UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) August 29, 2012
CardioNet, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware |
|
001-33993 |
|
33-0604557 |
(State or Other Jurisdiction |
|
(Commission File Number) |
|
(IRS Employer |
227 Washington Street #210 |
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19428 |
(Address of Principal Executive Offices) |
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(Zip Code) |
Registrants telephone number, including area code: (610) 729-7000
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
EXPLANATORY NOTE
This current report on Form 8-K/A amends a current report on Form 8-K, filed August 30, 2012, in which CardioNet, Inc. (the Company) reported the acquisition of Cardiocore Lab, Inc. (Cardiocore) pursuant to an Agreement and Plan of Merger with Cardiocore, Cardinal Merger Sub, Inc. (Merger Sub), and the stockholder representative (as defined therein). It also reported that the pro forma financial statements required by Item 9.01 (a) and the financial statements required by Item 9.01 (b) will be provided within seventy-one (71) calendar days of the current report filed on August 30, 2012. This amendment contains the financial statements and pro forma financial statements required by Items 9.01 (a) and (b).
Item 9.01 Financial Statements and Exhibits.
(a) Pro Forma Financial statements
The Company is filing herewith as Exhibit 99.2 the following Unaudited Pro Forma Condensed Combined Financial Information prepared to give effect to the Companys acquisition of Cardiocore. The pro forma financial statements include:
· Overview
· Unaudited Pro Forma Condensed Combined Statement of Operations for the six months ended June 30, 2012
· Unaudited Pro Forma Condensed Combined Statement of Operations for the twelve months ended December 31, 2011
· Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(b) Financial statements
The Company is filing herewith as Exhibits 99.3 and 99.4 the following financial statements in accordance with Regulation S-X Rules 3-01, 3-02 and 3-05:
· Audited financial statements of Cardiocore as of December 31, 2011 and for the year then ended and;
· Unaudited interim financial statements of Cardiocore as of June 30, 2012 and for the six months then ended
Cautionary Note Regarding Forward-Looking Statements. Except for historical information these statements are provided for informational and illustrative purposes and is preliminary based on currently available information, which we believe is reasonable, but may be subject to change and differ materially from these statements. This pro forma information does not purport to project the future consolidated financial condition or results of operations for the combined company. The Unaudited Pro Forma Condensed Combined Financial Information contains forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. Please refer to the cautionary notes in the Unaudited Pro Forma Condensed Combined Financial Information regarding these forward-looking statements.
(d) Exhibits
Exhibit |
|
Description |
23.1 ± |
|
Consent of Grant Thornton LLP, Independent Certified Public Accountants |
99.1 * |
|
Form 8-K, filed August 30, 2012. |
99.2 ± |
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Unaudited Pro Forma Condensed Combined Financial Information of CardioNet, Inc. |
99.3 ± |
|
Audited financial statements of Cardiocore Lab, Inc. and Subsidiary as of December 31, 2011 for the year then ended |
99.4 ± |
|
Unaudited interim financial statements of Cardiocore as of June 30, 2012 and for the six months then ended |
* Previously filed.
± Filed herewith.
SIGNATURE
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 hereunto duly authorized.
Date: November 7, 2012 |
CardioNet, Inc. | |
|
|
|
|
By: |
/S/ Heather C. Getz |
|
|
Heather C. Getz, CPA |
|
|
Chief Financial Officer |
|
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(Principal Financial and Accounting Officer) |
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 15, 2012 with respect to the consolidated financial statements of Cardiocore Lab, Inc. and Subsidiary included in the Form 8-K/A of CardioNet, Inc. filed with the Securities and Exchange Commission on November 7, 2012. We hereby consent to the incorporation by reference of said report in the Registration Statement of CardioNet, Inc. on Form S-8 (No. 333-149800, effective March 19, 2008).
/s/ Grant Thornton LLP
McLean, Virginia
November 7, 2012
Exhibit 99.2
The following unaudited pro forma financial statements give effect to the CardioNet, Inc. (the Company or CardioNet) acquisition of 100% of the outstanding stock of Cardiocore Lab, Inc. (Cardiocore).
Basis for presentation
The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2012 and the twelve months ended December 31, 2011 combines the historical results of CardioNet and the statement of operations of Cardiocore for the respective periods, and gives effect to the acquisition as if it had occurred on January 1, 2011.
The historical financial information in the unaudited pro forma condensed combined financial statements has been adjusted to give effect to pro forma events that are directly attributable to the acquisition, and with respect to the statements of operations, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial statements presented are based on the assumptions and adjustments described in the accompanying notes. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes and do not attempt to represent what the financial position or results of operations would have been for prior periods or will be for any future periods. All transactions between CardioNet and Cardiocore during the periods presented in the unaudited pro forma condensed combined financial statements have been eliminated. The unaudited pro forma condensed combined financial statements are based upon the respective historical consolidated financial information of CardioNet and Cardiocore and should be read in conjunction with:
· the accompanying notes to these unaudited pro forma condensed combined financial statements;
· the separate historical consolidated financial statements of CardioNet as of and for the six months ended June 30, 2012 and for the year ended December 31, 2011 filed with the SEC on Forms 10-Q and 10-K;
· the separate historical audited financial statements of Cardiocore as of December 31, 2011 and for the year then ended, included in this filing; and
· the separate historical unaudited interim financial statements of Cardiocore as of June 30, 2012 and for the six months then ended, included in this filing.
Purchase price allocation
The unaudited pro forma condensed combined financial information was prepared using the purchase method of accounting. Any differences between the estimated fair value of the consideration issued and the estimated fair value of the assets and liabilities acquired is recorded as goodwill. The amounts allocated to the acquired assets and liabilities in the unaudited pro forma condensed combined financial statements are based on managements preliminary valuation estimates.
Definitive allocations will be performed and finalized based on certain valuations and other studies that will be performed by CardioNet with the services of outside valuation specialists. Accordingly, the purchase price allocation adjustments and related amortization reflected in the following unaudited pro forma condensed combined financial statements are preliminary, have been made solely for the purpose of preparing these statements and are subject to revision based on a final determination of fair value after the completion of the allocation of purchase price.
Differences between these preliminary estimates and the final purchase accounting may occur, and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined companys future results of operations and financial position.
Adjustments
The unaudited pro forma condensed combined statements of operations also include certain purchase accounting adjustments, including items expected to have a continuing impact on the combined results, such as increased or decreased depreciation and amortization expense on acquired tangible and intangible assets, decreased interest expense related to the assumed reduction of long-term debt and decreased interest income related to the assumed reduction in cash used to complete the acquisition.
Based on CardioNets preliminary review of Cardiocores summary of significant accounting policies disclosed in the Cardiocore Audited financial statements, the nature and amount of any adjustments to the historical financial statements of Cardiocore to conform their accounting policies to those of CardioNet are not expected to be significant. As such, no pro forma adjustments to conform to accounting policies of the two companies have been reflected in the unaudited pro forma condensed combined financial statements. Further review of Cardiocores accounting policies and financial statements may result in required revisions to Cardiocores accounting policies and classifications to conform to those of CardioNet.
