f
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018March 31, 2019
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 001-34375
CYTORI THERAPEUTICS, INC.
(Exact name of Registrant as Specified in Its Charter)
DELAWARE |
| 33-0827593 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
3020 CALLAN ROAD, SAN DIEGO, CALIFORNIA |
| 92121 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code: (858) 458-0900
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one).Act.
Large Accelerated Filer | ☐ |
| Accelerated Filer | ☐ |
Non-Accelerated Filer | ☐ |
| Smaller reporting company | ☒ |
|
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financing accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2018,April 30, 2019, there were 7,707,93422,155,795 shares of the registrant’s common stock outstanding.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.001 | CYTX | Nasdaq Capital Market |
INDEX
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PART I |
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| Item 1. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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PART II |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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CYTORI THERAPEUTICS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and par value data)
|
| As of June 30, 2018 |
|
| As of December 31, 2017 |
|
| As of March 31, 2019 |
|
| As of December 31, 2018 |
| ||||
Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 3,079 |
|
| $ | 9,550 |
|
| $ | 3,872 |
|
| $ | 5,261 |
|
Accounts receivable, net of reserves of $185 in 2018 and $167 in 2017 |
|
| 399 |
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|
| 145 |
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Accounts receivable, net of reserves of $185 in 2019 and $185 in 2018 |
|
| 455 |
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|
| 286 |
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Restricted cash |
|
| 40 |
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|
| 675 |
|
|
| 40 |
|
|
| 40 |
|
Inventories, net |
|
| 3,007 |
|
|
| 3,183 |
|
|
| 3,003 |
|
|
| 2,947 |
|
Other current assets |
|
| 837 |
|
|
| 1,311 |
|
|
| 1,092 |
|
|
| 1,114 |
|
Total current assets |
|
| 7,362 |
|
|
| 14,864 |
|
|
| 8,462 |
|
|
| 9,648 |
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Property and equipment, net |
|
| 2,763 |
|
|
| 3,052 |
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|
| 2,607 |
|
|
| 2,559 |
|
Operating lease right-of-use assets |
|
| 2,153 |
|
|
| — |
| ||||||||
Other assets |
|
| 2,048 |
|
|
| 2,570 |
|
|
| 1,827 |
|
|
| 1,905 |
|
Intangibles, net |
|
| 6,582 |
|
|
| 7,207 |
|
|
| 5,645 |
|
|
| 5,957 |
|
Goodwill |
|
| 3,922 |
|
|
| 3,922 |
|
|
| 3,922 |
|
|
| 3,922 |
|
Total assets |
| $ | 22,677 |
|
| $ | 31,615 |
|
| $ | 24,616 |
|
| $ | 23,991 |
|
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
| $ | 3,780 |
|
| $ | 4,790 |
|
| $ | 3,224 |
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| $ | 3,357 |
|
Operating lease liability |
|
| 700 |
|
|
| — |
| ||||||||
Term loan obligations, net of discount |
|
| 13,836 |
|
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| 13,624 |
|
|
| 14,371 |
|
|
| 14,202 |
|
Total current liabilities |
|
| 17,616 |
|
|
| 18,414 |
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|
| 18,295 |
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| 17,559 |
|
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Deferred revenues |
|
| 217 |
|
|
| 94 |
|
|
| 142 |
|
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| 167 |
|
Long-term deferred rent and other |
|
| 93 |
|
|
| 107 |
| ||||||||
Other noncurrent liabilities |
|
| 98 |
|
|
| 124 |
| ||||||||
Noncurrent operating lease liability |
|
| 1,518 |
|
|
| — |
| ||||||||
Warrant liability |
|
| 706 |
|
|
| 916 |
| ||||||||
Total liabilities |
|
| 17,926 |
|
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| 18,615 |
|
|
| 20,759 |
|
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| 18,766 |
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Commitments and contingencies (Note 8) |
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Commitments and contingencies (Notes 8 and 9) |
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Stockholders’ equity: |
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Preferred stock, $0.001 par value; 5,000,000 shares authorized; 23,500 shares issued; 1,186 and 2,431 shares outstanding in 2018 and 2017, respectively |
|
| — |
|
| — |
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Common stock, $0.001 par value; 100,000,000 shares authorized; 6,176,054 and 5,782,573 shares issued and outstanding in 2018 and 2017, respectively |
|
| 62 |
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| 58 |
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Preferred stock, $0.001 par value; 5,000,000 shares authorized; 30,233 shares issued; 4,540 and 4,606 shares outstanding in 2019 and 2018, respectively |
|
| — |
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| — |
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Common stock, $0.001 par value; 100,000,000 shares authorized; 21,905,795 and 14,830,414 shares issued and outstanding in 2019 and 2018, respectively |
|
| 22 |
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| 15 |
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Additional paid-in capital |
|
| 413,269 |
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| 413,304 |
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| 420,290 |
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| 418,375 |
|
Accumulated other comprehensive income |
|
| 1,237 |
|
|
| 1,387 |
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|
| 1,078 |
|
|
| 1,218 |
|
Accumulated deficit |
|
| (409,817 | ) |
|
| (401,749 | ) |
|
| (417,533 | ) |
|
| (414,383 | ) |
Total stockholders’ equity |
|
| 4,751 |
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|
| 13,000 |
|
|
| 3,857 |
|
|
| 5,225 |
|
Total liabilities and stockholders’ equity |
| $ | 22,677 |
|
| $ | 31,615 |
|
| $ | 24,616 |
|
| $ | 23,991 |
|
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTSSee Accompanying Notes to these Consolidated Condensed Financial Statements
3
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(in thousands, except share and per share data)
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
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| For the Three Months Ended March 31, |
| |||||||||||||||
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| 2018 |
|
| 2017 |
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| 2018 |
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| 2017 |
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| 2019 |
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| 2018 |
| ||||||
Product revenues |
| $ | 660 |
|
| $ | 969 |
|
| $ | 1,391 |
|
| $ | 1,560 |
|
| $ | 703 |
|
| $ | 731 |
|
Cost of product revenues |
|
| 324 |
|
|
| 401 |
|
|
| 596 |
|
|
| 811 |
|
|
| (353 | ) |
|
| (273 | ) |
Amortization of intangible assets |
|
| 306 |
|
|
| 306 |
|
|
| 613 |
|
|
| 612 |
|
|
| (306 | ) |
|
| (306 | ) |
Gross profit |
|
| 30 |
|
|
| 262 |
|
|
| 182 |
|
|
| 137 |
|
|
| 44 |
|
|
| 152 |
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Development revenues: |
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Government contracts and other |
|
| 899 |
|
|
| 531 |
|
|
| 1,816 |
|
|
| 1,549 |
|
|
| 737 |
|
|
| 917 |
|
|
|
| 899 |
|
|
| 531 |
|
|
| 1,816 |
|
|
| 1,549 |
|
|
| 737 |
|
|
| 917 |
|
Operating expenses: |
|
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Research and development |
|
| 1,951 |
|
|
| 2,992 |
|
|
| 4,451 |
|
|
| 6,281 |
|
|
| 1,846 |
|
|
| 2,499 |
|
Sales and marketing |
|
| 525 |
|
|
| 1,263 |
|
|
| 1,202 |
|
|
| 2,202 |
|
|
| 428 |
|
|
| 678 |
|
General and administrative |
|
| 1,469 |
|
|
| 2,119 |
|
|
| 3,714 |
|
|
| 4,227 |
|
|
| 1,508 |
|
|
| 2,244 |
|
In process research and development acquired from Azaya Therapeutics |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,686 |
| ||||||||
Total operating expenses |
|
| 3,945 |
|
|
| 6,374 |
|
|
| 9,367 |
|
|
| 14,396 |
|
|
| 3,782 |
|
|
| 5,421 |
|
Operating loss |
|
| (3,016 | ) |
|
| (5,581 | ) |
|
| (7,369 | ) |
|
| (12,710 | ) |
|
| (3,001 | ) |
|
| (4,352 | ) |
|
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Other income (expense): |
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Interest income |
|
| 5 |
|
|
| 7 |
|
|
| 19 |
|
|
| 18 |
|
|
| 7 |
|
|
| 14 |
|
Interest expense |
|
| (444 | ) |
|
| (538 | ) |
|
| (866 | ) |
|
| (1,129 | ) |
|
| (515 | ) |
|
| (423 | ) |
Other income (expense), net |
|
| (204 | ) |
|
| 63 |
|
|
| 148 |
|
|
| 228 |
|
|
| 149 |
|
|
| 352 |
|
Change in fair value of warrants |
|
| 210 |
|
|
| — |
| ||||||||||||||||
Total other expense |
|
| (643 | ) |
|
| (468 | ) |
|
| (699 | ) |
|
| (883 | ) |
|
| (149 | ) |
|
| (57 | ) |
Net loss |
| $ | (3,659 | ) |
| $ | (6,049 | ) |
| $ | (8,068 | ) |
| $ | (13,593 | ) |
| $ | (3,150 | ) |
| $ | (4,409 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Basic and diluted net loss per share |
|
| (0.59 | ) |
| $ | (1.94 | ) |
|
| (1.32 | ) |
|
| (5.04 | ) | ||||||||
Basic and diluted weighted average shares used in calculating net loss per share |
|
| 6,166,459 |
|
|
| 3,125,087 |
|
|
| 6,092,125 |
|
|
| 2,699,362 |
| ||||||||
Basic and diluted net loss per share attributable to common stockholders |
| $ | (0.18 | ) |
| $ | (0.73 | ) | ||||||||||||||||
Basic and diluted weighted average shares used in calculating net loss per share attributable to common stockholders |
|
| 17,657,108 |
|
|
| 6,017,791 |
| ||||||||||||||||
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Comprehensive loss: |
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|
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Net loss |
| $ | (3,659 | ) |
| $ | (6,049 | ) |
| $ | (8,068 | ) |
| $ | (13,593 | ) |
| $ | (3,150 | ) |
| $ | (4,409 | ) |
Other comprehensive loss – foreign currency translation adjustments |
|
| 131 |
|
|
| (15 | ) |
|
| (150 | ) |
|
| (75 | ) |
|
| (140 | ) |
|
| (281 | ) |
Comprehensive loss |
| $ | (3,528 | ) |
| $ | (6,064 | ) |
| $ | (8,218 | ) |
| $ | (13,668 | ) |
| $ | (3,290 | ) |
| $ | (4,690 | ) |
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTSSee Accompanying Notes to these Consolidated Condensed Financial Statements
4
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)
|
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| Accumulated |
|
|
|
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| |||||||||||
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| Convertible |
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| Additional |
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| other |
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| Total |
| ||||||||
|
| preferred stock |
|
| Common stock |
|
| paid-in |
|
| comprehensive |
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| Accumulated |
|
| stockholders’ |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| capital |
|
| income |
|
| deficit |
|
| equity |
| ||||||||
Balance at December 31, 2017 |
|
| 2,431 |
|
| $ | - |
|
|
| 5,782,573 |
|
| $ | 6 |
|
| $ | 413,356 |
|
| $ | 1,387 |
|
| $ | (401,749 | ) |
| $ | 13,000 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 143 |
|
|
| — |
|
|
| — |
|
|
| 143 |
|
Sale of common stock, net |
|
| — |
|
|
| — |
|
|
| 10,069 |
|
|
| — |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| 27 |
|
Conversion of Series B Convertible Preferred Stock into common stock |
|
| (1,228 | ) |
|
| — |
|
|
| 368,738 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Foreign currency translation adjustment and accumulated other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (281 | ) |
|
| — |
|
|
| (281 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,409 | ) |
|
| (4,409 | ) |
Balance at March 31, 2018 |
|
| 1,203 |
|
| $ | - |
|
|
| 6,161,380 |
|
| $ | 6 |
|
| $ | 413,526 |
|
| $ | 1,106 |
|
| $ | (406,158 | ) |
| $ | 8,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018 |
|
| 4,606 |
|
| $ | - |
|
|
| 14,830,414 |
|
| $ | 15 |
|
| $ | 418,375 |
|
| $ | 1,218 |
|
| $ | (414,383 | ) |
| $ | 5,225 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 49 |
|
|
| — |
|
|
| — |
|
|
| 49 |
|
Sale of common stock, net |
|
| — |
|
|
| — |
|
|
| 6,992,736 |
|
|
| 7 |
|
|
| 1,866 |
|
|
| — |
|
|
| — |
|
|
| 1,873 |
|
Conversion of Series C Convertible Preferred Stock into common stock |
|
| (66 | ) |
|
| — |
|
|
| 82,645 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Foreign currency translation adjustment and accumulated other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (140 | ) |
|
| — |
|
|
| (140 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,150 | ) |
|
| (3,150 | ) |
Balance at March 31, 2019 |
|
| 4,540 |
|
| $ | - |
|
|
| 21,905,795 |
|
| $ | 22 |
|
| $ | 420,290 |
|
| $ | 1,078 |
|
| $ | (417,533 | ) |
| $ | 3,857 |
|
See Accompanying Notes to these Consolidated Condensed Financial Statements
5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
| For the Six Months Ended June 30, |
|
| For the Three Months Ended March 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (8,068 | ) |
| $ | (13,593 | ) |
| $ | (3,150 | ) |
| $ | (4,409 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 975 |
|
|
| 1,052 |
|
|
| 443 |
|
|
| 497 |
|
Amortization of deferred financing costs and debt discount |
|
| 212 |
|
|
| 418 |
|
|
| 168 |
|
|
| 105 |
|
In process research and development acquired from Azaya Therapeutics |
|
| — |
|
|
| 1,686 |
| ||||||||
Provision for excess inventory |
|
| 398 |
|
|
| 340 |
|
|
| — |
|
|
| 326 |
|
Change in fair value of warrants |
|
| (210 | ) |
|
| — |
| ||||||||
Share-based compensation expense |
|
| 239 |
|
|
| 410 |
|
|
| 49 |
|
|
| 143 |
|
Loss on asset disposal |
|
| 20 |
|
|
| 19 |
|
|
| — |
|
|
| 22 |
|
Increases (decreases) in cash caused by changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (274 | ) |
|
| 409 |
|
|
| (212 | ) |
|
| (747 | ) |
Inventories |
|
| 371 |
|
|
| 159 |
|
|
| 16 |
|
|
| 141 |
|
Other current assets |
|
| 344 |
|
|
| (736 | ) |
|
| 16 |
|
|
| 301 |
|
Other assets |
|
| (1 | ) |
|
| 43 |
|
|
| 1 |
|
|
| (24 | ) |
Accounts payable and accrued expenses |
|
| (1,165 | ) |
|
| (194 | ) |
|
| (405 | ) |
|
| (556 | ) |
Deferred revenues |
|
| 123 |
|
|
| 13 |
|
|
| (25 | ) |
|
| 84 |
|
Long-term deferred rent |
|
| (14 | ) |
|
| 119 |
| ||||||||
Other long-term liabilities |
|
| 39 |
|
|
| (2 | ) | ||||||||
Net cash used in operating activities |
|
| (6,840 | ) |
|
| (9,855 | ) |
|
| (3,270 | ) |
|
| (4,119 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (78 | ) |
|
| (95 | ) |
|
| (6 | ) |
|
| (53 | ) |
Purchase of long-lived assets part of Azaya Therapeutics' acquisition |
|
| — |
|
|
| (1,201 | ) | ||||||||
Net cash used in investing activities |
|
| (78 | ) |
|
| (1,296 | ) |
|
| (6 | ) |
|
| (53 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term obligations |
|
| — |
|
|
| (3,540 | ) | ||||||||
Payment of financing lease liability |
|
| (28 | ) |
|
| — |
| ||||||||
Proceeds from sale of common stock, net |
|
| (200 | ) |
|
| 11,225 |
|
|
| 1,919 |
|
|
| (150 | ) |
Net cash (used in) provided by financing activities |
|
| (200 | ) |
|
| 7,685 |
| ||||||||
Net cash provided by (used in) financing activities |
|
| 1,891 |
|
|
| (150 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
|
| 12 |
|
|
| 13 |
|
|
| (4 | ) |
|
| 39 |
|
Net decrease in cash and cash equivalents |
|
| (7,106 | ) |
|
| (3,453 | ) |
|
| (1,389 | ) |
|
| (4,283 | ) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 10,225 |
|
|
| 12,910 |
|
|
| 5,301 |
|
|
| 10,225 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 3,119 |
|
| $ | 9,457 |
|
| $ | 3,912 |
|
| $ | 5,942 |
|
Supplemental disclosure of cash flows information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 649 |
|
| $ | 740 |
|
| $ | 347 |
|
| $ | 311 |
|
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock into common stock |
| $ | 4 |
|
| $ | — |
|
| $ | — |
|
| $ | 4 |
|
Common stock issued in payment for the assets acquired from Azaya Therapeutics |
| $ | — |
|
| $ | 2,311 |
|
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTSSee Accompanying Notes to these Consolidated Condensed Financial Statements
56
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2018March 31, 2019
(UNAUDITED)
1. | Basis of Presentation and New Accounting Standards |
Our accompanying unaudited consolidated condensed financial statements as of June 30, 2018March 31, 2019 and for the three and six months ended June 30,March 31, 2019 and 2018 and 2017 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. Our consolidated condensed balance sheet at December 31, 20172018 has been derived from the audited financial statements at December 31, 2017,2018, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations of Cytori Therapeutics, Inc., and our subsidiaries (collectively, the “Company”) have been included. Operating results for the three and six months ended June 30, 2018March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. These financial statements should be read in conjunction with the consolidated financial statements and notes therein included in our Annual Report on Form 10-K for the year ended December 31, 2017,2018, filed with the Securities and Exchange Commission on March 9, 2018.29, 2019.
