | 385,573 | ||||||
| Net decrease in cash and cash equivalents |
$ | (18,753,870 | ) | $ | (2,428,931 | ) | ||
| Cash and cash equivalents—beginning of year |
26,014,926 | 8,903,715 | ||||||
| Cash and cash equivalents—end of period |
$ | 7,261,056 | $ | 6,474,784 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid during the period for interest |
$ | 91,950 | $ | 22,904 | ||||
| Cash paid during the year for income taxes |
$ | 12,210 | $ | 4,495 | ||||
Supplemental Disclosures of Noncash Transactions:
During the three months ended March 31, 2004 the Company recorded accretion of $14,949 to the redemption value of redeemable convertible preferred stock.
See accompanying notes to financial statements.
4
Notes to Condensed Consolidated Financial Statements
March 31, 2005
(unaudited)
| 1. | Basis of Presentation |
The information set forth in these financial statements as of March 31, 2005 and December 31, 2004 and for the three months ended March 31, 2005 and 2004, is unaudited and includes the accounts of IntraLase Corp. (the “Company”). The information reflects all adjustments consisting only of normal recurring entries that, in the opinion of management, are necessary to present fairly the financial position and results of operations of the Company for the periods indicated. Results of operations for the interim periods are not necessarily indicative of the results of operations for the full fiscal year.
Certain information in footnote disclosures normally included in annual financial statements has been condensed or omitted, in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial statements.
The information contained in these interim financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2004 contained in the Company’s Annual Report on Form 10-K.
| 2. | Significant Accounting Policies |
Revenue Recognition—In the normal course of business, the Company generates revenue through the sale and rental of lasers, the sale of per procedure fees inclusive of a disposable patient interface and maintenance services. Revenue related to sales of the Company’s products and services is recognized as follows:
Laser revenues: Revenues from the sale or lease of lasers are recognized at the time of sale or at the inception of the lease, as appropriate. For laser sales that require the Company to install the product at the customer location, revenue is recognized when the equipment has been delivered, installed and accepted at the customer location. For laser sales to a distributor whereby installation is the responsibility of the distributor, revenue is recognized when the laser is shipped and title has transferred to the distributor. The Company does not allow customers, including distributors, to return any products. Revenues from lasers under operating leases are recognized as earned over the lease term, which is generally on a straight-line basis over 36 to 39 months.
Per Procedure Fees Inclusive of a Disposable Patient Interface revenues: Per procedure fees inclusive of a disposable patient interface revenue is recognized upon shipment to the customer and when the title has passed in accordance with sales terms. The Company does not allow customers to return product.
Maintenance revenues: Maintenance revenues are derived primarily from maintenance contracts, which the Company began selling in 2003, on the Company’s laser systems sold to customers. Prepaid maintenance expenses are deferred and recognized on a straight line basis over the term of the contracts, generally 12 months. A substantial portion of the Company’s products are sold with a one year maintenance agreement for which the Company defers an amount equal to its fair value. To the extent the Company determines revenues associated with a specific maintenance contract are not sufficient to recover the estimated costs to provide such maintenance services, the Company accrues for such excess costs upon identification of the associated embedded loss. To date, these embedded losses have been insignificant.
Revenue Recognition under Bundled Arrangements: The Company sells most of its products and services under bundled contract arrangements, which contain multiple deliverable elements. These contractual arrangements typically include the laser and maintenance for which the customer pays a single negotiated price for all elements with separate prices listed in the multiple element customer contracts. Such separate prices may not always be representative of the fair values of those elements, because the prices of the different components of the arrangement may be modified through customer negotiations, although the aggregate consideration may remain the same. Revenues under bundled arrangements are allocated based upon the residual method in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. The Company’s revenue allocation to the deliverables begins by allocating revenues to the maintenance service, and second by allocating revenue to the laser. There is reliable third-party and entity-specific evidence of the fair value of the maintenance service, and the residual method is used to allocate the arrangement consideration to the delivered item (the laser). Fair value evidence consists
5
IntraLase Corp.
Notes to Condensed Consolidated Financial Statements
March 31, 2005