Unaudited Pro Forma Condensed Combined Statement of Operations
Six Months Ended June 30, 2012
(In thousands, except share and per share amounts)
|
|
For the six months ended June 30, 2012 |
|
Pro Forma |
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Pro Forma |
| ||||||
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CardioNet |
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Cardiocore |
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Adjustments |
|
|
|
Combined |
| ||||
Revenue |
|
$ |
54,495 |
|
$ |
9,173 |
|
$ |
|
|
|
|
$ |
63,668 |
|
Cost of sales |
|
22,159 |
|
4,615 |
|
(296 |
) |
A |
|
26,478 |
| ||||
Gross profit |
|
32,336 |
|
4,558 |
|
296 |
|
|
|
37,190 |
| ||||
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|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative |
|
16,308 |
|
1,867 |
|
1,204 |
|
B |
|
19,379 |
| ||||
Sales and marketing |
|
12,179 |
|
1,568 |
|
|
|
|
|
13,747 |
| ||||
Bad debt expense |
|
5,870 |
|
|
|
|
|
|
|
5,870 |
| ||||
Research and development |
|
2,225 |
|
631 |
|
(169 |
) |
C |
|
2,687 |
| ||||
Integration, restructuring and other charges |
|
1,003 |
|
|
|
|
|
|
|
1,003 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
|
37,585 |
|
4,066 |
|
1,035 |
|
|
|
42,686 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income(loss) from operations |
|
(5,249 |
) |
492 |
|
(739 |
) |
|
|
(5,496 |
) | ||||
Other income (expense), net |
|
86 |
|
(272 |
) |
271 |
|
D |
|
85 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) before provision for income taxes |
|
(5,163 |
) |
220 |
|
(468 |
) |
|
|
(5,411 |
) | ||||
Benefit for income taxes |
|
431 |
|
|
|
|
|
|
|
431 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
|
$ |
(4,732 |
) |
$ |
220 |
|
$ |
(468 |
) |
|
|
$ |
(4,980 |
) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted |
|
$ |
(0.19 |
) |
$ |
0.05 |
|
|
|
|
|
$ |
(0.20 |
) | |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted |
|
24,761,904 |
|
4,580,816 |
|
(4,580,816 |
) |
|
|
24,761,904 |
|
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 2011
(In thousands, except share and per share amounts)
|
|
For the year ended December 31, 2011 |
|
Pro Forma |
|
|
|
Pro Forma |
| ||||||
|
|
CardioNet |
|
Cardiocore |
|
Adjustments |
|
|
|
Combined |
| ||||
Revenue |
|
$ |
119,022 |
|
$ |
15,080 |
|
$ |
|
|
|
|
$ |
134,102 |
|
Cost of sales |
|
49,076 |
|
9,292 |
|
(592 |
) |
A |
|
57,776 |
| ||||
Gross profit |
|
69,946 |
|
5,788 |
|
592 |
|
|
|
76,326 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
| ||||
Goodwill impairment |
|
45,999 |
|
|
|
|
|
|
|
45,999 |
| ||||
General and administrative |
|
35,011 |
|
3,337 |
|
2,181 |
|
B |
|
40,529 |
| ||||
Sales and marketing |
|
27,821 |
|
2,417 |
|
|
|
|
|
30,238 |
| ||||
Bad debt expense |
|
12,080 |
|
|
|
|
|
|
|
12,080 |
| ||||
Research and development |
|
5,698 |
|
965 |
|
(232 |
) |
C |
|
6,431 |
| ||||
Integration, restructuring and other charges |
|
4,659 |
|
|
|
|
|
|
|
4,659 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
|
131,268 |
|
6,719 |
|
1,949 |
|
|
|
139,936 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income from operations |
|
(61,322 |
) |
(931 |
) |
(1,357 |
) |
|
|
(63,610 |
) | ||||
Other income (expense), net |
|
144 |
|
(457 |
) |
346 |
|
D |
|
33 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss before provision for income taxes |
|
(61,178 |
) |
(1,388 |
) |
(1,011 |
) |
|
|
(63,577 |
) | ||||
(Provision) benefit for income taxes |
|
(244 |
) |
|
|
|
|
|
|
(244 |
) | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net Loss |
|
$ |
(61,422 |
) |
$ |
(1,388 |
) |
$ |
(1,011 |
) |
|
|
$ |
(63,821 |
) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted |
|
$ |
(2.51 |
) |
$ |
(0.30 |
) |
|
|
|
|
$ |
(2.61 |
) | |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted |
|
24,425,318 |
|
4,580,816 |
|
(4,580,816 |
) |
|
|
24,425,318 |
|
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(In thousands, except per share information)
1. Description of Transaction
On August 29, 2012, CardioNet completed the acquisition of Cardiocore pursuant to an Agreement and Plan of Merger (the Merger Agreement) with Cardiocore. The total consideration payable in the merger was $23,376 in cash, subject to certain post-closing adjustments.
2. Basis of Presentation
The unaudited pro forma condensed combined financial statements of CardioNet have been prepared to give effect to the acquisition. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2012 and year ended December 31, 2011 combines the historical results of CardioNet and the unaudited statement of operations of Cardiocore and gives effect to the acquisition as if it had occurred on December 31, 2010. CardioNet and Cardiocore have the same fiscal year end date of December 31. CardioNets condensed consolidated statement of operations for the twelve month period ended December 31, 2011 is derived from the Form 10-K filed with the U.S. Securities and Exchange Commission on February 23, 2012. Cardiocores condensed consolidated statement of operations for the twelve month period ended December 31, 2011 is derived from the Audited financial statements filed herein.
The unaudited pro forma condensed combined financial information was prepared using the purchase method of accounting, in accordance with U.S. Generally Accepted Accounting Principles. As such, the unaudited pro forma condensed combined balance sheet reflects the estimated consideration to be issued by CardioNet to acquire Cardiocore and has been allocated to the assets acquired and liabilities assumed based upon managements preliminary estimate of their respective fair values as of the date of the acquisition. Any differences between the estimated fair value of the consideration issued and the estimated fair value of the assets and liabilities acquired is recorded as goodwill. The amounts allocated to the acquired assets and liabilities in the unaudited pro forma condensed combined financial statements are based on managements preliminary valuation estimates. Definitive allocations will be performed and finalized based on certain valuations and other studies that will be performed by CardioNet with the services of outside valuation specialists. Accordingly, the purchase price allocation adjustments and related amortization reflected in the following unaudited pro forma condensed combined financial statements are preliminary, have been made solely for the purpose of preparing these statements and are subject to revision based on a final determination of fair value after the allocation of purchase price. Acquisition-related transaction costs (e.g., legal, valuation experts, and other professional and advisor fees) and certain acquisition restructuring and related charges are not included as a component of consideration transferred but are required to be expensed as incurred.
These preliminary estimates of fair value and estimated useful lives may be different from the final acquisition accounting, and the difference could have a material impact on the accompanying unaudited pro forma condensed combined financial statements. In allocating purchase price to the respective assets, additional information may be obtained by CardioNet regarding the specifics of Cardiocores assets and liabilities, and additional insight will be gained that could impact the estimated total value assigned to assets and liabilities acquired.
3. Pro Forma Adjustments to Unaudited Pro Forma Condensed Consolidated Financial Statements
The following pro forma adjustments and eliminations are included in the Pro Forma Financial Statements:
(A) |
Adjusted to reflect the net effect of depreciation for assets related to capital leases. |
(B) |
Adjustment to record amortization expense related to intangible assets acquired in the transaction, and to reflect certain transaction costs incurred related to the transaction. |
(C) |
Adjustment to record the reduction of depreciation expense associated with the historical net book value of internally developed software. |
(D) |
Adjusted to record the reduction of interest expense associated with historical long-term debt and capital lease obligations, and to record the reduction of interest income associated with a cash balance that would have been reduced due to the repayment of debt. |
Exhibit 99.3
Cardiocore Lab, Inc.