Amendments to Certificate of Incorporation and Reverse Stock Split
On May 23, 2018, following stockholder and Board approval, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation, as amended (the “Amendment”), with the Secretary of State of the State of Delaware to (i) effectuate a one-for-ten (1:10) reverse stock split (the “Reverse Stock Split”) of its common stock, par value $0.001 per share, without any change to its par value, and (ii) increase the number of authorized shares of the Company’s common stock from 75 million to 100 million shares (which amount is not otherwise affected by the Reverse Stock Split). The Amendment became effective on the filing date. Upon effectiveness of the Reverse Stock Split, the number of shares of the Company’s common stock (x) issued and outstanding decreased from approximately 61.6 million shares (as of May 23, 2018) to approximately 6.2 million shares; (y) reserved for issuance upon exercise of outstanding warrants and options decreased from approximately 23.4 million shares to approximately 2.3 million shares, and (z) reserved but unallocated under our current equity incentive plans (including the stockholder-approved share increase to the Company’s 2014 Equity Incentive Plan) decreased from approximately 9.1 million common shares to approximately 0.9 million common shares. The Company’s 5,000,000 shares of authorized Preferred Stock were not affected by the Reverse Stock Split. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares ofProportional adjustments for the Company’s commonreverse stock that would have otherwise resulted from the Reverse Stock Splitsplit were rounded upmade to the nearest whole share. OutstandingCompany's outstanding stock options, warrants and equity awards and the shares availableincentive plans for future grant under the Company’s Amended and Restated 2004 Equity Incentive Plan, 2011 Employee Stock Purchase Plan, 2014 Amended and Restated Equity Incentive Plan and 2015 New Employee Incentive Plan were proportionately reduced (rounded down to the nearest whole share), and the exercise prices of outstanding equity awards were proportionately increased (rounded up to the nearest whole cent) to give effect to the Reverse Stock Split.
Reclassifications
Certain amounts in priorall periods have been reclassified to conform with current period presentation.presented.
Recently Issued and Recently Adopted Accounting Pronouncements
Recently Issued Accounting Pronouncements
In February 2016,2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, to simplify how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit's carrying amount exceeds its fair value. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact that this standard will have on our consolidated financial statements.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases. Under this new guidance, at the commencement date, lessees will be required to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This guidance is not applicable for leases with a term of 12 months or less. The new standard is effective for annual reporting periods, and interim periods within those periods, beginning after December 15, 2018, with early adoption permitted. We are currently evaluatingpermitted. The Company adopted ASC 842 as of January 1, 2019, electing the impactoptional transition method that this standard will have on our consolidated financial statements.
In February 2017,allows for a cumulative-effect adjustment in the FASB issued ASU 2017-04, Simplifyingperiod of adoption and did not restate prior periods. The Company elected the Test for Goodwill Impairment, to simplify how all entities assess goodwill for impairment by eliminating Step 2 frompackage of practical expedients permitted under the goodwill impairment test.transition guidance. As amended,a result of the goodwill impairment test will consistadoption, the Company recorded right-of-use assets and liabilities. As of one step comparingMarch 31, 2019 the fair value of a reporting unitCompany’s right-of-use assets and liabilities were $2.2 million, respectively, associated with its carrying amount. An entity should recognize a goodwill impairment chargeoperating leases. See Note 8 for the amount by which the reporting unit's carrying amount exceeds its fair value. This update isfurther discussion on leases.
67
effective for annual periods beginning after December 15, 2019, and interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact that this standard will have on our consolidated financial statements.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard is based on the principle that revenue should be recognized in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the transfer of promised goods or services. ASU 2014-09 and all subsequent amendments (collectively, the “new standards”) may be applied using either the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We have adopted the standards beginning this first quarter of 2018 using the modified retrospective method. Overall, the timing or amounts related to the revenue recognition under the new standards did not differ from our previously applied revenue recognition policy. Our product revenues are recognized at a point in time, which is when control transfers to the customer. We have made an accounting policy election to treat shipping and handling activities that occur after the customer obtains control of the goods as fulfillment costs. There was no cumulative effect of applying the new standards as of the adoption date on January 1, 2018.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The adoption of this standard, in the first quarter of 2018, changed the presentation of our statement of cash flows to include our restricted cash balance with the non-restricted cash balances. The new guidance did not have a material impact on the Company's consolidated financial statements. Cash, cash equivalents, and restricted cash reported on the Consolidated Condensed Statements of Cash Flows includes restricted cash of $0.4 million, $0.4 million, $0.7 million, and $40 thousand as of December 31, 2016, June 30, 2017, December 31, 2017 and June 30, 2018, respectively.
2. | Use of Estimates |
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Our most significant estimates and critical accounting policies involve recognizing revenue, reviewing goodwill and intangible assets for impairment, determining the assumptions used in measuring share-based compensation expense, valuing warrants, measuring expense related to our in-process research and development acquisition, and valuing allowances for doubtful accounts and inventory reserves.
Actual results could differ from these estimates. Management’s estimates and assumptions are reviewed regularly, and the effects of revisions are reflected in the consolidated financial statements in the periods they are determined to be necessary.
3. | Liquidity |
We incurred net losses of $3.7 million and $8.1$3.2 million for the three and six months ended June 30, 2018.March 31, 2019. We have an accumulated deficit of $409.8$417.5 million as of June 30, 2018.March 31, 2019. Additionally, we have used net cash of $6.8$3.3 million to fund our operating activities for the sixthree months ended June 30, 2018.March 31, 2019. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Further, the Loan and Security Agreement (defined in Note 4), with Oxford Finance, LCC (“Oxford”), as further described in Note 4, requires maintainingmaintenance of a minimum of $1.5$2.0 million in unrestricted cash and cash equivalents on hand to avoid an event of default under the Loan and Security Agreement. Based on our cash and cash equivalents on hand of approximately $3.1$3.9 million at June 30, 2018,March 31, 2019, the Company estimates that it will need to raise additional capital and/or obtain a waiver or restructure the Loan and Security Agreement in the near term to avoid defaulting under its $1.5$2.0 million minimum cash/cash equivalents covenant.
To date, these operating losses have been funded primarily from outside sources of invested capital including our recently completed 20172018 Rights Offering (defined in Note 3)3 below), our Lincoln Park Purchase Agreement (defined in Note 11) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), the Loan and Security Agreement and gross profits. We have had, and we will continue to have, an ongoing need to raise additional cash from outside sources to fund our future clinical development programs and other operations. Our inability to raise additional cash would have a material and adverse impact on operations and would cause us to default on our loan.
On December 22, 2016,June 1, 2018, we entered into a purchase agreement and a registration rights agreement,Sales Agreement with Lincoln Park pursuantB. Riley FBR, Inc. (“B. Riley FBR”) to sell shares of our common stock having an aggregate offering price of up to $6.5 million from time to time, through an “at the market” equity offering program (the “ATM program”) under which B. Riley FBR will act as sales agent. Through March 31, 2019, we have sold a total of 11.0 million shares for proceeds of approximately $3.8 million through the right to sell to Lincoln Park and Lincoln Park is obligated to purchase up to $20.0 million of shares of the Company’s common stock over the 30-month period following March 31, 2017, subject to the satisfaction of certain conditions.
7
ATM program. See Note 11 for further discussion on the Lincoln Park agreement.
On April 11, 2017, we entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group LLC “Maxim”) relating to the issuance and sale of 0.9 million shares of our common stock, par value $0.001 per share. The price to the public in this offering was $11.00 per share. Maxim agreed to purchase the shares from us pursuant to the Underwriting Agreement at a price of $10.40 per share. The net proceeds to us from the offering were approximately $8.7 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The offering closed on April 17, 2017. In addition, under the terms of the Underwriting Agreement, we granted Maxim a 45-day option to purchase up to 94,400 additional shares of common stock. On May 31, 2017, Maxim exercised their overallotment option and purchased 84,900 shares at $11.00 per share. The net proceeds to us were $0.8 million, after deducting underwriting costs and offering expenses payable by us.
On September 5, 2017, we received a written notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we no longer met the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided a period of 180 calendar days, or until March 5, 2018, in which to regain compliance. We were granted an additional compliance period of 180 calendar days, or until September 4, 2018, in which to regain compliance after meeting the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and providing notice to Nasdaq of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. In order to regain compliance with the minimum bid price requirement, the closing bid price of our common stock must have been at least $1 per share for a minimum of ten consecutive business days during the second 180-day period. On June 8, 2018, the Company received written notice from Nasdaq that the Company has regained compliance with the Nasdaq Stock Market Listing Rule 5500(a)(2) concerning its minimum bid price per share of the Company’s common stock.
On November 28, 2017, we closed a rights offering originally filed under a Form S-1 registration statement in August 2017 (“2017 Rights Offering”). Pursuant to the 2017 Rights Offering, the Company sold an aggregate of 10,000 units consisting of a total of 10,000 shares of Series B Convertible Preferred Stock, immediately convertible into approximately 3,000,000 shares of common stock and 18,000,000 warrants, exercisable for an aggregate of 1,800,000 shares of common stock at an exercise price of $3.333 per share of common stock, resulting in total net proceeds to the Company of $8.8 million. These warrants became exercisable upon stockholder approval of an increase in the Company’s authorized shares of common stock obtained at the 2018 Annual Meeting of Stockholders.ATM program.
On July 25, 2018, we closed a rights offering originally filed under a Form S-1 registration statement in April 2018 (“2018 Rights Offering”). Pursuant to the 2018 Rights Offering, the Company sold an aggregate of 6,723 units consisting of a total of 6,723 shares of Series C Convertible Preferred Stock, immediately convertible into approximately 8.4 million shares of common stock and 7,059,150 warrants, with each warrant exercisable for one share of common stock at an exercise price of $0.7986 per share, resulting in total net proceeds to the Company of approximately $5.7 million.
On August 28, 2018, we received a written notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the prior 30 consecutive business days, we no longer meet the requirement to maintain a minimum bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until February 25, 2019, in which to regain compliance. We were granted an additional compliance period of 180 calendar days, or until August 26, 2019, in which to regain compliance after meeting the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and providing notice to Nasdaq staff of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. In order to regain compliance with the minimum bid price requirement, the closing bid price of our common stock must have been at least $1.00 per share for a minimum of ten consecutive business days during the 180-day period.
On September 21, 2018, Cytori entered into a purchase agreement and a registration rights agreement, with Lincoln Park, pursuant to which the Company has the right to sell to Lincoln Park and Lincoln Park is obligated to purchase up to $5.0 million of shares of the Company’s common stock over the 24-month period following October 15, 2018, subject to the satisfaction of certain conditions. Through December 31, 2018, the Company sold a total of 0.6 million shares for proceeds of approximately $0.3 million through the Lincoln Park Purchase Agreement and no shares were sold during the three months ended March 31, 2019. See Note 11 for further discussion on the Lincoln Park Agreement.
8
We continue to seek additional capital through product revenues, strategic transactions, including extension opportunities under our awarded U.S. Department of Health and Human Service’s Biomedical Advanced Research and Development Authority (“BARDA”) contract, and from other financing alternatives. Without additional capital, current working capital and cash generated from sales will not provide adequate funding for research, sales and marketing efforts and product development activities at their current levels. If sufficient capital is not raised, we will at a minimum need to significantly reduce or curtail our research and development and other operations, and this would negatively affect our ability to achieve corporate growth goals.
On April 24, 2019 the Company received $3.4 million of net cash proceeds related to the sale of the Company’s UK subsidiary, Cytori Ltd., and the Company’s Cell Therapy assets (excluding such assets used in Japan or relating to the Company’s contract with BARDA), of which $1.7 million was used to pay down principal, interest and fees on the Loan and Security Agreement, and on April 25, 2019 the Company received $2.5 million of net cash proceeds related to the sale of the Cytori Therapeutics, K.K., and substantially all of the Company’s Cell Therapy assets used in Japan, of which $1.4 million was used to pay down principal, interests and fees on the Loan and Security Agreement (See Note 12).
Should we be unable to raise additional cash from outside sources, this would have a material adverse impact on our operations.
The accompanying consolidated condensed financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.
4. | Term Loan Obligations |
On May 29, 2015, wethe Company entered into the Loan and Security Agreement, dated May 29, 2015, with Oxford (the “Loan and Security Agreement”), pursuant to which it funded an aggregate principal amount of $17.7 million (“Term Loan”), subject to the terms and conditions set forth in the Loan and Security Agreement. The Term Loan accrues interest at a floating rate of at least 8.95% per annum, comprised of three-month LIBOR rate with a floor of 1.00% plus 7.95%. Pursuant to the Loan and Security Agreement, we were previously required to make interest only payments through June 1, 2016 and thereafter we were required to make payments of principal and accrued interest in equal monthly installments sufficient to amortize the Term Loan through June 1, 2019, the maturity date. On February 23, 2016, we received an acknowledgement and agreement from Oxford related to the positive data on our U.S. ACT-OA clinical trial. As a result, pursuant to the Loan and Security Agreement, the period for
8
which we are required to make interest-only payments was extended from July 1, 2016 to January 1, 2017. All unpaid principal and interest with respect to the Term Loan is due and payable in full on June 1, 2019. At maturity of the Term Loan, or earlier repayment in full following voluntary prepayment or upon acceleration, we are required to make a final payment in an aggregate amount equal to approximately $1.1 million. In connection with the Term Loan, on May 29, 2015, we issued to Oxford warrants to purchase an aggregate of 9,444 shares of our common stock at an exercise price of $103.50 per share. These warrants became exercisable as of November 30, 2015 and will expire on May 29, 2025 and, following the authoritative accounting guidance, are equity classified and its respective fair value was recorded as a discount to the debt.