Financial Statements
(With Independent Auditors Report)
December 31, 2011
Cardiocore Lab, Inc.
Table of Contents
|
Page |
|
|
Audited Financial Statements: |
|
|
|
Independent Auditors Report |
1 |
|
|
Consolidated Balance Sheet as of December 31, 2011 |
2 |
|
|
Consolidated Statement of Operations for the year ended December 31, 2011 |
3 |
|
|
Consolidated Statements of Stockholders Deficit as of December 31, 2011 |
4 |
|
|
Consolidated Statement of Cash Flow for the year ended December 31, 2011 |
5 |
|
|
Notes to Financial Statements |
6 |
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Cardiocore Lab, Inc., and Subsidiary
We have audited the accompanying consolidated balance sheet of Cardiocore Lab, Inc., and Subsidiary (a Delaware corporation) (collectively, the Company), as of December 31, 2011, and the related consolidated statement of operations, stockholders deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America as established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cardiocore Lab, Inc., and Subsidiary, as of December 31, 2011, and the results of their operations and their cash flows for the year ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the consolidated financial statements, beginning on February 16, 2011, the Series A Preferred Stock was redeemable at the option of the Preferred Stockholders. If this redemption feature were exercised, management does not believe that the Company could fund the redemption with available cash or borrowings under current lending arrangements which raises substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to these matters are also described in Note B. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Grant Thorton |
|
|
|
McLean, Virginia |
|
|
|
June 15, 2012 |
|
Cardiocore Lab, Inc.
Consolidated Balance Sheet
|
|
As of |
| |
Assets |
|
|
| |
Current Assets: |
|
|
| |
Cash and cash equivalents |
|
$ |
3,632,666 |
|
Accounts receivable |
|
2,861,504 |
| |
Prepaid expenses and other current assets |
|
316,897 |
| |
|
|
|
| |
Total current assets |
|
6,811,067 |
| |
|
|
|
| |
Property and equipment, net |
|
5,350,701 |
| |
Restricted cash |
|
588,435 |
| |
Intangible assets, net |
|
302,303 |
| |
Other assets, net |
|
292,858 |
| |
|
|
|
| |
Total assets |
|
$ |
13,345,364 |
|
|
|
|
| |
Liabilities and stockholders equity |
|
|
| |
Current liabilities: |
|
|
| |
Debt - current portion |
|
$ |
1,121,876 |
|
Capital lease obligations - current portion |
|
620,180 |
| |
Deferred rent - current portion |
|
143,425 |
| |
Accounts payable and accrued expenses |
|
1,737,875 |
| |
Accrued payroll and related |
|
711,425 |
| |
Deferred revenue |
|
850,064 |
| |
|
|
|
| |
Total current liabilities |
|
5,184,845 |
| |
|
|
|
| |
Other Liabilities |
|
|
| |
Debt, net of current portion |
|
2,654,838 |
| |
Deferred rent, net of current portion |
|
834,664 |
| |
Capital lease obligations, net of current portion |
|
268,706 |
| |
|
|
|
| |
Total liabilities |
|
8,943,053 |
| |
|
|
|
| |
Series A Redeemable Preferred Stock, $.001 par value, 2,894,356 shares authorized, issued and outstanding (Liquidation preference of $11,289,765) |
|
11,289,765 |
| |
|
|
|
| |
Stockholders equity: |
|
|
| |
|
|
|
| |
Common stock, $.001 par value, 10,000,000 shares authorized, 4,580,816 shares issued and outstanding for 2011 |
|
4,541 |
| |
Additional paid-in capital |
|
757,159 |
| |
Accumulated deficit |
|
(7,649,154 |
) | |
|
|
|
| |
Total stockholders deficit |
|
(6,887,454 |
) | |
|
|
|
| |
Total liabilities and stockholders equity |
|
$ |
13,345,364 |
|
Cardiocore Lab, Inc.
Consolidated Statement of Operations
|
|
For the year ended |
| |
Revenue |
|
$ |
15,080,022 |
|
Cost of sales |
|
9,291,377 |
| |
Gross profit |
|
5,788,645 |
| |
|
|
|
| |
Operating expenses |
|
|
| |
General and administrative |
|
3,337,463 |
| |
Sales and marketing |
|
2,416,983 |
| |
Research and development |
|
964,906 |
| |
|
|
|
| |
Loss from operations |
|
(930,707 |
) | |
|
|
|
| |
Other (expense) income |
|
|
| |
Interest income |
|
13,202 |
| |
Interest expense |
|
(445,013 |
) | |
Other, net |
|
(25,558 |
) | |
Total other expense |
|
(457,369 |
) | |
|
|
|
| |
Net loss |
|
$ |
(1,388,076 |
) |
Cardiocore Lab, Inc., and Subsidiary
Consolidated Statement of Stockholders Deficit
|
|
|
|
Additional |
|
|
|
Total |
| ||||
|
|
Common |
|
Paid-in |
|
Accumulated |
|
Shareholders |
| ||||
|
|
Stock |
|
Capital |
|
Deficit |
|
Deficit |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Balance, January 1, 2011 |
|
4,541 |
|
1,194,320 |
|
(6,257,857 |
) |
(5,058,996 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Detachable Warrants Issued with Loan and Security Agreement |
|
|
|
128,745 |
|
|
|
128,745 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Stock-based Compensation |
|
|
|
(38,070 |
) |
|
|
(38,070 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Dividends and Accretion on Series A Redeemable Convertible Preferred Stock |
|
|
|
(527,836 |
) |
(3,221 |
) |
(531,057 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Loss |
|
|
|
|
|
(1,388,076 |
) |
(1,388,076 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Balance, December 31, 2011 |
|
$ |
4,541 |
|
$ |
757,159 |
|
$ |
(7,649,154 |
) |
$ |
(6,887,454 |
) |
Cardiocore Lab, Inc., and Subsidiary
Consolidated Statement of Cash Flows
Year ended December 31, |
|
2011 |
| |
Operating Activities |
|
|
| |
Net loss |
|
$ |
(1,388,076 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
| |
Depreciation and amortization |
|
1,997,986 |
| |
Loss on disposal of property and equipment |
|
11,559 |
| |
Stock-based compensation |
|
(38,070 |
) | |
Deferred rent |
|
801,410 |
| |
Changes in operating assets and liabilities: |
|
|
| |
Accounts receivable |
|
941,053 |
| |
Prepaid expenses and other assets |
|
(278,960 |
) | |
Accounts payable and accrued expenses |
|
(58,862 |
) | |
Accrued payroll and related |
|
(178,982 |
) | |
Deferred revenue |
|
309,139 |
| |
Net Cash Provided by Operating Activities |
|
2,118,197 |
| |
|
|
|
| |
Investing Activities |
|
|
| |
Purchase of property and equipment |
|
(2,702,245 |
) | |
Purchase of intangible assets |
|
(66,866 |
) | |
Net Cash Used in Investing Activities |
|
(2,769,111 |
) | |
|
|
|
| |
Financing Activities |
|
|
| |
Payments on capital lease obligations |
|
(688,446 |
) | |
Proceeds from long-term debt |
|
3,545,815 |
| |
Restricted cash |
|
(196,373 |
) | |
Net Cash Provided by Financing Activities |
|
2,660,996 |
| |
|
|
|
| |
Net Increase in Cash and Cash Equivalents |
|
2,010,082 |
| |
Cash and Cash Equivalents, beginning of year |
|
1,622,584 |
| |
Cash and Cash Equivalents, end of year |
|
$ |
3,632,666 |
|
|
|
|
| |
Supplemental Disclosure of Cash Flow Information and NonCash Transactions |
|
|
| |
Interest paid |
|
$ |
367,374 |
|
Equipment acquired by capital lease |
|
190,861 |
| |
Property and equipment acquired via financing |
|
260,000 |
| |
Line-of-credit settled through the issuance of a term loan |
|
360,000 |
| |
Dividends and accretion on redeemable preferred stock |
|
531,057 |
| |
Detachable warrants issued with Loan and Security Agreement |
|
128,745 |
|
NOTE AORGANIZATION
Organization and Purpose
Cardiocore Lab, Inc (the Company), a Delaware corporation, was founded in March 2003. In March 2007, the Company created a wholly owned Subsidiary named Cardiocore Lab, Ltd. to promote its operations in Europe and Asia. In February 2010, the Company opened a registered office in Singapore to increase its footprint in the Asia Pacific region. The Company offers global centralized core lab services including electrocardiography (ECG), Holter monitoring, echocardiography (ECHO), multigated acquisition scan (MUGA), protocol development, expert reporting, statistical analysis, expert scientific consulting and state-of-the-art data and information management.