On September 20, 2017, the Company entered into an amendment to the Term Loan, pursuant to which, among other things, Oxford and the Lenders agreed to reduce the minimum liquidity covenant level originally at $5 million to $1.5 million. The amendment also extended the interest-only period under the Loan and Security Agreement through August 1, 2018, as the Company successfully closed on a financing and received unrestricted net cash proceeds in excess of $5 million on or before December 29, 2017.
On June 19, 2018, the Company entered into a second amendment (the “Second Amendment”) to its existingthe Term Loan with Oxford and the lenders.Oxford. The Second Amendment extends the interest-only period under the Term Loan to December 1, 2018 if the Company receives unrestricted gross cash proceeds of at least $15 million from the sale and issuance of the Company’s equity securities on or before August 31, 2018. The Company agreed to pay Oxford an amendment fee of $0.3 million$250,000 at the earlier of maturity or acceleration of the loan.
On August 31, 2018, the Company entered into a third amendment (the “Third Amendment”) to the Term Loan with Oxford. The Third Amendment extends the interest-only period under the Term Loan to December 31, 2018 and also requires that the Company pay to Oxford, in accordance with its pro rata share of the loans, 75% of all proceeds received (i) from the issuance and sale of unsecured subordinated convertible debt, (ii) in connection with a joint venture, collaboration or other partnering transaction, (iii) in connection with any licenses, (iv) from dividends (other than non-cash dividends from wholly owned subsidiaries) and (v) from the sale of any assets (such requirement, the “Prepayment Requirement”). The Prepayment Requirement does not apply to proceeds from the sale and issuance of the Company’s equity securities, other than convertible debt. The Prepayment Requirement shall apply until an aggregate principle amount of $7.0 million has been paid pursuant to the Prepayment Requirement. However, if less than $7.0 million has been paid pursuant to the Prepayment Requirement on December 31, 2018 then the Company is required to promptly make additional payments until an aggregate principal amount of
9
$7.0 million has been paid. The Company agreed to pay Oxford an amendment fee of $50,000 at the earlier of maturity or acceleration of the loan.
On December 31, 2018, the Company entered into a fourth amendment (the “Fourth Amendment”) to the Term Loan with Oxford. Oxford agreed to extend the maturity date from June 1, 2019 to June 1, 2020. The Fourth Amendment increased the minimum liquidity covenant level from $1.5 million to $2.0 million and extended the interest-only period under the Loan and Security Agreement to March 1, 2019. The Fourth Amendment also required that the Company achieve one of the following by January 31, 2019: enter into an asset sale agreement with a minimum unrestricted net cash proceeds to the Company of $4.0 million; enter into a binding agreement for the issuance and sale of its equity securities or unsecured convertible subordinated debt which would result in unrestricted gross cash proceeds of not less than $7.5 million; or enter into a merger agreement pursuant to which the obligations under the Loan and Security Agreement would be paid down to a level satisfactory to Oxford. The Company agreed to pay Oxford an amendment fee of $350,000 at the earlier of maturity or acceleration of the loan.
On February 13, 2019, the Company entered into a fifth amendment (the “Fifth Amendment”) to the Term Loan primarily to extend the January 31, 2019 obligations under the Fourth Amendment to February 28, 2019. On March 4, 2019, the Company entered into a sixth amendment to the Term Loan primarily to extend the Fifth Amendment obligations to March 29, 2019. On April 29, 2019, the Company entered into a seventh amendment (the “Seventh Amendment”) to the Term Loan, pursuant to which, among other things, Oxford agreed to interest only payments starting May 1, 2019, with amortization payments resuming on May 1, 2020. See Note 12 for further discussion on the Seventh Amendment.
The Term Loan, as amended, is collateralized by a security interest in substantially all of the Company’s existing and subsequently acquired assets, including its intellectual property assets, subject to certain exceptions set forth in the Loan and Security Agreement, as amended. The intellectual property asset collateral will be released upon the Company achieving certain liquidity level when the total principal outstanding under the Loan and Security Agreement is less than $3 million. As of June 30, 2018,March 31, 2019, we were in compliance with all of the debt covenants under the Loan and Security Agreement.
Our interest expense for the three and six months ended March 31, 2019 June 30,and 2018 and 2017 was $0.4 million and $0.9 million and was $0.5 million and $1.1$0.4 million, respectively. Interest expense is calculated using the effective interest method, therefore it is inclusive of non-cash amortization in the amount of $0.1 million and $0.2 million for the three and six months ended March 31, 2019June 30, 2018 and $0.2 million and $0.40.1 million for the three and six months ended March 31, 2018June 30, 2017,, related to the amortization of the debt discount, capitalized loan costs, and accretion of final payment.
The Term Loan and Security Agreement, as amended, contains customary indemnification obligations and customary events of default, including, among other things, our failure to fulfill certain obligations under the Term Loan, as amended, and the occurrence of a material adverse change, which is defined as a material adverse change in our business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan. In the event of default by us or a declaration of material adverse change by our lender, under the Term Loan, the lender would be entitled to exercise its remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts then outstanding under the Term Loan, which could materially harm our financial condition. As of June 30, 2018,March 31, 2019, we were in compliance with all covenants under the Term Loan and have not received any notification or indication from the LendersOxford to invoke the material adverse change clause. However, due to our current cash flow position and the substantial doubt about our ability to continue as a going concern, the entire principal amount of the Term Loan has been reclassified tois presented as short-term. We will continue to evaluate the debt classification on a quarterly basis and evaluate for reclassification in the future should our financial condition improve.
910
Product Sales
Our revenue is generated primarily from the sale of products. Product revenue primarily consists of sales of Celution devices and consumables for commercial and research purposes.
The Company’s contracts with customers only include one performance obligation (i.e., sale of the Company’s products). Typically, if there are multiple items included on a single order, they are delivered at the same time. Revenue is recognized at a point in time when delivery is completed and control of the promised goods is transferred to the customers. Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for those goods. The Company’s contracts do not involve financing elements as payment terms with customers are less than one year. The sale arrangements do not include any variable consideration. Advance payments from customers are recorded as deferred revenue.
Shipping and handling activities that occur after the customer obtains control of the goods are considered part of the Company’s obligation to transfer the products and therefore are recorded as direct selling expenses, as incurred.
The following table represents revenue by product (in thousands):
|
| Three months ended |
| Six months ended |
|
| Three months ended |
|
| |||||||||||||||
|
| June 30, 2018 |
|
| June 30, 2017 |
|
June 30, 2018 |
|
|
June 30, 2017 |
|
| March 31, 2019 |
|
| March 31, 2018 |
|
| ||||||
Consumable |
| $ | 594 |
|
| $ | 440 |
| $ | 1,153 |
|
| $ | 949 |
|
| $ | 663 |
|
| $ | 559 |
|
|
Device |
|
| - |
|
|
| 496 |
|
| 94 |
|
|
| 526 |
|
|
| - |
|
|
| 94 |
|
|
Other products |
|
| 66 |
|
|
| 33 |
|
| 144 |
|
|
| 85 |
|
|
| 40 |
|
|
| 78 |
|
|
|
| $ | 660 |
|
| $ | 969 |
| $ | 1,391 |
|
| $ | 1,560 |
|
| $ | 703 |
|
| $ | 731 |
|
|
Product revenues, classified by geographic location, are as follows (in thousands):
|
| Three months ended |
|
| Six months ended |
|
|
| Three months ended |
| |||||||||||||||||||||||||||||||||||||||
|
| June 30, 2018 |
|
| June 30, 2017 |
|
| June 30, 2018 |
|
| June 30, 2017 |
|
|
| March 31, 2019 |
|
| March 31, 2018 |
| ||||||||||||||||||||||||||||||
|
| Product Revenues |
|
| % of Total |
|
| Product Revenues |
|
| % of Total |
|
| Product Revenues |
|
| % of Total |
|
| Product Revenues |
|
| % of Total |
|
|
| Product Revenues |
|
| % of Total |
|
| Product Revenues |
|
| % of Total |
| ||||||||||||
Americas |
| $ | 6 |
|
|
| 1 | % |
| $ | 55 |
|
|
| 6 | % |
| $ | 50 |
|
|
| 4 | % |
| $ | 203 |
|
|
| 13 | % |
|
| $ | 64 |
|
|
| 9 | % |
| $ | 45 |
|
|
| 6 | % |
Japan |
|
| 581 |
|
|
| 88 | % |
|
| 835 |
|
|
| 86 | % |
|
| 1,159 |
|
|
| 83 | % |
|
| 1,155 |
|
|
| 74 | % |
|
|
| 419 |
|
|
| 60 | % |
|
| 578 |
|
|
| 79 | % |
EMEA |
|
| 57 |
|
|
| 9 | % |
|
| 74 |
|
|
| 8 | % |
|
| 148 |
|
|
| 11 | % |
|
| 186 |
|
|
| 12 | % |
|
|
| 150 |
|
|
| 21 | % |
|
| 90 |
|
|
| 12 | % |
Asia Pacific |
|
| 16 |
|
|
| 2 | % |
|
| 5 |
|
|
| 0 | % |
|
| 34 |
|
|
| 2 | % |
|
| 16 |
|
|
| 1 | % |
|
|
| 70 |
|
|
| 10 | % |
|
| 18 |
|
|
| 3 | % |
Total product revenues |
| $ | 660 |
|
|
| 100 | % |
| $ | 969 |
|
|
| 100 | % |
| $ | 1,391 |
|
|
| 100 | % |
| $ | 1,560 |
|
|
| 100 | % |
|
| $ | 703 |
|
|
| 100 | % |
| $ | 731 |
|
|
| 100 | % |
Concentration of Significant Customers
Two direct customers and one distributor comprised 67%accounted for 57% of our revenue recognized for the sixthree months ended June 30, 2018.March 31, 2019. Two direct customers and one distributor accounted for 81%61% of total outstanding accounts receivable (excluding receivables from the Biomedical Advanced Research Development Authority, a division of the U.S. Department of Health and Human Services (“BARDA”))BARDA) as of June 30, 2018.March 31, 2019.
ThreeFour direct customers comprised 63%66% of our revenue recognized for the sixthree months ended June 30, 2017. TwoMarch 31, 2018. Three direct customers, two distributors and one licensee accounted for 77%75% of total outstanding accounts receivable as of June 30, 2017.March 31, 2018.
Development Revenue
We earn revenue for performing tasks under research and development agreements with governmental agencies like BARDA which is outside of the scope of the new revenue recognition guidance. Revenues derived from reimbursement of direct out-of-pocket expenses for research costs associated with government contracts are recorded as government contracts and other within development revenues. Government contract revenue is recorded at the gross amount of the reimbursement. The costs associated with these reimbursements are reflected as a component of research and development expense in our statements of operations. We recognized $0.9 million and $1.8$0.7 million in development revenue for the threeand six months ended June 30, 2018,March 31, 2019, as compared to $0.5 million and $1.5$0.9 million for the three and six months ended June 30, 2017.March 31, 2018.
6. | Inventories |
Inventories are carried at the lower of cost or net realizable value, determined on the first-in, first-out (FIFO) method.
1011
Inventories consisted of the following (in thousands):
|
| June 30, 2018 |
|
| December 31, 2017 |
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||||
Raw materials |
| $ | 703 |
|
| $ | 681 |
|
| $ | 663 |
|
| $ | 758 |
|
Work in process |
|
| 466 |
|
|
| 722 |
|
|
| 662 |
|
|
| 555 |
|
Finished goods |
|
| 1,838 |
|
|
| 1,780 |
|
|
| 1,678 |
|
|
| 1,634 |
|
|
| $ | 3,007 |
|
| $ | 3,183 |
|
| $ | 3,003 |
|
| $ | 2,947 |
|
7. | Loss per Share |
Basic per share data is computed by dividing net income or loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted per share data is computed by dividing net income or loss applicable to common stockholders by the weighted average number of common shares outstanding during the period increased to include, if dilutive, the number of additional common shares that would have been outstanding as calculated using the treasury stock method. Potential common shares were related to outstanding but unexercised options, multiple series of preferred stock, and warrants for all periods presented.
We have excluded all potentially dilutive securities from the calculation of diluted loss per share attributable to common stockholders as of June 30,March 31, 2019 and 2018, and 2017, as their inclusion would be antidilutive. Potentially dilutive common shares excluded from the calculations of diluted loss per share were 2.713.6 million as of June 30, 2018,March 31, 2019, which includes 2.28.9 million outstanding warrants and 0.20.1 million options, 0.34.6 million shares of preferred stock, and restricted stock awards. Potentially dilutive common shares excluded from the calculation of diluted loss per share were 0.52.3 million as of June 30, 2017March 31, 2018.
8. | Commitments |
Leases
At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company calculates the associated lease liability and corresponding right-of-use asset upon lease commencement using a discount rate based on the rate implicit in the lease or an incremental borrowing rate commensurate with the term of the lease.
The Company records lease liabilities within current liabilities or long-term liabilities based upon the length of time associated with the lease payments. The Company records its operating lease right-of-use assets as long-term assets. Right-of-use assets for financing leases are recorded within property and equipment, net in the Balance Sheet. Leases with an initial term of 12 months or less are not recorded on the Balance Sheet. Instead, the Company recognizes lease expense for these leases on a straight-line basis over the lease term. In connection with certain operating leases, the Company has security deposits recorded and maintained as restricted cash totaling $0.4 million as of March 31, 2019.
The Company leases office and storage facilities and equipment under various operating and financing lease agreements. The initial terms of these leases range from 2 to 11 years and generally provide for periodic rent increases, and renewal and termination options. The Company’s lease agreements do not contain any material variable lease payments, residual value guarantees or material restrictive covenants.
Certain leases require the Company to pay taxes, insurance, and maintenance. Payments for the transfer of goods or services such as common area maintenance and utilities represent non-lease components. The Company elected the package of practical expedients and therefore does not separate non-lease components from lease components.