The Company is headquartered in Rockville, Maryland and has operating offices in London, UK and San Francisco, California.
NOTE BGOING CONCERN REDEEMABLE PREFERRED STOCK
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
As described in Note G, Preferred Stock, the Companys Series A Preferred Stock is subject to redemption any time following the fifth anniversary of the issuance date or February 16, 2011. On the redemption date, holders of Series A Preferred Stock may require the Company, to the extent it may lawfully do so, to redeem all or a portion of the then outstanding shares. The maximum redemption value as of the balance sheet date is $11.3 million if all such holders exercised their redemption right. If this redemption feature were exercised, management does not believe that the Company could fund the redemption with available cash or borrowings under current lending arrangements which raise substantial doubt about the Companys ability to continue as a going concern.
In view of the significance of the amount of the Companys redemption obligations relative to its cash flow and assets, the Company does not believe that it would be able to finance its redemption obligations through its operational cash flows. The Companys Board of Directors and management team is in the process of evaluating alternative resolutions with the Series A Shareholders. Absent an agreement by the holders of the shares of the Companys Preferred Stock to forgo or delay the exercise of their right to trigger the Companys redemption obligations the Company would pursue debt or equity financing or recapitalization of the Company so as to eliminate or defer the redemption feature of the Preferred Stock. The Company believes that a sale or merger of the Company as a going concern represents an alternative for satisfying any material portion of such redemption obligations. As of June 15, 2012, no binding agreements have been entered into by the Company as it pertains to this matter and none of the Series A Shareholders have approached the Company indicating their intent to redeem the shares outstanding.
NOTE CSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company prepares its financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (US GAAP).
Principles of Consolidation
The consolidated financial statements include the amounts of Cardiocore Lab, Inc. and its wholly owned subsidiary, Cardiocore Lab, Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates in Preparing Financial Statements
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.
Revenue Recognition
The Company enters into master service agreements that consist of both service and equipment deliverables. Revenue is recognized for individual elements in an arrangement based upon an estimated selling price. Service deliverables include Cardiac Safety services, statistical analysis, consulting and training. Revenues from such services are recognized as the services are provided. Revenues for equipment rentals are recognized ratably over the rental period.
The Company enters into multiple element arrangements and accounts for them in accordance with Accounting Standards Codification (ASC) Topic 605 (ASC 605-25), Revenue Recognition, subtopic 25, Multiple-Element Arrangements. ASC 605-25 requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangements meet specific criteria. In addition, arrangement consideration must be allocated among the separate units of accounting based on their relative selling prices.
The Company has determined selling prices of the service and equipment deliverables through separate sales as well as an evaluation of what a customer would pay in the event that there are no separate sales to arrive at an estimated selling price. When these items are sold together, the equipment and services revenues are recognized based on the allocated selling price upon delivery. Service revenue is billed and recognized monthly in the period in which the services are delivered. Equipment rentals are billed in advance and revenue is recognized ratably over the rental period. Customer billings in advance of revenue are recorded as deferred revenue. Deferred revenue at December 31, 2011 was $831,053.
In the event the Company enters into a multiple element arrangement including items with no determined selling price, revenue is deferred and recognized over the term of the related service contract, which approximates the estimated customer relationship period.
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-13, Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force, to amend the existing revenue recognition guidance.
ASU 2009-13 amended FASBs ASC 605, Revenue Recognition, subtopic 25, as follows:
· Modifies criteria used to separate elements in a multiple-element arrangement
· Introduces the concept of best estimate of selling price for determining the selling price of a deliverable
· Establishes a hierarchy of evidence for determining the selling price of a deliverable
· Requires use of the relative selling price method and prohibits use of the residual method to allocate arrangement consideration among units of accounting
· Expands the disclosure requirements for all multiple-element arrangements within the scope of ASC 605-25
The following criteria must be met to separate elements in a multiple-element arrangement under the amended guidance in ASC 605-25:
· The delivered item(s) has stand-alone value to the customer.
· If a general right of return exists, delivery or performance of the undelivered item(s) is substantially in the control of the vendor and is considered probable.
Stand-alone value
A deliverable is considered to have standalone value if a customer could resell the element on a standalone basis or if the Company sells it separately. From time to time, the Company rents equipment and sells services separately. In effect, the customer may use their own machines or may already have the data for which they request the Company to analyze. Accordingly, there is stand-alone value to the delivered items. There is also no general right of return on rentals of the Company equipment or sales of the Companys other products. Consequently, the Company has met both criterion and must separate transactions into multiple deliverables.
Measurement
In establishing a selling price of each element, the Company must first establish Vendor-Specific Objective Evidence (VSOE). If the Company is unable to support VSOE for a delivered item (or third party evidence), it must then estimate the selling price (ESP) of the delivered item. The Companys ESP considered multiple factors, such as discrete historical pricing for a given element in the fee arrangement, pricing trends, overall economic conditions, profit margins realized by the Company in the industry, and certain entity-specific factors.
Allocation
The total arrangement fee is allocated to the individual elements in a multiple element transaction based on each elements relative selling price.
Transition and effectivity
The amended guidance was effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption was permitted. Effective January 1, 2010, the Company adopted ASU 2009-13.
Upon adoption of ASU 2009-13, the Company has evaluated the impact of the change of this accounting principle and concluded that there have been no significant changes in the units of accounting of its multiple element arrangements, the pattern and timing of revenue recognition is very similar to the pre-existing guidance as set forth in ASC 605-25, there was no material impact on revenue recognition for 2011 and is not expected to materially affect future periods.
Accounts Receivable
The Company reviews its receivables regularly to determine if there are any potential uncollectible accounts. The Company records allowances for bad debt as a reduction to accounts receivable and an increase to bad debt. These allowances are recorded in the period a specific collection problem is identified. There were no unbilled receivables as of December 31, 2011.
Cash and Cash Equivalents
Cash and cash equivalents include money market investments. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash held in financial institutions may exceed insured amounts. As of December 31, 2011 the Company had approximately $114,000 in deposits held with foreign financial institutions.
Research and Development
All research and development costs are charged to operations as incurred. Total research and development costs for the period ended December 2011 totaled approximately $965,000.
Property and Equipment
Property and equipment is stated at cost net of accumulated depreciation. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the statement of operations. Depreciation is computed using the straight-line method over the estimated useful lives of three to seven years. Leased assets are amortized over the shorter of the estimated life or leased term. The cost of maintenance and repairs is charged to expense as incurred.