The table below summarizes the Company’s lease liabilities and corresponding right-of-use assets (in thousands):
| March 31, 2019 |
| |
Assets |
|
|
|
Operating | $ | 2,153 |
|
Financing |
| 215 |
|
Total leased assets | $ | 2,368 |
|
|
|
|
|
Liabilities |
|
|
|
Current: |
|
|
|
Operating | $ | 700 |
|
Financing |
| 130 |
|
Noncurrent: |
|
|
|
Operating | $ | 1,518 |
|
12
The table below summarizes the Company’s lease costs from its Unaudited Consolidated Statement of Operations, and cash payments from its Unaudited Consolidated Statement of Cash Flows during the three months ended March 31, 2019 (in thousands, except years and rates):
|
| March 31, 2019 |
| |
Lease expense: |
|
|
|
|
Operating lease expense |
| $ | 176 |
|
Finance lease expense: |
|
|
|
|
Depreciation of right-of-use assets |
|
| 33 |
|
Interest expense on lease liabilities |
|
| - |
|
Total lease expense |
| $ | 209 |
|
|
|
|
|
|
Cash payment information: |
|
|
|
|
Operating cash used for operating leases |
| $ | 176 |
|
Financing cash used for financing leases |
|
| 28 |
|
Total cash paid for amounts included in the measurement of lease liabilities |
| $ | 204 |
|
|
|
|
|
|
Weighted-average remaining lease term (years) - operating leases |
|
| 4.9 |
|
Weighted-average remaining lease term (years) - finance leases |
|
| 1.8 |
|
Weighted-average discount rate - operating leases |
|
| 7.3 | % |
Weighted-average discount rate - finance leases |
|
| 5.0 | % |
The Company’s future minimum annual lease payments under operating and financing leases at March 31, 2019 are as follows in (thousands):
|
| Financing |
|
| Operating |
| |||
|
| Leases |
|
| Leases |
| |||
Remaining 2019 |
| $ | 100 |
|
| $ | 527 |
| |
2020 |
|
| 120 |
|
|
| 690 |
| |
2021 |
|
| 7 |
|
|
| 668 |
| |
2022 |
|
| - |
|
|
| 281 |
| |
2023 |
|
| - |
|
|
| 100 |
| |
Thereafter |
|
| - |
|
|
| 447 |
| |
Total minimum lease payments |
| $ | 227 |
|
| $ | 2,713 |
| |
Less: amount representing interest |
|
| (13 | ) |
|
| (495 | ) | |
Present value of obligations under leases |
|
| 214 |
|
|
| 2,218 |
| |
Less: current portion |
|
| (130 | ) |
|
| (700 | ) | |
Noncurrent lease obligations |
| $ | 84 |
|
| $ | 1,518 |
|
Other commitments
We have entered into agreements with various research organizations for pre-clinical and clinical development studies, which have provisions for cancellation. Under the terms of these agreements, the vendors provide a variety of services including conducting research, recruiting and enrolling patients, monitoring studies and data analysis. Payments under these agreements typically include fees for services and reimbursement of expenses. The timing of payments due under these agreements is estimated based on current study progress. As of June 30, 2018March 31, 2019, we have clinical research study obligations of $3.5$2.5 million, $1.9$1.8 million of which is expected to be paid within a year. Should the timing of the clinical trials change, the timing of the payment of these obligations would also change.
On February 27, 2017, we entered into a Lease Agreement for office space for our corporate headquarters in San Diego, California (the “Lease”). The initial term of the Lease was 63 months and could have been extended upon mutual agreement. The commencement date was originally expected to take place in November 2017 and subsequently amended to January 1, 2018. In connection with our restructuring announced in September 2017, we negotiated a buy-out of our obligations under the Lease for approximately $0.6 million, included in the general and administrative expenses.
On January 27, 2017, we entered into a Lease Agreement for office space for our office in Tokyo, Japan (the “Japan Lease”). The initial term of the Japan Lease is 61 months, and may be extended upon mutual agreement. The Japan Lease commenced on April 15, 2017.
We were party to an agreement with Roche Diagnostics Corporation (“Roche”) which required us to make certain product purchase minimums. On June 8, 2018, the Company received written notice from Roche terminating its existing supply agreement with the Company due to failure by the Company to meet minimum purchase requirements. Roche has indicated to the Company that it will agree to negotiate in good faith with the Company with respect to a new supply agreement for enzymes with specifications similar to the enzymes that Roche was previously manufacturing for the Company.
13
We are subject to various claims and contingencies related to legal proceedings. Due to their nature, such legal proceedings involve inherent uncertainties including, but not limited to, court rulings, negotiations between affected parties and governmental actions. Management assesses the probability of loss for such contingencies and accrues a liability and/or discloses the relevant circumstances, as appropriate. Management believes that any liability to us that may arise as a result of currently pending legal proceedings will not have a material adverse effect on our financial condition, liquidity, or results of operations as a whole.
On April 27,August 31, 2018, Lorem Vascularwe filed a Demand for Arbitration with the American Arbitration Association in San Diego, California, against Bimini Technologies LLC (“Lorem”Bimini”) filed suit against the Company in the U.S. District Court for the Southern Districtfraud and breach of California alleging the Company breached an oral agreementa Sale and Exclusive License/Supply Agreement made in 2013 under which Bimini licensed rights to purchase 5% of Lorem’s common stock for an aggregate amount of $5.0the Company’s Standalone Fat Transplantation, including the Puregraft Product Line and associated trademarks. Our arbitration demand alleges that Bimini failed to make a $1.0 million and seeking specific performancemilestone payment due to the Company after Bimini achieved $10.0 million in gross profits from the sale of the alleged oral agreementCompany’s Puregraft product line, and damages in an amount to be determined at trial. The Company filed a motion to dismiss all of Lorem’s claims and on July 11, 2018 the Court grantedBimini deceived the Company motion to dismiss Lorem’sabout Bimini’s true gross profits figures. Our arbitration demand seeks that $1.0 million milestone payment, as well prejudgment interest and attorneys’ fees. On October 29, 2018 Bimini made the $1.0 million milestone payment. The parties subsequently entered into a settlement agreement resolving the claims however,in the Court dismissed the case without prejudice and Lorem is permitted to file a new complaint. On August 3, 2018, Lorem filed an amended complaint. The Company believes the amended complaint is without merit and plans to file a motion to dismiss all of Lorem’s claims. At June 30, 2018 and to this date, the probable
11
outcome of this litigation cannot be determined, nor can the Company estimate a range of potential loss. In accordance with authoritative guidance on the evaluation of loss contingencies, the Company has not recorded an accrual related to this complaint.Demand for Arbitration.
| Financial Instruments |
We disclose fair value information about all financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. The disclosures of estimated fair value of financial instruments at June 30, 2018March 31, 2019, and as of December 31, 2017,2018, were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.
The carrying amounts for cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued expenses and other liabilities approximate fair value due to the short-term nature of these instruments. Further, based on the borrowing rates currently available for loans with similar terms, we believe the fair value of long-term debt approximates its carrying value.
Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. We follow a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:
|
|
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable in active markets.
On February 15, 2017 (the “Closing Date”), the Company completed the acquisition from Azaya Therapeutics, Inc. (“Azaya”) of certain tangible assets which consisted of a research lab, equipment and leasehold improvements and the assumption of certain of liabilities of Azaya, pursuant to an Asset Purchase Agreement (the “Agreement”). The book value of the tangible assets acquired was approximately $3.0 million at the acquisition date. The assets acquired are locatedchanges in a facility rented in San Antonio, TX, by the Company. In addition, pursuant to the Agreement, the Company acquired intangible assets comprised of two drug candidates in process research and development (IPR&D) stage (i) ATI-0918, a generic bioequivalent formulation of Doxil®/Caelyx®, a chemotherapy drug that is a liposomal formulation of doxorubicin; and (ii) ATI-1123, a chemotherapy drug that is a liposomal formulation of docetaxel.
At the closing of the acquisition, the Company (i) issued 117,325 of shares of its common stock in Azaya’s name, (A) 87,994 of which were delivered to Azaya promptly after the Closing, and (B) 29,331 of which were deposited into a 15-month escrow pursuant to a standard escrow agreement; and (ii) assumed the obligation to pay approximately $1.8 million of Azaya’s existing payables, all of which were paid on or prior to December 31, 2017.
The Company accounted for the acquisition as an asset acquisition because the acquired set of assets did not meet the definition of a business. The total consideration of $4.3 million, which consists of $2.3 million related to the fair value of the common stock issued to Azaya at the acquisition date, $1.8 millionliability classified warrants are included in assumed liabilities and $0.2 million in acquisition costs, was allocated to the assets acquired based on their relative fair values at the time of acquisition. All other future payments were deemed contingent consideration which will be accounted for when the contingency is resolved and the consideration is paid or becomes payable. Because there was no current alternative usenet income (loss) for the IPR&D, followingrespective periods. Because some of the authoritative accounting guidance,inputs to our valuation model are either not observable or are not derived principally from or corroborated by observable market data by correlation or other means, the Company has expensedwarrant liability is classified as Level 3 in the total amount of $1.7 million on the Closing Date.fair value hierarchy.
11. | Stockholders’ Equity |
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock, par value $0.001 per share. The Company’s Board of Directors is authorized to designate the terms and conditions of any preferred stock we issue without further action by the common stockholders. There were 13,500 shares of Series A 3.6% Convertible Preferred Stock, and 10,000 Series B Convertible Preferred Stock and 6,723 Series C Convertible Preferred Stock that had been issued at June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. There were no shares of Series A 3.6% Convertible Preferred Stock outstanding as of either date. There were 1,186 and 2,431 shares1,112 of Series B Convertible Preferred Stock outstanding as of June 30, 2018March 31, 2019 and December 31, 2017,2018. There were 3,428 and 3,494 shares of Series C Preferred Stock outstanding as of March 31, 2019 and December 31, 2018, respectively.
On July 25, 2018, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Certificate of Designation”) with the Delaware Secretary of State creating a new series of its authorized preferred stock, par value $0.001 per share, designated as the Series C Convertible Preferred Stock (the “Series C Preferred Stock”). The number of shares initially constituting the Series C Preferred Stock was set at 7,000 shares. Pursuant to a registration statement on Form S-1 originally filed on April 27, 2018, as amended, and became effective on July 17, 2018, and
14
related prospectus (as supplemented), the Company registered and distributed to holders of its common stock and Series B Convertible Preferred Stock, at no charge, non-transferable subscription rights to purchase up to an aggregate of 20,000 units each consisting of one share of Series C Preferred Stock and 1,050 warrants for $1,000 per unit. Each warrant is exercisable for one share of the Company’s common stock at an exercise price of $0.7986 per share for 30 months from the date of issuance and each share of Series C Preferred Stock is convertible into 1,253 shares of the Company's common stock. Pursuant to the
12
2018 Rights Offering, which closed on July 25, 2018, the Company sold an aggregate of 6,723 units, resulting in total net proceeds to the Company of approximately $5.7 million.
Holders of Series C Preferred Stock shall be entitled to receive dividends (on an as-if-converted-to-common-stock basis) in the same form as dividends actually paid on sharesThe fair value of the Company’s common stock when, as and if such dividends are paid on shares of common stock. Except as otherwise provided in the Certificate of Designation or as otherwise required by law,into which the Series C Preferred Stock has no voting rights. Uponwas convertible on the date of issuance exceeded the proceeds allocated to the preferred stock, resulting in the beneficial conversion feature that we recognized as a deemed dividend to the preferred stockholders and, accordingly, an adjustment to net loss to arrive at net loss allocable to common stockholders. We recorded a deemed dividend within additional paid-in capital of $2.5 million for the quarter ended December 31, 2018, related to a beneficial conversion feature included in the issuance of our Series C Convertible Preferred Stock.
Based on the relevant authoritative accounting guidance, the warrants were liability classified at the issuance date. The warrants may be redeemed by the Company at $0.01 per warrant prior to their expiration if the Company’s liquidation, dissolution or winding-up, whether voluntary or involuntary, holderscommon stock closes above $3.63 per share, subject to adjustment, for 20 consecutive trading days. The initial fair value of Series C Preferred Stockthe liability associated with these warrants was $3.1 million, and the fair value decreased to $1.5 million as of March 31, 2019. The main driver for the change in the fair value of warrants at September 30, 2018, was related to the change in our stock price. All future changes in the fair value of the warrants will be entitledrecognized in our consolidated statements of operations until they are either exercised or expire. The warrants are not traded in an active securities market, and as such the estimated the fair value as of March 31, 2019 was determined by using an option pricing model with the following assumptions:
|
| As of March 31, 2019 |
|
| As of December31, 2018 |
| |||
Expected term |
| 1.8 years |
|
| 2.1 years |
| |||
Common stock market price |
| $ | 0.26 |
| $ | 0.29 |
| ||
Risk-free interest rate |
|
| 2.38% |
|
| 2.48% |
| ||
Expected volatility |
|
| 128% |
|
| 125% |
| ||
Resulting fair value (per warrant) |
| $ | 0.10 |
| $ | 0.13 |
|
Expected volatility was computed using daily pricing observations of traded shares of Cytori for recent periods that correspond to receive outthe expected term of the Company’s assets, whether capital or surplus,warrants. We believe this method produces an amount equalestimate that is representative of our expectations of future volatility over the expected term of these warrants. We currently have no reason to believe future volatility over the $1,000 statedexpected remaining life of these warrants is likely to differ materially from historical volatility. The expected life is based on the remaining contractual term of the warrants. The risk-free interest rate is the U.S. Treasury bond rate as of the valuation date.
The following table summarizes the change in our Level 3 warrant liability value per share for each share of Series C Preferred Stock before any distribution or payment shall be made to the holders of any junior securities. The Company is not obligated to redeem or repurchase any shares of Series C Preferred Stock. Shares of Series C Preferred Stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous fund provisions.(in thousands):
Warrant liability |
| March 31, 2019 |
|
| December 31, 2018 |
|
Beginning balance | $ | 916 |
| $ | 3,148 |
|
Change in fair value |
| (210 | ) |
| (2,233 | ) |
Ending balance | $ | 706 |
| $ | 916 |
|
Common Stock
On December 22, 2016,June 1, 2018, the Company entered into a Sales Agreement with B. Riley FBR to sell shares of its common stock having an aggregate offering price of up to $6.5 million through its ATM program. Through March 31, 2019, the Company sold a total of 11.0 million shares for proceeds of approximately $3.8 million through the ATM program.
On September 21, 2018, the Company entered into a Purchase Agreement (the “Lincoln Park Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) pursuant to which the Company has the right to sell to Lincoln Park and Lincoln Park is obligated to purchase up to $20.0$5.0 million in amounts of shares, of the Company’s common stock, over the 30-month24-month period following March 30, 2017.October 15, 2018. The Company may direct Lincoln Park, at its sole discretion and subject to certain conditions, to purchase up to 10,000250,000 shares of common stock on any business day but in no event will the amount of a single Regular Purchase (as defined in the Lincoln Park Purchase Agreement) exceed $1.0 million. The purchase price of shares of common stock related to the Regular Purchases will be based on the prevailing market prices of such shares at the time of sales. The Company’s sales of shares of common stock to Lincoln Park under the Lincoln Park Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership by Lincoln Park and its affiliates, at any single point in time, of no more than 9.99%4.99% of the then outstanding shares of the common stock. There are no trading volume requirements or restrictions under the Lincoln Park Purchase Agreement. There is no upper limit on the price per share that Lincoln Park must pay for common stock under a Regular Purchase or an accelerated purchase and in no event under an accelerated purchase will shares be sold to Lincoln Park on a day ourthe closing price of the Company’s common stock is less than the floor price of $5.00$0.25 per share as set forth in the Purchase Agreement. On December 22, 2016, we issued to Lincoln Park 12,742 shares of common stock with a market value on the date of issuance of approximately $0.2 million as commitment shares in consideration for entering into the Lincoln Park Purchase Agreement. The Company will issue up to an additional 38,226 shares of common stock on a pro rata basis to Lincoln Park only as and when shares are sold under the Lincoln Park Purchase Agreement to Lincoln Park. Through June 30,December 31, 2018, the Company sold a total of 199,4720.6 million shares underfor proceeds of approximately $0.3 million through the Lincoln Park Purchase Agreement for proceedsand no shares were sold during the three months ended March 31, 2019.
15
12. | Subsequent Events |
Sale of approximately $1.7 million.the UK Subsidiary and Certain Assets
On April 11, 2017, weMarch 30, 2019, the Company entered into an underwriting agreementAsset and Share Sale and Purchase Agreement (the “Lorem Purchase Agreement”) with Maxim relatingLorem Vascular Pte. Ltd. (“Lorem”), pursuant to the issuance and sale of 0.9 million shares of our common stock, par value $0.001 per share. The price to the public in the offering is $11.00 per share. Maximwhich, among other things, Lorem agreed to purchase the shares from usCompany’s UK subsidiary, Cytori Ltd. (the “UK Subsidiary”), and the Company’s Cell Therapy assets, excluding such assets used in Japan or relating to the Company’s contract with BARDA. Both the Company and Lorem made customary representations, warranties and covenants in the Lorem Purchase Agreement, which is subject to termination by either the Company or Lorem upon the occurrence of specified events.
The transaction was completed on April 24, 2019 and the Company received $4.0 million of cash proceeds, of which $1.7 million was used to pay down principal, interest and fees under the Loan and Security Agreement.
Sale of the Japanese Subsidiary and Certain Assets
On April 19, 2019, the Company entered into an Asset and Share Sale and Purchase Agreement (the “Shirahama Purchase Agreement”) with Seijirō Shirahama, pursuant to which, among other things, Mr. Shirahama agreed to purchase the UnderwritingCompany’s Japanese subsidiary, Cytori Therapeutics, K.K. (the “Japanese Subsidiary”), and substantially all of the Company’s Cell Therapy assets used in Japan. Both the Company and Mr. Shirahama have made customary representations, warranties and covenants in the Shirahama Purchase Agreement, at a pricewhich is subject to termination by either the Company or Mr. Shirahama upon the occurrence of $10.40 per share. specified events.
The nettransaction was completed on April 25, 2019 and the Company received $3.0 million of cash proceeds, of which $1.4 million was used to uspay down principal, interest and fees under the Loan and Security Agreement.
Accounting Assessment on the Sale of Assets
The sale of the UK and Japanese Subsidiaries and related assets did not meet the criteria to be classified as held-for-sale as of March 31, 2019 as management did not have the authorization to commit to the sale until approval was obtained from the offering were approximately $8.7 million, after deducting underwriting discountsBoard of Directors and commissions and estimated offering expenses payable by us.Oxford in April 2019. The offering closed Company expects to recognize a loss on April 17, 2017. In addition, under the termsdisposal during the second quarter of 2019 however the amount has not yet been determined. The Company also performed a probability weighted undiscounted impairment assessment as of March 31, 2019 resulting in the conclusion that no impairment of the underwriting agreement, we granted Maxim a 45-day overallotment optionnet assets included in the disposal group was required to purchase upbe recognized as of March 31, 2019.
Amendment to 94,400 additional shares of common stock. On May 31, 2017, Maxim exercised their overallotment optionthe Loan and purchased 84,900 shares at $11.00 per share. The net proceeds to us were $0.8 million, after deducting underwriting costs and offering expenses payable by us.Security Agreement
On June 1, 2018,April 29, 2019, the Company entered into a Salesseventh amendment, effective as of April 24, 2019 (the “Seventh Amendment”), to its existing Loan and Security Agreement with B. Riley FBR, Inc. (“B. Riley FBR”)Oxford, pursuant to sell shareswhich, among other things, Oxford agreed to interest only payments starting May 1, 2019, with amortization payments resuming on May 1, 2020. The Seventh Amendment also requires that $1.7 million of its common stock, par value $0.001, havingthe net proceeds received by the Company pursuant to the Lorem Purchase Agreement and $1.4 million of the net proceeds received by the Company pursuant to the Shirahama Purchase Agreement must be applied to prepay the loan. Additionally, the Seventh Amendment requires that the Company pay an aggregate offering priceamendment fee of up to $6.5$0.6 million from time to time, through an “atat the market” equity offering program (the “ATM program”) under which B. Riley FBR will act as sales agent.
earlier of the prepayment, maturity or acceleration of the loan.
1316
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations, (MD&A)or MD&A, includes the following sections:
Overview that discusses our operating results and some of the trends that affect our business.
Results of Operations that includes a more detailed discussion of our revenue and expenses.
Liquidity and Capital Resources which discusses key aspects of our statements of cash flows, changes in our financial position and our financial commitments.
Significant changes since our most recent Annual Report on Form 10-K in the Critical Accounting Policies and Significant Estimates that we believe are important to understanding the assumptions and judgments underlying our financial statements.
You should read this MD&A in conjunction with the financial statements and related notes in Item 1 and our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain statements that may be deemed “forward-looking statements” within the meaning of U.S. securities laws. All statements, other than statements of historical fact, that address activities, events or developments that we intend, expect, project, believe or anticipate and similar expressions or future conditional verbs such as will, should, would, could or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
These statements include, without limitation, statements about our anticipated expenditures, including research and development, sales and marketing, and general and administrative expenses; the potential size of the market for our products; future development and/or expansion of our products and therapies in our markets, our ability to generate product or development revenues and the sources of such revenues; our ability to effectively manage our gross profit margins; our ability to obtain and maintain regulatory approvals; expectations as to our future performance; portions of the “Liquidity and Capital Resources” section of this report, including our potential need for additional financing and the availability thereof; our ability to continue as a going concern; our ability to remain listed on the Nasdaq Capital Market; our ability to repay or refinance some or all of our outstanding indebtedness and our ability to raise capital in the future; and the potential enhancement of our cash position through development, marketing, and licensing arrangements. Our actual results will likely differ, perhaps materially, from those anticipated in these forward-looking statements as a result of various factors, including: the early stage of our product candidates and therapies, the results of our research and development activities, including uncertainties relating to the clinical trials of our product candidates and therapies; our need and ability to raise additional cash, the outcome of our partnering/licensing efforts, risks associated with laws or regulatory requirements applicable to us, market conditions, product performance, potential litigation, and competition within the regenerative medicine field, to name a few. The forward-looking statements included in this report are subject to a number of additional material risks and uncertainties, including but not limited to the risks described under the “Risk Factors” in Item 1A of Part I below, which we encourage you to read carefully.
We encourage you to read the risks described under “Risk Factors” carefully. We caution you not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless an earlier date is indicated) and we undertake no obligation to update or revise the statements except as required by law. Such forward-looking statements are not guarantees of future performance and actual results will likely differ, perhaps materially, from those suggested by such forward-looking statements.performance.
This Quarterly report on Form 10-Q refers to trademarks such as Cytori Cell Therapy, Habeo Cell Therapy, Celution, StemSource, Celase, Intravase, and Cytori Nanomedicine. Solely for convenience, our trademarks and tradenames referred to in this Form 10-Q may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames.
Overview
Our objective is to build a profitable and growing specialty therapeutics company. To meet this objective, we have acquired and are developing two technology platforms that hold promise for treating millions of patients and represent significant potential for increasing shareholder value. Our current corporate activities fall substantially into advancing these platforms: Cytori Nanomedicine and Cytori Cell Therapy.
1417
The Cytori Nanomedicine platform features a versatile liposomal nanoparticle technology for drug encapsulation and delivery that has thus far provided the foundation to bring two promising drugs into mid/late stage clinical trials. Nanoparticle encapsulation is promising because it cana clinically proven technology and has been shown to help improve the delivery and metabolismpharmacokinetic properties of many drugs, thus potentially enhancing the therapeutic profile and patient benefits. Our lead oncology drug candidate, ATI-0918 is a generic version of Janssen’s Caelyx® pegylated liposomal encapsulated doxorubicin.doxorubicin for the treatment of breast and ovarian cancer, multiple myeloma, and Kaposi’s sarcoma. Pegylated liposomal encapsulated doxorubicin is a heavily relied upon chemotherapeutic used in many cancer types on a global basis. We believe that data from a 60-patient European study of ATI-0918 has met the statistical criteria for bioequivalence to Janssen’s Caelyx®, the current reference listed drug in Europe. We intend that these bioequivalence data will serve as a basis for our planned regulatory submission to the European Medicines Agency, or EMA, for ATI-0918. We are currently evaluating our strategic options to bring ATI-0918 to the U.S., China, and other markets. Our second nanomedicineoncology drug candidate is ATI-1123, a novel and new chemical entity which is a nanoparticle-encapsulated form of docetaxel, alsopatented, albumin-stabilized liposomal encapsulated docetaxel. Docetaxel is a workhorsewell-accepted and often used chemotherapeutic drug used for many cancers. A Phase I clinical trial of ATI-1123 has been completed and published, and we are investigating possible expansion of this trial to Phase II, most likelypotentially in conjunction with a development partner. We recently received FDA orphan drug designation for ATI-1123 for the treatment of small cell lung cancer. Finally, in connection with our acquisition of the ATI-0918 and ATI-1123 drug candidates, we have acquired know-how (including proprietary processes and techniques) and a scalable nanoparticle manufacturing plant in San Antonio, Texas from which we intend to manufacture commercial quantities of our nanoparticlenanoparticle-encapsulated and -delivered drugs.
Cytori Cell Therapy, or CCT, is based on the scientific discovery that the human adipose or fat tissue compartment is a source of a unique mixed population of stem, progenitor and regenerative cells that may hold substantial promise in the treatment of numerous diseases and conditions. To bring this promise to health providers and their patients, weWe have developed certain novel therapies prepared and administered at the patient’s bedside with proprietary technologies that include therapy-specific reusable, automated, standardized Celution devices, single-use Celution consumable sets, Celase reagent, and Intravase reagent. Our CCT lead product candidate, Habeo™Cytori Cell Therapy was evaluated in a Cytori-sponsored U.S. randomized, placebo-controlled, double-blind, multi-center clinical trial, STAR (Scleroderma Treatment with Celution Processed Adipose Derived Regenerative Cells), for the treatment of impaired hand function in patients with scleroderma. The STAR trial enrolled and evaluated 88 patients with scleroderma, including 51 patients within the diffuse cutaneous subset and 37 with limited cutaneous scleroderma. On July 24, 2017, we announced top-line, preliminary data and presented the full data analysis on October 18, 2017. Further, we recently received feedback from a FDA pre-submission meeting, indicating that a clinical trial focused on more severely affected diffuse systemic sclerosis patients could be an appropriate next step given the results of the STAR clinical trial. We finalized meeting minutes and at this time, we do not have, and are not prepared to commit, the financial and other resources required in order to conduct an additional clinical trial of Habeo, and will instead look to partnering or out-licensing opportunities as a basis for any continued development. In addition, on January 22, 2018, we announced the investigator-initiated and Cytori-supported SCLERADEC-II clinical trial in France using Habeo Cell Therapy completed its enrollment and data is anticipated in the second half of 2018. Additional CCT treatments are in various stages of development in the areas of urology, wounds, and orthopedics. Further, our CCT platform is the subject of investigator-initiated trials conducted by our partners, licensees and other third parties, some of which are supported by us and/or funded by government agencies and other funding sources. In March 2018, we announced a Japanese investigator-initiated study of ECCI-50 Cell Therapy in men with stress urinary incontinence, or SUI, following prostatic surgery for prostate cancer or benign prostatic hypertrophy, called ADRESU, completed enrollment of 45 patients. Patients will be followed up for one-year post treatment and preliminary data onfrom the ADRESU trial is expected in late 2018 or earlythe first half of 2019. The ADRESU trial costs are substantially supported by the Japan Agency for Medical Research and Development, or AMED, an independent administrative agency of the Government of Japan, with additional support from Cytori. Currently,In conjunction with the U.S. Department of Health and Human Service’s Biomedical Advanced Research and Development Authority, or BARDA, we internally manufacturehave initiated the Celution devicesclinical trial and consumablesexpect to first treat patients in the United States RELIEF trial in 2019. On April 24, 2019 the Company completed the sale transaction of the Company’s UK subsidiary, Cytori Ltd., and the United KingdomCompany’s Cell Therapy assets, and source our Celase and Intravase reagents from a third-party supplier. We have contracted with a third-party manufacturer foron April 25, 2019 the productionCompany completed the sale of the consumablesCytori Therapeutics, K.K., and substantially all of the Company’s Cell Therapy assets used in the manufacturing of our Products to improve scalability, reduce overhead and product costs of goods sold. We also have obtained regulatory approval to sell some of our CCT products, including our Celution devices and consumables and associated reagents, in certain markets outside the U.S. In those markets, we have been able to further develop and improve our core technologies, gain expanded clinical and product experience and data, and generate sales.Japan.
Results of Operations
Product revenues
Product revenues consisted of revenues primarily from the sale of Cytori Cell Therapy-related products.
The following table summarizes the components for the three and six months ended June 30,March 31, 2019 and 2018 and 2017 (in thousands):
|
| For the three months ended June 30, |
|
| For the six months ended June 30, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Product revenues - third party |
| $ | 660 |
|
| $ | 969 |
|
| $ | 1,391 |
|
| $ | 1,560 |
|
|
| For the Three Months Ended March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Product revenues - third party |
| $ | 703 |
|
| $ | 731 |
|
We experienced a decrease of $0.3 million and $0.2 million inThe product revenue during the three and six months ended June 30, 2018, respectively,March 31, 2019 slightly decreased as compared to the same periodsperiod in 2017. The2018 due to a decrease in the three-month period is primarily due to lowerproduct sales in Japan
15
of $0.3 million and the decrease in the six-month period primarily due to lower sales in Americas of $0.2 million. During the three-month period ended June 30, 2017 we sold a Celution device and no device was sold in the same period in 2018.Japan.
The future: We expect revenue to continuedecrease during the balance of 2019 due to generate increased consumable utilization and a majority of product revenues from the sale of Cytoriour Cell Therapy-related products to researchers, clinicians, and distributorsTherapy business in all regions. In Japan and EMEA, researchers will use our technology in ongoing and new investigator-initiated and funded studies focused on, but not limited to, hand scleroderma, Crohn’s disease, peripheral artery disease, erectile dysfunction, liver cirrhosis, and diabetic foot ulcers.April 2019.
18
Cost of product revenues relate primarily to Cytori Cell Therapy-related products and includes material, manufacturing labor, and overhead costs, as well as amortization of intangible assets. The following table summarizes the components of our cost of revenues for the three and six months ended June 30,March 31, 2019 and 2018 and 2017 (in thousands):
|
| For the three months ended June 30, |
|
| For the six months ended June 30, |
|
| For the Three Months Ended March 31, |
| |||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||||
Cost of product revenues (excluding amortization of intangible assets and share-based compensation) |
| $ | 322 |
|
| $ | 396 |
|
| $ | 590 |
|
| $ | 798 |
|
| $ | 353 |
|
| $ | 269 |
|
Amortization of intangible assets |
|
| 306 |
|
|
| 306 |
|
|
| 613 |
|
|
| 612 |
|
|
| 306 |
|
|
| 306 |
|
Share-based compensation |
|
| 2 |
|
|
| 5 |
|
|
| 6 |
|
|
| 13 |
|
|
| - |
|
|
| 4 |
|
Total cost of product revenues |
| $ | 630 |
|
| $ | 707 |
|
| $ | 1,209 |
|
| $ | 1,423 |
|
| $ | 659 |
|
| $ | 579 |
|
Total cost of product revenues as % of product revenues |
|
| 95.5 | % |
|
| 73.0 | % |
|
| 86.9 | % |
|
| 91.2 | % |
|
| 93.7 | % |
|
| 79.2 | % |
Cost of product revenues as a percentage of product revenues was 95.5% and 86.9%93.7% for the three and six months ended June 30, 2018March 31, 2019 and 73.0% and 91.2%79.2% for the three and six months ended June 30, 2017.March 31, 2018. Fluctuation in this percentage is due to our product mix, distributor and direct sales mix, geographic mix, foreign exchange rates, idle capacity, and allocation of overhead.