Software Development Costs
The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software. Capitalized costs include external direct costs of materials and services utilized in developing or obtaining internal use-software. During 2011 the Company capitalized approximately $325,000 of costs associated with software development. The Company amortizes the costs of internal-use software over three years.
Intangible Assets
The Company has intangible assets consisting of patents and trademarks. The Company amortizes the cost of such intangibles, on a straight-line basis. Trademarks are amortized over an estimated useful life of 5 years. Patents are amortized over an estimated useful life of 15 years.
Assets Held under Capital Leases
Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease.
Deferred Rent
The Company recognizes rent expense on a straight-line basis over the term of the related lease. Lease incentives or abatements, received at or near the inception of leases, are accrued and amortized ratably over the life of the lease in accordance with US GAAP.
Share-based Compensation
Share-based payment arrangements are measured at estimated fair value and included in general and administrative expense in the Companys consolidated statements of operations. The Company has elected to use the Black-Scholes-Merton option pricing model to value any options granted and to recognize the compensation expense relating to share-based payments on a straight-line basis over the requisite service period.
Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The Company deposits its cash, which at times may be in excess of the Federal Deposit Insurance Corporation insurance limits, with high credit quality financial institutions. For accounts receivable, the Company performs ongoing credit evaluations of its customers financial condition and generally does not require collateral. The Company maintains reserves for credit losses, and such losses have not been significant.
Long-lived Assets
Whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be fully recoverable, the Company evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. If any impairment is indicated as a result of this analysis, the Company would recognize a loss based on the amount by which the carrying amount exceeds the estimated fair value of such asset.
Redeemable Preferred Stock
Preferred stock that can be put back to the Company is recorded as temporary equity.
Income Taxes
Deferred income taxes are provided based on the estimated future tax effects of differences between financial statement carrying amounts and the tax bases of existing assets and liabilities as measured by the enacted tax rates, which will be in effect when the difference reverse. The Company evaluates its ability to realize deferred tax assets, and establishes a valuation allowances to cover amounts in which management is unable to conclude more likely than not will be realized in future periods.
In accordance with the guidance discussed above, the Company recognizes the financial statement effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by taxing authority. Recognized tax positions are initially and subsequently measured as the largest amounts of tax benefit that will more likely than not being realized upon ultimate settlement with a taxing authority. The Company has chosen to treat interest and penalties related to uncertain taxing liabilities as a component of income tax expense.
Fair Value of Financial Instruments
The carrying amounts of the Companys financial instruments, which include cash equivalents, trade receivables, accounts payable and accrued expenses, approximate their fair values due to the short maturities. The Companys debt and capital lease obligations are considered at fair value given their market rates of interest currently available to the Company for borrowings with comparable terms. Valuation techniques are based on observable or unobservable inputs. Observable inputs reflect the Companys market assumptions. These two types of inputs have created the following fair value hierarchy:
Level 1 Quoted prices for identical instruments in active markets
Level 2 Quotes prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant value drivers are observable.
Level 3 Valuation derived from valuation techniques in which significant value drivers are unobservable.
Restricted Cash
The Company is required to maintain a letter of credit with its financial institution as a security deposit for its corporate headquarters operating lease, an equipment lease and collateral for certain of the Companys credit facilities. The money market account held by the Company serves as collateral for the letter of credit. As of December 31, 2011, $588,435 was held as restricted cash collateral for the Companys credit facilities and the letter of credit provided as a security deposit for the Companys corporate offices leases.
Advertising Costs
The Company expenses advertising costs as incurred. Historically advertising costs have not been significant to the Companys operations.
Subsequent Events
The Company evaluated its financial statements for subsequent events through June 15, 2012, the date the financial statements were available to be issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.
NOTE DPROPERTY AND EQUIPMENT
Property and equipment are composed of the following as of December 31:
|
|
2011 |
| |
|
|
|
| |
Computer equipment |
|
$ |
1,192,840 |
|
Furniture and equipment |
|
275,578 |
| |
Site equipment and software |
|
7,178,033 |
| |
Proprietary software |
|
1,400,311 |
| |
Leasehold improvements |
|
1,566,397 |
| |
|
|
|
| |
|
|
11,613,159 |
| |
Less: accumulated depreciation and amortization |
|
(6,262,458 |
) | |
|
|
|
| |
|
|
$ |
5,350,701 |
|
Depreciation and amortization expense for the period ended December 2011 was $1,980,640.
NOTE EINTANGIBLE ASSETS
Intangible assets consist of the following at December 31:
|
|
2011 |
| |
|
|
|
| |
Trademarks |
|
$ |
2,103 |
|
Patents |
|
318,667 |
| |
|
|
320,770 |
| |
Less: accumulated depreciation |
|
(18,467 |
) | |
Total intangible assets |
|
302,303 |
| |
Aggregate amortization expense for the year ended December 31, 2011 was $17,283. Future amortization expense related to intangible assets is expected to approximate the following amounts for the years ending December 31:
2012 |
|
$ |
14,000 |
|
2013 |
|
19,000 |
| |
2014 |
|
19,000 |
| |
2015 |
|
19,000 |
| |
2016 |
|
19,000 |
| |
Thereafter |
|
212,000 |
| |
|
|
|
| |
|
|
$ |
302,000 |
|
NOTE FDEBT
Loan and Security Agreement
In January 2011, the Company entered into and executed a loan and security agreement which provides for additional capacity in funding of up to $3.5 million. The loan and security agreement provides for two draw periods, the first of which provides for $2.5 million in funds and the second provides for $1 million in funds. The maturity date of each draw is 36 months after the funding date or date of the draw (for the second draw period the funding date is no later than September 30, 2011). Borrowings under the loan and security agreement accrue interest at a fixed rate per annum of 11.50%. Substantially all of the Companys assets are pledged as security under the loan and security agreement. As of December 31, 2011 the Companys obligation under such arrangement was $3,500,000 gross and $3,410,333 net of discount.
In conjunction with the execution of the loan and security agreement the Company issued 150,000 warrants to purchase common stock. The warrants expire on January 6, 2021. The fair value of the warrants has been recorded as a reduction of the obligation as a discount of approximately $129,000. This discount will be accreted to interest expense using the effective interest method over the 48 month term of the debt instrument.
The loan and security agreement provides for a consolidated financial statement delivery covenant of 150 days from year-end. For the period ended December 31, 2011 the Company did not comply with such covenant, but obtained a waiver from the lenders to cure such violation.
Term Loan
In April 2011 the Company executed a promissory note (Term Note) for $360,000. The proceeds from the term note were used to settle the Companys obligation on its existing line of credit. The Term Note provides for consecutive monthly payments of $30,582 through the maturity date of April 2012. The Term Note accrues interest at 3.5% and is secured by substantially all of the Companys assets. As of December 31, 2011 the Companys obligation under this arrangement was $120,485.
Furniture Loan
In October 2011 the Company executed a promissory note (Furniture Loan) for $260,000. The proceeds from the Furniture Loan were used to purchase furniture and fixtures for the Companys new headquarters office. The Furniture Loan provides for consecutive monthly payments of $7,625 through the maturity date of October 2014. The Furniture Loan accrues interest at 3.5% and is cash collateralized with the related cash disclosed as restricted cash. As of December 31, 2011 the Companys obligation under this arrangement was $245,895.
LineofCredit
In October 2006, the Company established a line of credit for $500,000, as amended, which is secured by the Companys money market account. Interest on the line of credit was based upon the banks prime lending rate minus 1.0 percent and is payable monthly. In 2011 the Company paid off the line of credit with the proceeds from the term loan as described above at which point the line of credit was terminated.
Minimum future principal repayments of debt are as follows as of December 31:
2012 |
|
$ |
1,121,876 |
|
2013 |
|
1,275,159 |
| |
2014 |
|
1,252,070 |
| |
2015 |
|
127,609 |
| |
|
|
|
| |
|
|
$ |
3,776,714 |
|
Letters-of-Credit
At December 31, 2011, the Company had outstanding letters-of-credit as collateral for the headquarter office space and equipment leases totaling $222,055. These letters-of-credit expire on various dates through 2012. Certain of the letters-of-credit automatically renew each year.
NOTE GPREFERRED STOCK
On February 16, 2006 the Company issued 2,894,356 shares of Series A Redeemable Convertible Preferred Stock, $0.001 par value, at a per share price of $2.764 to various outside investors. Total proceeds received net of issuance costs approximated $7.9 million. Dividends on all shares of preferred stock are due before any distributions on shares of common stock and are payable at the rate of $0.194 per share (seven percent of the original purchase price of such shares).
Upon liquidation of the Company, each preferred shareholder will be entitled to receive, before any distributions to Common Stock holders, the original issue price of such shares, plus any accrued and unpaid dividends, whether or not declared. All remaining proceeds shall be paid to the holders of Common Stock. Each holder shall have the option of converting their shares into Common Stock immediately prior to the effectiveness of the completion of a Liquidity Event, in which case they shall, prior to any such conversion, receive their accrued but unpaid dividends and then be otherwise treated with parity with Common Stock.
Each holder shall have the right, at any time after the fifth anniversary, to convert the Series A Redeemable Convertible Preferred Stock into common stock at a conversion price equal to the purchase price per share. The Series A Preferred Stock will automatically convert to shares of Common Stock upon: (i) the approval of the holders of a majority of the then outstanding Series A Preferred Stock, or (ii) upon closing of an Initial Public Offering (IPO) of Common Stock with a per share price no less than three times the original purchase price per share. The initial conversion price per share of Series A Preferred Stock is $2.764 per share.
Commencing on the fifth anniversary of the original issue date of the Series A Redeemable Convertible Preferred Stock (February 16, 2011) and on each of the successive quarters thereafter, the holders of a majority of the then-outstanding shares of Series A Redeemable Convertible Preferred Stock, voting as a separate class, may require the Company to redeem the Series A Redeemable Convertible Preferred Stock in eight quarterly installments. If such election is made, the Series A Redeemable Convertible Preferred Stock will be redeemed at the greater of the cost plus unpaid accrued dividends or fair market value.
The redemption values for 2012 of the Series A Redeemable Convertible Preferred Stock are presented below:
February 16, 2012 |
|
$ |
11,361,882 |
|
May 16, 2012 |
|
11,499,978 |
| |
August 16, 2012 |
|
11,641,143 |
| |
November 16, 2012 |
|
11,782,309 |
|
NOTE HEQUITY INCENTIVE PLAN
Effective April 30, 2004, the Company adopted the 2004 Equity Incentive Plan (the Plan), under which incentive stock options may be granted to employees. Also, incentive stock options, non-statutory stock options, stock bonuses, and rights to acquire restricted stock may be granted to employees, directors, and consultants of the Company.
The plan is administered by the Board of Directors (the Board). The options are subject to various restrictions as outlined in the Plan. The Board determines the number of options granted to employees, directors, or consultants, as well as the vesting period and the exercisable price of the options, subject to the provisions outlined in the Plan.
The Board has reserved 1,125,000 shares of common stock for issuance under the Plan.
Fair Value Determination
The Company has elected to use both the Black-Scholes option pricing model and straight-line recognition of compensation expense over the requisite service period. The Company will reconsider the use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.
The Company has 10 year options.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options pricing model.
Stock Option Expense
The Company recorded a forfeiture adjustment during the year ended December 31, 2011 of $44,803 related to options held by an member of the senior management team, accordingly stock compensation for the year ended December 31, 2011 was a gain of $38,070.
As of December 31, 2011, there was $4,246 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be fully recognized in 2012.
Stock Option Activity
During the year ended December 31, 2011 the Company did not grant any stock options.
A summary of the status of the Companys Equity Incentive Plan as of December 31, 2011 is presented below:
|
|
Number of Shares |
|
Weighted-Average |
|
Options exercisable at January 1, 2011 |
|
1,078,592 |
|
1.79 |
|
Options granted |
|
|
|
|
|
Options exercised |
|
|
|
|
|
Options forfeited |
|
(85,021 |
) |
1.10 |
|
|
|
|
|
|
|
Options exercisable at December 31, 2011 |
|
993,571 |
|
1.83 |
|
|
|
|
|
|
|
Shares reserved for equity awards at December 31, 2011 |
|
131,429 |
|
|
|
Information with respect to stock options outstanding and stock options exercisable at December 31, 2011 was as follows:
Exercise Price |
|
Options Outstanding |
|
Weighted-Average |
|
Weighted-Average Exercise |
| ||
|
|
|
|
|
|
|
| ||
$ |
0.50 |
|
33,000 |
|
2.65 |
|
$ |
0.50 |
|
1.10 |
|
392,316 |
|
4.88 |
|
1.10 |
| ||
2.50 |
|
568,255 |
|
3.49 |
|
2.50 |
| ||
The weighted average grant date fair value of non-vested options outstanding at the beginning of the period ended December 31, 2011 was $0.33 per share. During the year 85,021 shares were forfeited with a weighted average grand date fair value of $0.66 per share. The weighted average grant date fair value of non-vested options outstanding at the end of the period ended December 31, 2011 was $0.25 per share. The aggregate fair value of those options vested during 2011 was approximately $22,000.
NOTE ICOMMITMENTS AND CONTINGENCIES
The Company has entered into various operating leases for office space; including the Companys headquarter office in Rockville, MD. Certain facility leases may contain fixed escalation clauses, certain facility leases require the Company to pay operating expenses in addition to base rental amounts, and certain facility leases require the Company to maintain letters of credit to support the underlying security deposit related to the lease. Rent expense is recognized on a straight-line basis over the lease term. Rent expense for the period ended December 31, 2011was $552,082.
Future obligations under all operating leases approximated the following at December 31, 2011:
2012 |
|
$ |
332,000 |
|
2013 |
|
570,000 |
| |
2014 |
|
586,000 |
| |
2015 |
|
586,000 |
| |
2016 |
|
520,000 |
| |
Thereafter |
|
1,039,000 |
| |
Less: Sublease rental income |
|
(84,500 |
) | |
|
|
|
| |
Total lease commitments |
|
$ |
3,548,500 |
|
Capital Lease Obligations
Property and equipment include gross assets acquired under capital leases of $1,967,800 during 2011. Amortization included in accumulated depreciation was $419,604 at December 2011.
Future minimum lease payments under the capital lease agreements are as follows:
2012 |
|
$ |
674,362 |
|
2013 |
|
211,593 |
| |
2014 |
|
69,944 |
| |
Less: amounts representing interest |
|
(67,013 |
) | |
|
|
|
| |
|
|
$ |
888,886 |
|
Less: current portion of capital lease obligations |
|
(620,180 |
) | |
Long-term portion |
|
$ |
268,706 |
|
NOTE JEMPLOYEE BENEFIT PLAN
On May 1, 2005 the Company adopted a 401(k) plan open to all eligible employees. Employees are immediately vested in their contributions, and the employer discretionary contributions. Contributions by the Company for the year ended December 2011 totaled $136,577.