The future: We expect cost of product revenue to continuedecrease during the balance of 2019 due to see variationthe sale of our Cell Therapy business in our gross profit margin as the product mix, distributor and direct sales mix and geographic mix comprising revenues fluctuate. We are investigating various pricing options for our cellular therapeutics, which may help to increase our gross profit margins in 2018 and beyond.April 2019.
Development revenues
Under our government contract with BARDA, we recognized a total of $0.9 million and $1.8$0.7 million in revenues for the three and six months ended June 30, 2018March 31, 2019 which included allowable fees as well as cost reimbursements. During the three and six months ended June 30, 2018,March 31, 2019, we incurred $0.8 million and $1.7$0.7 million in qualified expenditures, respectively.expenditures. During the three and six months ended June 30, 2017,March 31, 2018, we recognized revenue of $0.5 million and $1.5$0.9 million and incurred $0.5 million and $1.4$0.8 million in qualified expenditures, respectively. The increasedecrease in revenues for the three and six months ended June 30, 2018March 31, 2019 as compared to the same periodsperiod in 20172018 is primarily due to slight increasesdecrease in research and development activities related to BARDA.BARDA delays experienced in enrollments.
The future: We entered into an amendment with BARDA in May 2017 for the initiation of the RELIEF pilot clinical trial of DCCT-10 in thermal burn injury. The amendment extends the term of the BARDA Agreement and the period of performance of Option 2 of the BARDA Agreement to November 30, 2020. We expect to begin enrollment of patients into the RELIEF trial inby the second halfend of 2018.the year.
Research and development expenses
Research and development expenses relate to the development of a technology platform that involves using adipose tissue as a source of autologous regenerative cells for therapeutic applications, oncology drug program expenses, as well as the continued development efforts related to our clinical trials.
Research and development expenses include costs associated with the design, development, testing and enhancement of our products, payment of regulatory fees, laboratory supplies, pre-clinical studies and clinical studies.
16
The following table summarizes the components of our research and development expenses for the three and six months ended June 30,March 31, 2019 and 2018 and 2017 (in thousands):
|
| For the three months ended June 30, |
|
| For the six months ended June 30, |
|
| For the Three Months Ended March 31, |
| |||||||||||||||
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| |||||||
General research and development |
| $ | 1,926 |
|
| $ | 2,950 |
|
| $ | 4,405 |
|
| $ | 6,192 |
| ||||||||
Research and development |
| $ | 1,834 |
|
| $ | 2,479 |
| ||||||||||||||||
Share-based compensation |
|
| 25 |
|
|
| 42 |
|
|
| 46 |
|
|
| 89 |
|
|
| 12 |
|
|
| 20 |
|
Total research and development expenses |
| $ | 1,951 |
|
| $ | 2,992 |
|
| $ | 4,451 |
|
| $ | 6,281 |
|
| $ | 1,846 |
|
| $ | 2,499 |
|
The decrease in research and development expenses for the three and six months ended June 30, 2018March 31, 2019 as compared to the same periodsperiod in 20172018 is due primarily to decreases of approximately $0.6 million and $1.1$0.8 million for the three and six months periodsperiod in clinical study expenses as well as a decrease of $0.3 million and $0.8$0.2 million in salaries and benefits as a result of completion of enrollment in our U.S. STAR clinical trialstrial enrolling in 2016,2017, and decrease of $0.1 million in rent expenses, offset by an increase of $0.2 million and $0.3 million for the three and six months periodsperiod in professional services due toincurred as part of the RELIEF clinical trial and the ongoing efforts of ATI-0918 activities.
The future: We expect aggregate research and development expenditures remain consistent at current levels for the balance of 2018,2019, as we begin ourwork on clinical activities on the RELIEF clinical trial and our ongoing development efforts of the recently acquired ATI-0918 asset from Azaya.and ATI-1123.
19
Sales and marketing expenses include costs of sales and marketing personnel, events and tradeshows, customer and sales representative education and training, primary and secondary market research, and product and service promotion. The following table summarizes the components of our sales and marketing expenses for the three and six months ended June 30,March 31, 2019 and 2018 and 2017 (in thousands):
|
| For the three months ended June 30, |
|
| For the six months ended June 30, |
|
| For the Three Months Ended March 31, |
| |||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||||
Sales and marketing |
| $ | 511 |
|
| $ | 1,233 |
|
| $ | 1,162 |
|
| $ | 2,140 |
|
| $ | 424 |
|
| $ | 651 |
|
Share-based compensation |
|
| 14 |
|
|
| 30 |
|
|
| 40 |
|
|
| 62 |
|
|
| 4 |
|
|
| 27 |
|
Total sales and marketing expenses |
| $ | 525 |
|
| $ | 1,263 |
|
| $ | 1,202 |
|
| $ | 2,202 |
|
| $ | 428 |
|
| $ | 678 |
|
Sales and marketing expenses decreased by $0.7 million and $1.0$0.2 million during the three and six months ended June 30, 2018March 31, 2019 as compared to the same periodsperiod in 20172018 due primarily to decreases of $0.2 million and $0.3$0.1 million in salaries and benefits as well as of $0.3 million and $0.4$0.1 million in professional services because of the decreased efforts of our commercial activities for Habeo.
The future: We expect sales and marketing expenditures to slightly decrease during the balance of 2018,2019 due to the sale of our Cell Therapy business in April 2019, as well as we decreased efforts on commercial readiness activities for Habeo in the U.S.expect future expenses will be incurred only to support our Nanomedicine activities.
General and administrative expenses
General and administrative expenses include costs for administrative personnel, legal and other professional expenses, and general corporate expenses. The following table summarizes the general and administrative expenses for the three and six months ended June 30,March 31, 2019 and 2018 and 2017 (in thousands):
|
| For the three months ended June 30, |
|
| For the six months ended June 30, |
|
| For the Three Months Ended March 31, |
| |||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||||
General and administrative |
| $ | 1,414 |
|
| $ | 1,985 |
|
| $ | 3,567 |
|
| $ | 3,981 |
|
| $ | 1,475 |
|
| $ | 2,152 |
|
Share-based compensation |
|
| 55 |
|
|
| 134 |
|
|
| 147 |
|
|
| 246 |
|
|
| 33 |
|
|
| 92 |
|
Total general and administrative expenses |
| $ | 1,469 |
|
| $ | 2,119 |
|
| $ | 3,714 |
|
| $ | 4,227 |
|
| $ | 1,508 |
|
| $ | 2,244 |
|
General and administrative expenses decreased by $0.6 million and $0.4$0.7 million during the three and six months ended June 30, 2018,March 31, 2019, as compared to the same periodsperiod in 20172018. The decrease is primarily due to decreases of $0.4 million and $0.7 million in salaries and benefits as well as of $0.3 million and $0.4 million in professional services, consistent with our ongoing cost curtailment efforts. In addition, thedriven by one-time expenses for the six-monththree-month period ended March 31, 2018, which includes an increase of $0.6 million related to the termination of a Lease Agreement for office space for our corporate headquarters in San Diego, California (the “Lease”)California. In addition, .there was a decrease of $0.1 million in salaries and benefits as well as a decrease of $0.1 million in professional services, consistent with our ongoing cost curtailment efforts.
The future: We expect general and administrative expenditures to remain materially consistent at current levels fordecrease during the balance of 2019 due to the sale of our Cell Therapy business in April 2019.
17
2018.
Share-based compensation expensesexpense
Share-based compensation expenses includeexpense includes charges related to options and restricted stock awards issued to employees, directors and non-employees. We measure stock-based compensation expense based on the grant-date fair value of any awards granted to our employees. Such expense is recognized over the requisite service period.
The following table summarizes the components of our share-based compensation expenses for the three and six months ended June 30,March 31, 2019 and 2018 and 2017 (in thousands):
|
| For the three months ended June 30, |
|
| For the six months ended June 30, |
|
| For the Three Months Ended March 31, |
| |||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||||
Cost of product revenues |
| $ | 2 |
|
| $ | 5 |
|
| $ | 6 |
|
| $ | 13 |
|
| $ | — |
|
| $ | 4 |
|
Research and development-related |
|
| 25 |
|
|
| 42 |
|
|
| 46 |
|
|
| 89 |
|
|
| 12 |
|
|
| 20 |
|
Sales and marketing-related |
|
| 14 |
|
|
| 30 |
|
|
| 40 |
|
|
| 62 |
|
|
| 4 |
|
|
| 27 |
|
General and administrative-related |
|
| 55 |
|
|
| 134 |
|
|
| 147 |
|
|
| 246 |
|
|
| 33 |
|
|
| 92 |
|
Total share-based compensation |
| $ | 96 |
|
| $ | 211 |
|
| $ | 239 |
|
| $ | 410 |
|
| $ | 49 |
|
| $ | 143 |
|
The decrease in share-based compensation expensesexpense for the three and six months ended June 30, 2018March 31, 2019 as compared to the same periodsperiod in 20172018 is primarily related to a delayed annual grant to directors and officers, lower annual grant activity to remaining employees
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caused by reductions in headcount and due to the decline in the stock price during 20182019 as compared to the same periodsperiod in 2017,2018, and its corresponding impact on share-based compensation.
The future: We expect to continue to grant options and stock awards (which will result in an expense) to our employees, directors, and, as appropriate, to non-employee service providers. In addition, previously-granted options will continue to vest in accordance with their original terms. As of June 30, 2018,March 31, 2019, the total compensation cost related to non-vested stock options and stock awards not yet recognized for all our plans is approximately $0.4$0.2 million which is expected to be recognized as a result of vesting under service conditions over a weighted average period of 1.441.40 years.
In process research and development acquired from Azaya Therapeutics
In February 2017, we entered into an agreement to acquire assets, including in process research and development (“IPR&D”) related to two oncology drug product candidates, from Azaya Therapeutics. In connection with this agreement, we recorded an IPR&D charge totaling $1.7 million. The acquired IPR&D is in the early stage of development and has no alternative use. Additional research, pre-clinical studies, and regulatory approvals must be successfully completed prior to commercialization of any product.
Financing items
The following table summarizes interest income, interest expense, and other income and expense for the three and six months ended June 30,March 31, 2019 and 2018 and 2017 (in thousands):
|
| For the three months ended June 30, |
|
| For the six months ended June 30, |
|
| For the Three Months Ended March 31, |
| |||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||||
Interest income |
| $ | 5 |
|
| $ | 7 |
|
| $ | 19 |
|
| $ | 18 |
|
| $ | 7 |
|
| $ | 14 |
|
Interest expense |
|
| (444 | ) |
|
| (538 | ) |
|
| (866 | ) |
|
| (1,129 | ) |
|
| (515 | ) |
|
| (423 | ) |
Other income (expense), net |
|
| (204 | ) |
|
| 63 |
|
|
| 148 |
|
|
| 228 |
|
|
| 149 |
|
|
| 352 |
|
Change in fair value of warrants |
|
| 210 |
|
|
| — |
| ||||||||||||||||
Total |
| $ | (643 | ) |
| $ | (468 | ) |
| $ | (699 | ) |
| $ | (883 | ) |
| $ | (149 | ) |
| $ | (57 | ) |
Interest expense decreasedincreased for the three months ended June 30, 2018March 31, 2019 as compared to the same period in 2017,2018, due to principal payments made onthe inclusion of amendment fees added to our debt from January through August 2017.debt.
The changes in other income during the three months ended June 30, 2018March 31, 2019 as compared to the same period in 20172018 resulted primarily from changes in exchange rates related to transactions in foreign currencies.
Changes in fair value of our warrant liability are primarily due to fluctuations in the valuation inputs. See Note 11 to the consolidated financial statements included elsewhere herein for disclosure and discussion of our warrant liability.
The future: We expect interest expense in 20182019 to decrease due toremain consistent for the decrease in the principal balance of the Loan and Security Agreement, dated May 29, 2015, with Oxford Finance LLC (“Oxford”)year. In addition, regarding to the changes in fair value of warrants, there could be material fluctuations in the value of warrants in future periods because our stock price can be volatile.Future changes in the fair value of the warrant liability will be recognized in earnings until such time as the warrants are exercised or expire.
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Liquidity and Capital Resources
Short-term and long-term liquidity
The following is a summary of our key liquidity measures at June 30, 2018March 31, 2019 and December 31, 20172018 (in thousands):
|
| As of June 30, |
|
| As of December 31, |
|
| As of March 31, |
|
| As of December 31, |
| ||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Cash and cash equivalents |
| $ | 3,079 |
|
| $ | 9,550 |
|
| $ | 3,872 |
|
| $ | 5,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
| $ | 7,362 |
|
| $ | 14,864 |
|
| $ | 8,462 |
|
| $ | 9,648 |
|
Current liabilities |
|
| 17,616 |
|
|
| 18,414 |
|
|
| 18,295 |
|
|
| 17,559 |
|
Working capital deficit |
| $ | (10,254 | ) |
| $ | (3,550 | ) |
| $ | (9,833 | ) |
| $ | (7,911 | ) |
We incurred net losses of $3.7 million and $8.1$3.2 million for the three and six months ended June 30, 2018.March 31, 2019. We have an accumulated deficit of $409.8$417.5 million as of June 30, 2018.March 31, 2019. Additionally, we have used net cash of $6.8$3.3 million to fund our operating activities for the sixthree months ended June 30, 2018.March 31, 2019. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Further, the Loan and Security Agreement (defined in Note 4), with Oxford Finance, LCC (“Oxford”), as amended and further described in Note 4, to the consolidated condensed financial statements, requires us to maintainmaintenance of a minimum of $1.5$2.0 million in unrestricted cash and cash equivalents on hand to avoid an event of default under the Loan and Security Agreement. Based on our cash and cash equivalents on hand of approximately $3.1$3.9 million at June 30, 2018, we estimateMarch 31, 2019, the Company estimates that weit will need to raise additional capital and/or obtain a waiver or restructure the Loan and Security Agreement in the near term to avoid defaulting under our $1.5its $2.0 million minimum cash/cash equivalents covenant.
To date, these operating losses have been funded primarily from outside sources of invested capital including our recently completed 2017
21
2018 Rights Offering (defined below), our Lincoln Park Purchase Agreement (defined below) with Lincoln Park Capital Fund, LLC, (“or Lincoln Park”),Park, the Loan and Security Agreement and gross profits. We have had, and we will likely continue to have, an ongoing need to raise additional cash from outside sources to fund our future clinical development programs and other operations. Our inability to raise additional cash would have a material and adverse impact on operations and would cause us to default on our loan.
On December 22, 2016, we entered into a purchase agreement and a registration rights agreement, with Lincoln Park pursuant to which we have the right to sell to Lincoln Park and Lincoln Park is obligated to purchase up to $20.0 million of shares of the Company’s common stock over the 30-month period following March 31, 2017, subject to the satisfaction of certain conditions. See Note 11 for further discussion on the Lincoln Park agreement.
On April 11, 2017, we entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group LLC (“Maxim”) relating to the issuance and sale of 0.9 million shares of our common stock, par value $0.001 per share. The price to the public in this offering was $11.00 per share. Maxim agreed to purchase the shares from us pursuant to the Underwriting Agreement at a price of $10.40 per share. The net proceeds to us from the offering were approximately $8.7 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The offering closed on April 17, 2017. In addition, under the terms of the Underwriting Agreement, we granted Maxim a 45-day option to purchase up to 94,400 additional shares of common stock. On May 31, 2017, Maxim exercised their overallotment option and purchased 84,900 shares at $11.00 per share. The net proceeds to us were $0.8 million, after deducting underwriting costs and offering expenses payable by us.
On September 5, 2017, we received a written notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the prior 30 consecutive business days, we no longer met the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided a period of 180 calendar days, or until March 5, 2018, in which to regain compliance. We were granted an additional compliance period of 180 calendar days, or until September 4, 2018, in which to regain compliance after meeting the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and providing notice to Nasdaq of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. In order to regain compliance with the minimum bid price requirement, the closing bid price of our common stock must have been at least $1 per share for a minimum of ten consecutive business days during the second 180-day period. On June 8, 2018, the Company received written notice from Nasdaq that the Company has regained compliance with the Nasdaq Stock Market Listing Rule 5500(a)(2) concerning its minimum bid price per share of the Company’s common stock.
On November 28, 2017, we closed a rights offering originally filed under a Form S-1 registration statement in August 2017 (“2017 Rights Offering”). Pursuant to the 2017 Rights Offering, the Company sold an aggregate of 10,000 units consisting of a total of 10,000 shares of Series B Convertible Preferred Stock, immediately convertible into approximately 3,000,000 shares of common stock and 18,000,000 warrants, exercisable for an aggregate of 1,800,000 shares of common stock at an exercise price of $3.333 per share of common stock, resulting in total net proceeds to the Company of $8.8 million. These warrants became exercisable upon stockholder
19
approval of an increase in the Company's authorized shares of common stock obtained at the 2018 Annual Meeting of Stockholders.
On June 1, 2018, we entered into a Sales Agreement with B. Riley FBR to sell shares of our common stock having an aggregate offering price of up to $6.5 million from time to time, through our ATM program under which B. Riley FBR will act as sales agent. Subject to the terms and conditions of the Sales Agreement, B. Riley FBR will use its commercially reasonable efforts to sell the shares, based upon our instructions, consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and rules of Nasdaq. We will set the parameters for sales of shares through the ATM program, including the number of shares to be sold, the time period during which sales are requested to be made, any limitation on the number of shares that may be sold in one trading day, and any minimum price below which sales may not be made. Under the Sales Agreement, B. Riley FBR may sell the shares by any method permitted by law deemed to be an “at the market offering,” as defined in Rule 415 of the Securities Act of 1933, as amended, (the “Securities Act”).or the Securities Act. We have no obligation to sell any shares and may at any time suspend offers and sales under the Sales Agreement. We and B. Riley FBR each have the right to terminate the Sales Agreement at any time upon prior written notice as provided in the Sales Agreement. We will pay to B. Riley FBR a commission, or allow a discount, in an amount equal to 3.0% of the gross sales price per share of common stock sold through it as sales agent under the Sales Agreement. We have also agreed pursuant to the Sales Agreement to indemnify and provide contribution to B. Riley FBR against certain liabilities, including liabilities under the Securities Act. Although sales of our common stock have taken place pursuant to our ATM program, there can be no assurance that we will be successful in consummating future sales based on prevailing market conditions or in the quantities or at the prices that we deem appropriate. In addition, under current SEC regulations, at any time during which the aggregate market value of our common stock held by non-affiliates, or public float, is less than $75.0 million, the amount we can raise through primary public offerings of securities in any twelve-month period using shelf registration statements, including sales under our ATM program, is limited to an aggregate of one-third of our public float. As of June 30, 2018,March 31, 2019, our public float was approximately 6.221.9 million shares, the value of which was $8.9$5.7 million based upon the closing price of our common stock of $1.45$0.26 on such date. The value of one-third of our public float calculated on the same basis was approximately $3.9$1.9 million. In addition, in connection with the 2018 Rights Offering (defined below), we and our subsidiaries have agreed not to issue, enter into any agreement to issue, or announce the issuance or proposed issuance of any common stock or securities convertible into or exercisable or exchangeable for common stock, subject to certain exceptions, until October 23, 2018.
On July 25, 2018, we closed a rights offering originally filed under a Form S-1 registration statement in April 2018, (“or the 2018 Rights Offering”).Offering. Pursuant to the 2018 Rights Offering, the Company sold an aggregate of 6,723 units consisting of a total of 6,723 shares of Series C Convertible Preferred Stock, immediately convertible into approximately 8.4 million shares of common stock and 7,059,150 warrants, with each warrant exercisable for one share of common stock at an exercise price of $0.7986 per share, resulting in total net proceeds to the Company of approximately $5.7 million.
On August 28, 2018, we received a written notice from Nasdaq indicating that, based upon the closing bid price of our common stock for the prior 30 consecutive business days, we no longer meet the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided a period of 180 calendar days, or until February 25, 2019, in which to regain compliance. We were granted an additional compliance period of 180 calendar days, or until August 26, 2019, in which to regain compliance after meeting the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and providing notice to Nasdaq staff of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. In order to regain compliance with the minimum bid price requirement, the closing bid price of our common stock must have been at least $1 per share for a minimum of ten consecutive business days during the 180-day period.
On September 21, 2018, we entered into a purchase agreement and a registration rights agreement, with Lincoln Park, pursuant to which we have the right to sell to Lincoln Park and Lincoln Park is obligated to purchase up to $5.0 million of shares of our common stock over the 24-month period following October 15, 2018, subject to the satisfaction of certain conditions. Through December 31, 2018, the Company sold a total of 0.6 million shares for proceeds of approximately $0.3 million through the Lincoln Park Purchase Agreement and no shares were sold during the three months ended March 31, 2019.
We continue to seek additional capital through product revenues, strategic transactions, including extension opportunities under our awarded U.S. Department of Health and Human Service’s Biomedical Advanced Research and Development Authority (“BARDA”)BARDA contract, and from other financing alternatives. Without additional capital, current working capital and cash generated from sales will not provide adequate funding for research, sales and marketing efforts and product development activities at their current levels. If sufficient capital is not raised, we will at a minimum need to significantly reduce or curtail our research and development and other operations, and this would negatively affect our ability to achieve corporate growth goals.
Should we be unable to raise additional cash from outside sources, this would have a material adverse impact on our operations.
The accompanying consolidated condensed financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.
22
As of June 30, 2018,March 31, 2019, there have been no material changes outside the ordinary course of our business to the contractual obligations we reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017,2018, except for the changesamendments to the Loan and Security Agreement.
On April 24, 2019 the Company received $3.4 million of net cash proceeds related to the terminationsale of the Lease Company’s UK subsidiary, Cytori Ltd., and Roche agreements.the Company’s Cell Therapy assets, of which $1.7 million was used to pay down principal, interest and fees on the Loan and Security Agreement and on April 25, 2019 the Company received $2.5 million of net cash proceeds related to the sale of the Cytori Therapeutics, K.K., and substantially all of the Company’s Cell Therapy assets used in Japan, of which $1.4 million was used to pay down principal, interest and fees on the Loan and Security Agreement.
Cash (used in) provided by operating, investing, and financing activities for the sixthree months ended June 30,March 31, 2019 and 2018 and 2017 is summarized as follows (in thousands):
|
| For the six months ended June 30, |
|
| For the March 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Net cash used in operating activities |
| $ | (6,840 | ) |
| $ | (9,855 | ) |
| $ | (3,270 | ) |
| $ | (4,119 | ) |
Net cash used in investing activities |
|
| (78 | ) |
|
| (1,296 | ) |
|
| (6 | ) |
|
| (53 | ) |
Net cash (used in) provided by financing activities |
|
| (200 | ) |
|
| 7,685 |
| ||||||||
Net cash provided by financing activities |
|
| 1,891 |
|
|
| (150 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
|
| 12 |
|
|
| 13 |
|
|
| (4 | ) |
|
| 39 |
|
Net decrease in cash and cash equivalents |
| $ | (7,106 | ) |
| $ | (3,453 | ) |
| $ | (1,389 | ) |
| $ | (4,283 | ) |
20
Operating activities
Net cash used in operating activities for the sixthree months ended June 30, 2018March 31, 2019 was $6.8 million.$3.3 million compared to $4.1 million in the same period of 2018. Overall, our operational cash use decreased during the sixthree months ended June 30, 2018March 31, 2019 as compared to the same period in 2017,2018, due primarily to a decrease in losses from operations (when adjusted for non-cash items) of $3.4$0.6 million offset byand a cash outlayworking capital variance of $0.4 million in working capital.$0.2 million.
Investing activities
Net cash used in investing activities for the sixthree months ended June 30,March 31, 2019 and 2018 iswere related to purchasepurchases of fixed assets. During the same period in 2017, there were cash outflows for payment for long-lived assets purchased as part of Azaya’s acquisition of $1.2 million.
Financing Activities
Net cash used inprovided by financing activities for the sixthree months ended June 30, 2018 isMarch 31, 2019 was primarily related to costs from sale of common stock in 2017, which were paid in 2018. The net cash provided by the activities in the same period in 2017 is related to the proceeds from salesales of common stock of $11.2$1.9 million, net of the corresponding costcosts from sale offset by the payment of long-term obligations of $3.5 million.primarily through our 2018 Rights Offering and ATM program.
Critical Accounting Policies and Significant Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenues and expenses, and that affect our recognition and disclosure of contingent assets and liabilities.
While our estimates are based on assumptions we consider reasonable at the time they were made, our actual results may differ from our estimates, perhaps significantly. If results differ materially from our estimates, we will make adjustments to our financial statements prospectively as we become aware of the necessity for an adjustment.
Goodwill is reviewed for impairment annually or more frequently if indicators of impairment exist. We perform our impairment test annually during the fourth quarter. The Company operates in a single operating segment and reporting unit. We monitor the fluctuations in our share price and have experienced significant volatility during the year.
We believe it is important for you to understand our most critical accounting policies. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 and there have been no material changes, other than the adoption of Accounting Standards Codification 606842 Revenue from Contracts with CustomersLeases during the three and six months ended June 30March 31, 2019, 2018..
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of June 30, 2018,March 31, 2019, there have been no material changes in our market risks from those described in Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018.
23
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or furnished pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.
21
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2018March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we have been involved in routine litigation incidental to the conduct of our business. As of June 30, 2018,March 31, 2019, we were not a party to any material legal proceeding.
On April 27, 2018, Lorem Vascular (“Lorem”) filed suit against the Company in the U.S. District Court for the Southern District of California alleging the Company breached an oral agreement made in 2013 to purchase 5% of Lorem’s common stock for an aggregate amount of $5.0 million, and seeking specific performance of the alleged oral agreement and damages in an amount to be determined at trial. The Company filed a motion to dismiss all of Lorem’s claims and on July 11, 2018 the Court granted the Company motion to dismiss Lorem’s claims, however, the Court dismissed the case without prejudice and Lorem is permitted to file a new complaint. On August 3, 2018, Lorem filed an amended complaint and the Company plans to file a motion to dismiss all of Lorem’s claims and believes the amended complaint is without merit. At June 30, 2018 and to this date, the probable outcome of this litigation cannot be determined, nor can the Company estimate a range of potential loss. In accordance with authoritative guidance on the evaluation of loss contingencies, the Company has not recorded an accrual related to this complaint.
Our business is subjectAs a smaller reporting company, we are not required to various risks,provide disclosure pursuant to this item. However, in addition to other information set forth in this Quarterly Report on Form 10-Q, including those describedthe information in Item 1Athe section entitled “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the “Risk Factors” ofdiscussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with2018 for a discussion of factors that could cause actual results to differ materially from the U.S. Securities and Exchange Commission (“SEC”) on March 9, 2018, which we strongly encourage you to review with all other information containedresults described in or incorporatedimplied by referencethe forward-looking statements in this report before you decide to invest in our common stock. In addition to those risk factors, we identified the following new risks or substantive changes from the risks described in our AnnualQuarterly Report on Form 10-K. If any of the risks described in our Annual Report on Form 10-K, our Quarterly Reports, or discussed below actually occurs, our business, financial condition, results of operations and our future growth prospects could be materially and adversely affected. Under these circumstances, the trading price of our common stock could decline, and you may lose all or part of your investment.10-Q.
We will need substantial additional funding to develop our products and for our future operations. If we are unable to obtain the funds necessary to do so, we may be required to delay, scale back or eliminate our product development activities or may be unable to continue our business.
We have had, and we will continue to have, an ongoing need to raise additional cash from outside sources to continue funding our operations to profitability, including our continuing substantial research and development expenses. We do not currently believe that our cash balance and the revenues from our operations will be sufficient to fund the development and marketing efforts required to reach profitability without raising additional capital from accessible sources of financing in the near future. Although it is difficult to predict future liquidity requirements, we believe that our $3.1 million in cash and cash equivalents on hand as of June 30, 2018 combined with the $5.7 million of net proceeds from the 2018 Rights Offering will be sufficient to fund our currently contemplated operations at least through the fourth quarter of 2018. Our future capital requirements will depend on many factors, including:
our ability to raise capital to fund our operations on terms acceptable to us, or at all;
our perceived capital needs with respect to development of our CCT and Cytori Nanomedicine development programs, and any delays in, adverse events of, and excessive costs of such programs beyond what we currently anticipate;
our ability to establish and maintain collaborative and other arrangements with third parties to assist in bringing our products to market and the cost of such arrangements at the time;
costs associated with the integration and operation of our newly acquired Cytori Nanomedicine business, including hiring of as many as 20 or more new employees to operate the Cytori Nanomedicine business, and costs of validation, requalification and recommencement of the Cytori Nanomedicine manufacturing operations at our San Antonio, Texas facility;
the cost of manufacturing our product candidates, including compliance with good manufacturing practices, or GMP, applicable to our product candidates;
expenses related to the establishment of sales and marketing capabilities for product candidates awaiting approval or products that have been approved;
the level of our sales and marketing expenses;
22
our ability to introduce and sell new products.