NOTE KINCOME TAXES
No provision for income taxes has been recorded for the period ended December 2011 as a result of the historical operating losses incurred by the Company.
Components of the Companys net deferred income taxes are as follows:
December 31, |
|
2011 |
| |
|
|
|
| |
Net operating loss carry forward |
|
$ |
2,105,447 |
|
Accrued vacation |
|
50,475 |
| |
Accrued payroll |
|
|
| |
Deferred rent |
|
45,591 |
| |
Depreciation and other temporary differences |
|
(129,570 |
) | |
|
|
|
| |
|
|
2,071,942 |
| |
|
|
|
| |
Less: valuation |
|
(2,071,942 |
) | |
|
|
|
| |
Total deferred tax asset |
|
$ |
|
|
As of December 31, 2011, the Company has net operating loss carry forwards for income tax purposes of approximately $5.6 million, which are subject to expiration between 2023 through 2031. It is possible that such net operating loss carry forwards may be subject to certain limitations imposed by the Internal Revenue Code. A full valuation allowance has been established against the net deferred tax asset given the Companys history of operating losses.
The Companys ability to utilize the net deferred tax asset is based on a number of factors including, the Companys ability to generate substantial taxable income in future periods and the duration of statutory carryforward periods. Valuation allowances are established against the Companys deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. Based on this standard, valuation allowances have been recorded against the entire deferred tax asset of $2.1 million for the year ended December 31, 2011 because the Company does not expect to generate taxable income for the foreseeable future.
Exhibit 99.4
Cardiocore Lab, Inc.
Unaudited Consolidated Interim Financial Statements
June 30, 2012
Index
|
|
Page |
|
|
|
|
|
Unaudited Interim Financial Statements: |
|
|
|
|
|
|
|
Unaudited Consolidated Balance Sheet as of June 30, 2012 |
|
1 |
|
|
|
|
|
Unaudited Statements of Operations for the six months ended June 30, 2012 and 2011 |
|
2 |
|
|
|
|
|
Unaudited Statements of Cash Flow for the six months ended June 30, 2012 and 2011 |
|
3 |
|
|
|
|
|
Notes to Unaudited Interim Financial Statements |
|
4 |
|
Cardiocore Lab, Inc.
Unaudited Consolidated Balance Sheets
(In thousands, except share and per share amounts)
|
|
Unaudited |
|
December 31, 2011 |
| ||
Assets |
|
|
|
|
| ||
Current Assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
2,656 |
|
$ |
3,633 |
|
Other receivables, net |
|
7,431 |
|
2,862 |
| ||
Prepaid expenses and other current assets |
|
175 |
|
316 |
| ||
Total current assets |
|
10,262 |
|
6,811 |
| ||
|
|
|
|
|
| ||
Property and equipment, net |
|
5,045 |
|
5,350 |
| ||
Restricted cash |
|
589 |
|
588 |
| ||
Intangible assets, net |
|
317 |
|
302 |
| ||
Other assets, net |
|
312 |
|
293 |
| ||
Total assets |
|
$ |
16,525 |
|
$ |
13,345 |
|
|
|
|
|
|
| ||
Liabilities and stockholders equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
|
$ |
3,366 |
|
$ |
1,738 |
|
Accrued expenses |
|
1,158 |
|
855 |
| ||
Short-term debt |
|
960 |
|
1,122 |
| ||
Capital lease obligations, current |
|
297 |
|
620 |
| ||
Deferred revenue |
|
2,489 |
|
850 |
| ||
Total current liabilities |
|
8,270 |
|
5,185 |
| ||
|
|
|
|
|
| ||
Other Liabilities |
|
|
|
|
| ||
Long-term debt, net of current |
|
2,283 |
|
2,654 |
| ||
Capital lease obligations, net of current |
|
212 |
|
269 |
| ||
Deferred rent |
|
1,123 |
|
834 |
| ||
Total liabilities |
|
11,888 |
|
8, 942 |
| ||
|
|
|
|
|
| ||
Series A Redeemable Preferred Stock, $.001 par value, 2,894,356 shares authorized, issued and outstanding (Liquidation preference of $11,570) |
|
11,570 |
|
11,290 |
| ||
|
|
|
|
|
| ||
Stockholders equity: |
|
|
|
|
| ||
Common stock, $.001 par value, 10,000,000 shares authorized, 4,580,816 shares issued and outstanding for 2011 |
|
5 |
|
5 |
| ||
Additional paid-in capital |
|
491 |
|
757 |
| ||
Accumulated deficit |
|
(7,429 |
) |
(7,649 |
) | ||
Total stockholders equity |
|
(6,933 |
) |
(6,887 |
) | ||
Total liabilities and stockholders equity |
|
$ |
16,525 |
|
$ |
13,345 |
|
Cardiocore Lab, Inc.
Unaudited Statements of Operations
(In thousands, except share and per share amounts)
|
|
Unaudited |
|
Unaudited |
| ||
Revenue |
|
$ |
9,173 |
|
$ |
8,448 |
|
Cost of sales |
|
4,615 |
|
4,591 |
| ||
Gross profit |
|
4,558 |
|
3,857 |
| ||
|
|
|
|
|
| ||
Operating expenses |
|
|
|
|
| ||
General and administrative |
|
1,867 |
|
1,770 |
| ||
Sales and marketing |
|
1,568 |
|
1,486 |
| ||
Research and development |
|
631 |
|
411 |
| ||
|
|
|
|
|
| ||
Operating expenses |
|
4,066 |
|
3,667 |
| ||
|
|
|
|
|
| ||
Income from operations |
|
492 |
|
190 |
| ||
Other expenses, net |
|
(272 |
) |
(151 |
) | ||
|
|
|
|
|
| ||
Net income |
|
$ |
220 |
|
$ |
39 |
|
Cardiocore Lab, Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands, except share and per share amounts)
|
|
Unaudited |
|
Unaudited |
| ||
Operating Activities |
|
|
|
|
| ||
Net Loss |
|
$ |
220 |
|
$ |
39 |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
948 |
|
881 |
| ||
Amortization of Intangibles |
|
5 |
|
4 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
|
(4,740 |
) |
1,008 |
| ||
Prepaid expenses and other assets |
|
292 |
|
|
| ||
Accounts payable |
|
1,628 |
|
(575 |
) | ||
Accrued expenses and other liabilities |
|
705 |
|
(115 |
) | ||
Deferred revenue |
|
1,639 |
|
(229 |
) | ||
Net Cash Provided by Operating Activities |
|
697 |
|
1,013 |
| ||
|
|
|
|
|
| ||
Investing Activities |
|
|
|
|
| ||
Purchase of property and equipment |
|
(661 |
) |
(1,016 |
) | ||
Net Cash Used in Investing Activities |
|
(661 |
) |
(1,016 |
) | ||
|
|
|
|
|
| ||
Financing Activities |
|
|
|
|
| ||
Payments on long-term debt |
|
(632 |
) |
(419 |
) | ||
Borrowings on long-term debt |
|
|
|
2,860 |
| ||
Payments on capital lease obligations |
|
(380 |
) |
(360 |
) | ||
Net Cash Provided by Financing Activities |
|
(1,012 |
) |
2,081 |
| ||
|
|
|
|
|
| ||
Net increase(decrease) in cash and cash equivalents |
|
(976 |
) |
2,078 |
| ||
|
|
|
|
|
| ||
Cash and Cash Equivalents, beginning of the year |
|
4,221 |
|
2,015 |
| ||
Cash and Cash Equivalents, end of the year |
|
3,245 |
|
4,093 |
| ||
Cardiocore Lab Inc and Subsidiary
Notes to the Unaudited Interim Consolidated Financial Statements
NOTE AORGANIZATION
Organization and Purpose
Cardiocore Lab, Inc (the Company), a Delaware corporation, was founded in March 2003. In March 2007, the Company created a wholly owned subsidiary named Cardiocore Lab, Ltd. to promote its operations in Europe and Asia. In February 2010, the Company opened a registered office in Singapore to increase its footprint in the Asia Pacific region. The Company offers global centralized core lab services including electrocardiography (ECG), Holter monitoring, echocardiography (ECHO), multigated acquisition scan (MUGA), protocol development, expert reporting, statistical analysis, expert scientific consulting and state-of-the-art data and information management.