We have secured capital historically from grant revenues, collaboration proceeds, and debt and equity offerings. We will need to secure substantial additional capital to fund our future operations. We cannot be certain that additional capital will be available on terms acceptable to us, or at all. Our ability to raise capital was adversely affected when the FDA put a hold on our ATHENA cardiac trials in mid-2014, which had an adverse impact to stock price performance and our corresponding ability to restructure our debt. Subsequently, a continued downward trend in our stock price resulting from a number of factors, including (i) general economic and industry conditions, (ii) challenges faced by the regenerative medicine industry as a whole, (iii) the market’s unfavorable view of certain of our recent equity financings conducted in 2014, 2015 and 2018 (which financings were priced at a discount to market and included 100% warrant coverage), (iv) market concerns regarding our continued need for capital (and the effects of any future capital raising transactions we may consummate), (v) market perceptions of our ATHENA and ACT-OA clinical trial data, and (vi) our recent Nasdaq listing deficiency issues and resultant 1-for-15 reverse stock split in 2016 and 1-for-10 reverse stock split in 2018, made it more difficult to procure additional capital on terms reasonably acceptable to us. Most recently, the release in July 2017 of the top-line data from our STAR trial, in which we announced the failure to achieve the trial’s primary and secondary endpoints, resulted in a further substantial decrease in our stock price. Though our recent acquisition of the Cytori Nanomedicine business from Azaya Therapeutics, including our ATI-0918 and ATI-1123 drug candidates, appear to have been viewed favorably by our investors and the marketplace, we cannot assure you that this acquisition will not ultimately be viewed negatively and thus further hamper our efforts to attract additional capital. If we are unsuccessful in our efforts to raise any such additional capital, we may be required to take actions that could materially and adversely harm our business, including a possible significant reduction in our research, development and administrative operations (including reduction of our employee base), surrendering of our rights to some technologies or product opportunities, delaying of our clinical trials or regulatory and reimbursement efforts, or curtailing of or even ceasing operations.
Our financing plans include pursuing additional cash through use of offering programs, strategic corporate partnerships, licensing and sales of equity. In November 2017, we completed a public offering in which we distributed to holders of our common stock, at no charge, non-transferable subscription rights to purchase up to 10,000 units, each consisting of one share of our Series B Convertible Preferred Stock and 1,800 warrants to purchase shares of our common stock (exercisable for an aggregate of 180 shares of common stock), at a subscription price of $1,000 per unit, or the 2017 Rights Offering, raising a total of $10 million in gross proceeds. Each share of Series B Convertible Preferred Stock is convertible into approximately 300 shares of our common stock, subject to adjustment. We sold a total of 10,000 units as part of the 2017 Rights Offering. Additionally, in July 2018, we completed a public offering in which we distributed to holders of our common stock and Series B Convertible Preferred Stock, at no charge, non-transferable subscription rights to purchase up to an aggregate of 20,000 units each consisting of one share of Series C Preferred Stock and 1,050 warrants to purchase one share of our common stock at a subscription price of $1,000 per unit, or the 2018 Rights Offering. Each share of Series C Preferred Stock is convertible into 1,253 shares of our common stock subject to adjustment. We sold an aggregate of 6,723 units as part of the 2018 Rights Offering.
In addition, in December 2016, we entered into a purchase agreement, or the Lincoln Park Purchase Agreement, with Lincoln Park Capital Fund, LLC, or Lincoln Park, pursuant to which we may direct Lincoln Park to purchase up to $20.0 million in shares of our common stock from time to time over the 30-month period following March 31, 2017, subject to the satisfaction of certain conditions. There is no guarantee that adequate funds will be available when needed from additional debt or equity financing, development and commercialization partnerships or from other sources or on terms acceptable to us. In addition, under current SEC regulations, at any time during which the aggregate market value of our common stock held by non-affiliates, or public float, is less than $75.0 million, the amount we can raise through primary public offerings of securities in any twelve-month period using shelf registration statements, including sales under our ATM program, is limited to an aggregate of one-third of our public float. As of June 30, 2018, our public float was 6.2 million shares, the value of which was $8.9 million based upon the closing price of our common stock of $1.45 on such date. The value of one-third of our public float calculated on the same basis was approximately $3.0 million. In addition, in connection with the 2018 Rights Offering, we and our subsidiaries have agreed not to issue, enter into any agreement to issue, or announce the issuance or proposed issuance of any common stock or securities convertible into or exercisable or exchangeable for common stock, subject to certain exceptions, until October 23, 2018.
Further, our Loan and Security Agreement with Oxford Finance, LLC, or Oxford, as amended, requires us to maintain a minimum of $1.5 million in unrestricted cash and cash equivalents on hand to avoid an event of default under the Loan and Security Agreement. Based on our cash and cash equivalents on hand of approximately $3.1 million at June 30, 2018, combined with the $5.7 million of net proceeds from the 2018 Rights Offering, we estimate that we will need to raise additional capital and/or obtain a waiver or restructure the Loan and Security Agreement in the near term to avoid defaulting under our $1.5 million minimum cash/cash equivalents covenant. If we are unable to avoid an event of default under the Loan and Security Agreement, our business could be severely harmed.
In addition to the funding sources previously mentioned, we continue to seek additional capital through product revenues and state and federal development programs, including additional funding opportunities though our current BARDA contract.
23
If we experience an interruption in supply from a material sole source supplier, our business may be harmed
We acquire some our components and other raw materials from sole source suppliers. If there is an interruption in supply of our raw materials from a sole source supplier, there can be no assurance that we will be able to obtain adequate quantities of the raw materials within a reasonable time or at commercially reasonable prices. Interruptions in supplies due to pricing, timing, availability or other issues with our sole source suppliers could have a negative impact on our ability to manufacture products and product candidates, which in turn could adversely affect commercial sales of our commercially available Cytori Cell Therapy products, delay our development and commercialization efforts and cause us to potentially breach our supply or other obligations under our agreements with certain other counterparties.
We sourced our Celase and Intravase reagents, which are used to process patients’ autologous adipose (fat) tissue, under an exclusive manufacturing arrangement with Roche Diagnostics Corporation, or Roche. We do not have a second qualified supplier to manufacture these reagents, and we estimate that it would take approximately two years to qualify another manufacturing source for our reagents. On June 8, 2018 we received written notice from Roche terminating its supply agreement with us. If we are unable to renegotiate a new supply agreement with Roche or an alternative supplier for sufficient volumes of the reagents to meet our customer demand, or we are delayed in negotiating and executing a new supply agreement for sufficient volumes of the reagents, our business could be materially and adversely affected.
We are dependent on sole source suppliers to manufacture the API (active pharmaceutical ingredient) and certain other components of our Cytori Nanomedicine drug candidates. There are no assurances that these sole source suppliers will enter into supply agreements with us to provide contractual assurance to us around supply and pricing. Regardless whether a sole source supplier enters into a written supply arrangement with us, such supplier could still delay, suspend or terminate supply of raw materials to us for a number of reasons, including manufacturing or quality issues, payment disputes with us, bankruptcy or insolvency, or other occurrences.
If a sole source supplier ceases supply of raw materials necessary there is no guarantee that we will find an alternative supplier for the necessary raw materials on terms acceptable to us, or at all. Further the qualification process for a new vendor could take months or even years, and any such day in qualification could significantly harm our business.
We could be delisted from Nasdaq, which could seriously harm the liquidity of our stock and our ability to raise capital.
Following notice from Nasdaq staff in June 2015 and December 2015, we had a hearing in January 2016 relating to our noncompliance with the $1.00 minimum bid price per share requirement. The Nasdaq Hearing Panel granted us until May 31, 2016 to come into compliance with the minimum bid price requirement, including requirements relating to obtaining stockholders approval of a reverse stock split that would bring our stock price above $1.00 per share for a minimum of 10 consecutive trading days. We transferred the listing of our common stock from the Nasdaq Global Market to the Nasdaq Capital Market in February 2016. In May 2016, we consummated a 1-for-15 reverse stock split pursuant to which the minimum bid price per share of our common stock rose above $1.00. Pursuant to a letter dated May 26, 2016, the Nasdaq staff delivered notice to us that we had regained compliance with Nasdaq’s minimum bid price rule.
On September 5, 2017, we received a written notice from Nasdaq staff indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we no longer met the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided a period of 180 calendar days, or until March 5, 2018, in which to regain compliance. We were granted an additional compliance period of 180 calendar days, or until September 4, 2018, in which to regain compliance after meeting the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and providing notice to Nasdaq staff of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. In May 2018, we consummated a 1-for-10 reverse stock split pursuant to which the minimum bid price of our common stock rose above $1.00. However, we may be unable to maintain compliance with our current minimum bid price obligation or other listing requirements, which could cause us to lose eligibility for continued listing on the Nasdaq Capital Market or any comparable trading market. As of August 13, 2018, the closing price of our common stock was below $1.00 per share for 20 consecutive business days.
If we cease to be eligible to trade on Nasdaq:
We may have to pursue trading on a less recognized or accepted market, such as the OTC Bulletin Board or the “pink sheets.”
Shares of our common stock could be less liquid and marketable, thereby reducing the ability of stockholders to purchase or sell our shares as quickly and as inexpensively as they have done historically. If our stock is traded as a “penny stock,” transactions in our stock would be more difficult and cumbersome.
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Our share price is volatile, and you may not be able to resell our shares at a profit or at all.
The market price of our common stock could be subject to wide fluctuations in response to numerous factors, some of which are beyond our control. These factors include, among other things:
fluctuations in our operating results or the operating results of our competitors;
the outcome of clinical trials involving the use of our products, including our sponsored trials;
changes in estimates of our financial results or recommendations by securities analysts;
variance in our financial performance from the expectations of securities analysts;
changes in the estimates of the future size and growth rate of our markets;
changes in accounting principles or changes in interpretations of existing principles, which could affect our financial results;
conditions and trends in the markets we currently serve or which we intend to target with our product candidates;
changes in general economic, industry and market conditions;
success of competitive products and services;
changes in market valuations or earnings of our competitors;
announcements of significant new products, contracts, acquisitions or strategic alliances by us or our competitors;
our continuing ability to list our securities on an established market or exchange;
the timing and outcome of regulatory reviews and approvals of our products;
the commencement or outcome of litigation or threats of litigation involving our company, our general industry or both;
changes in our capital structure, such as future issuances of securities, the incurrence of additional debt or the exercise or conversion of securities exercisable or convertible into our common stock;
actual or expected sales of our common stock by the holders of our common stock; and
the trading volume of our common stock.
In addition, the stock market in general, the Nasdaq markets and the market for cell therapy development companies in particular may experience a loss of investor confidence. A loss of investor confidence may result in extreme price and volume fluctuations in our common stock that are unrelated or disproportionate to the operating performance of our business, our financial condition or results of operations, which may materially harm the market price of our common stock and result in substantial losses for stockholders.
Absence of a public trading market for the Series T Warrants may limit your ability to resell the Series T Warrants.
In July 2018, we closed our rights offering to subscribe for units at a subscription price of $1,000 per unit, or the 2018 Rights Offering. Pursuant to the 2018 Rights Offering, we sold to our common stockholders of record and Series B Convertible Preferred Stockholders of record (as of June 26, 2018) an aggregate of 6,723 units consisting of a total of 6,723 shares of Series C Convertible Preferred Stock, immediately convertible into approximately 8.4 million shares of common stock and 7,059,150 warrants, or Series T Warrants, with each warrant exercisable for one share of common stock at an exercise price of $0.7986 per share. There is no established trading market for the Series T Warrants. We have withdrawn our application to list the Series T Warrants for trading on Nasdaq because a sufficient number of Subscription Rights were not exercised so that the Series T Warrants would meet minimum listing criteria to be accepted for listing on Nasdaq. Even if a market for the Series T Warrants does develop, the price of the Series T Warrants may fluctuate and liquidity may be limited. If a market for the Series T Warrants does not develop, then purchasers of the Series T Warrants may be unable to resell the Series T Warrants or sell them only at an unfavorable price for an extended period of time, if at all. Future trading prices of the Series T Warrants will depend on many factors, including:
our operating performance and financial condition;
our ability to continue the effectiveness of the registration statement covering the Series T Warrants and the common stock issuable upon exercise of the Series T Warrants;
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the market for similar securities.
The market price of our common stock may never exceed the exercise price of the Series T Warrants.
The Series T Warrants issued in connection with the 2018 Rights Offering became exercisable upon issuance and will expire 30 months from the date of issuance. The market price of our common stock may never exceed the exercise price of the Series T Warrants prior to their date of expiration. Any Series T Warrants not exercised by their date of expiration will expire worthless and we will be under no further obligation to the Series T Warrant holder.
The Series T Warrants contain features that may reduce your economic benefit from owning them.
The Series T Warrants contain features that allow us to redeem the Series T Warrants. We may redeem the Series T Warrants for $0.01 per Warrant once the closing price of our common stock has equaled or exceeded $3.63 per share, subject to adjustment, for 20 consecutive trading days, subject to certain conditions, provided that we may not do so prior to the first anniversary of closing of the Rights Offering, and only upon not less than 30 days’ prior written notice of redemption. If we give notice of redemption, you will be forced to sell or exercise your Series T Warrants or accept the redemption price. The notice of redemption could come at a time when it is not advisable or possible for you to exercise the Series T Warrants. As a result, you may be unable to benefit from owning the Series T Warrants being redeemed.
Since the Series T Warrants are executory contracts, they may have no value in a bankruptcy or reorganization proceeding.
In the event a bankruptcy or reorganization proceeding is commenced by or against us, a bankruptcy court may hold that any unexercised Series T Warrants are executory contracts that are subject to rejection by us with the approval of the bankruptcy court. As a result, holders of the Series T Warrants may, even if we have sufficient funds, not be entitled to receive any consideration for their Series T Warrants or may receive an amount less than they would be entitled to if they had exercised their Series T Warrants prior to the commencement of any such bankruptcy or reorganization proceeding.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
None
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EXHIBIT INDEX
CYTORI THERAPEUTICS, INC. | |||||
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Exhibit Number | Exhibit Title | Filed with this Form 10-Q | Incorporated by Reference | ||
Form | File No. | Date Filed | |||
2.1 | 8-K | 001-34375 Exhibit 2.1 | 04/01/2019 | ||
2.2 | 8-K | 001-34375 Exhibit 2.1 | 04/23/2019 | ||
3.1 |
| 10-K | 001-34375 Exhibit 3.1 | 03/11/2016 | |
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3.2 |
| 10-Q | 000-32501 Exhibit 3.2 | 08/14/2003 | |
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3.3 |
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| 8-K | 001-34375 Exhibit 3.1 | 05/06/2014 |
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3.4 |
| 8-K | 001-34375 Exhibit 3.1 | 10/08/2014 | |
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3.5 |
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| 8-K | 001-34375 Exhibit 3.1 | 05/10/2016 |
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3.6 |
| 8-K | 001-34375 Exhibit 3.1 | 11/28/2017 | |
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3.7 |
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| 8-K | 001-34375 Exhibit 3.1 | 05/23/2018 |
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3.8 |
| 8-K | 001-34375 Exhibit 3.1 | 07/25/2018 | |
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| 10-K | 001-34375 Exhibit 10.55 | 03/29/2019 | ||
10.2 | 10-K | 001-34375 Exhibit 10.56 | 03/29/2019 | ||
10.3 | X |
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31.1 | X |
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31.2 | X |
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32.1* | X |
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101.INS | XBRL Instance Document |
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101.SCH | XBRL Schema Document |
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101.CAL | XBRL Calculation Linkbase Document |
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101.DEF | XBRL Definition Linkbase Document |
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* | These certifications are being furnished solely to accompany this report pursuant to 18 U.S.C. 1350 and are not being filed for purposes of Section 18 of the Securities and Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| CYTORI THERAPEUTICS, INC. | ||
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| By: |
| /s/ Marc H. Hedrick |
Dated: |
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| Marc H. Hedrick |
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| President & Chief Executive Officer |
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| By: |
| /s/ |
Dated: |
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2927