The Company is headquartered in Rockville, Maryland and has operating offices in London, UK and San Francisco, California.
NOTE BGOING CONCERN REDEEMABLE PREFERRED STOCK
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
As described in Note F, Preferred Stock, the Companys Series A Preferred Stock is subject to redemption any time following the fifth anniversary of the issuance date or February 16, 2011. On the redemption date, holders of Series A Preferred Stock may require the Company, to the extent it may lawfully do so, to redeem all or a portion of the then outstanding shares. The maximum redemption value as of June 30, 2012 is $11.6 million if all such holders exercised their redemption right. If this redemption feature were exercised, management does not believe that the Company could fund the redemption with available cash or borrowings under current lending arrangements which raise substantial doubt about the Companys ability to continue as a going concern.
In view of the significance of the amount of the Companys redemption obligations relative to its cash flow and assets, the Company does not believe that it would be able to finance its redemption obligations through its operational cash flows. The Companys Board of Directors and management team is in the process of evaluating alternative resolutions with the Series A Shareholders. Absent an agreement by the holders of the shares of the Companys Preferred Stock to forgo or delay the exercise of their right to trigger the Companys redemption obligations the Company would pursue debt or equity financing or recapitalization of the Company so as to eliminate or defer the redemption feature of the Preferred Stock.
NOTE CSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company prepares its financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (US GAAP).
Principles of Consolidation
The consolidated financial statements include the amounts of Cardiocore Lab, Inc. and its wholly owned subsidiary, Cardiocore Lab, Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates in Preparing Financial Statements
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.
Revenue Recognition
The Company enters into master service agreements that consist of both service and equipment deliverables. Revenue is recognized for individual elements in an arrangement based upon an estimated selling price. Service deliverables include Cardiac Safety services, statistical analysis, consulting and training. Revenues from such services are recognized as the services are provided. Revenues for equipment rentals are recognized ratably over the rental period.
The Company enters into multiple element arrangements and accounts for them in accordance with Accounting Standards Codification (ASC) Topic 605 (ASC 605-25), Revenue Recognition, subtopic 25, Multiple-Element Arrangements. ASC 605-25 requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangements meet specific criteria. In addition, arrangement consideration must be allocated among the separate units of accounting based on their relative selling prices.
The Company has determined selling prices of the service and equipment deliverables through separate sales as well as an evaluation of what a customer would pay in the event that there are no separate sales to arrive at an estimated selling price. When these items are sold together, the equipment and services revenues are recognized based on the allocated selling price upon delivery. Service revenue is billed and recognized monthly in the period in which the services are delivered. Equipment rentals are billed in advance and revenue is recognized ratably over the rental period. Customer billings in advance of revenue are recorded as deferred revenue. Deferred revenue at June 30, 2012 and December 31, 2011 was $2.5 million and $0.9 million, respectively.
In the event the Company enters into a multiple element arrangement including items with no determined selling price, revenue is deferred and recognized over the term of the related service contract, which approximates the estimated customer relationship period.
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-13, Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force, to amend the existing revenue recognition guidance.
ASU 2009-13 amended FASBs ASC 605, Revenue Recognition, subtopic 25, as follows:
· Modifies criteria used to separate elements in a multiple-element arrangement
· Introduces the concept of best estimate of selling price for determining the selling price of a deliverable
· Establishes a hierarchy of evidence for determining the selling price of a deliverable
· Requires use of the relative selling price method and prohibits use of the residual method to allocate arrangement consideration among units of accounting
· Expands the disclosure requirements for all multiple-element arrangements within the scope of ASC 605-25
The following criteria must be met to separate elements in a multiple-element arrangement under the amended guidance in ASC 605-25:
· The delivered item(s) has stand-alone value to the customer.
· If a general right of return exists, delivery or performance of the undelivered item(s) is substantially in the control of the vendor and is considered probable.
The Company adopted ASU 2009-13 on January 2010. The adoption of this standard did not have a significant impact on the Companys revenue recognized.
Stand-alone value
A deliverable is considered to have standalone value if a customer could resell the element on a standalone basis or if the Company sells it separately. From time to time, the Company rents equipment and sells services separately. In effect, the customer may use their own machines or may already have the data for which they request the Company to analyze. Accordingly, there is stand-alone value to the delivered items. There is also no general right of return on rentals of the Company equipment or sales of the Companys other products. Consequently, the Company has met both criterion and must separate transactions into multiple deliverables.
Measurement
In establishing a selling price of each element, the Company must first establish Vendor-Specific Objective Evidence (VSOE). If the Company is unable to support VSOE for a delivered item (or third party evidence), it must then estimate the selling price (ESP) of the delivered item. The Companys ESP considered multiple factors, such as discrete historical pricing for a given element in the fee arrangement, pricing trends, overall economic conditions, profit margins realized by the Company in the industry, and certain entity-specific factors.
Allocation
The total arrangement fee is allocated to the individual elements in a multiple element transaction based on each elements relative selling price.
Accounts Receivable
The Company reviews its receivables regularly to determine if there are any potential uncollectible accounts. The Company records allowances for bad debt as a reduction to accounts receivable and an increase to bad debt. These allowances are recorded in the period a specific collection problem is identified. There were no unbilled receivables as of June 30, 2012 and December 31, 2011.
Cash and Cash Equivalents
Cash and cash equivalents include money market investments. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash held in financial institutions may exceed insured amounts.
Research and Development
All research and development costs are charged to operations as incurred. Total research and development costs for the six month ended periods ended June 2012 and 2011 totaled approximately $0.6 million and $0.4 million, respectively.
Property and Equipment
Property and equipment is stated at cost net of accumulated depreciation. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the statement of operations. Depreciation is computed using the straight-line method over the estimated useful lives of three to seven years. Leased assets are amortized over the shorter of the estimated life or leased term. The cost of maintenance and repairs is charged to expense as incurred.
Software Development Costs
The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software. Capitalized costs include external direct costs of materials and services utilized in developing or obtaining internal use-software. During the six months ended June 30, 2012 and 2011, the Company capitalized approximately $0 and $0.2 million, respectively, of costs associated with software development. The Company amortizes the costs of internal-use software over three years.
Intangible Assets
The Company has intangible assets consisting of patents and trademarks. The Company amortizes the cost of such intangibles, on a straight-line basis, over a period of five to seven years.
Assets Held under Capital Leases
Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease.
Deferred Rent
The Company recognizes rent expense on a straight-line basis over the term of the related lease. Lease incentives or abatements, received at or near the inception of leases, are accrued and amortized ratably over the life of the lease in accordance with US GAAP.
Stock Based Compensation
The Company accounts for stock-based compensation under Accounting Standards Codification 718 (ASC 718) Share-Based Payment. ASC 718 requires the recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. ASC 718 also requires the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (generally the vesting period). The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model.
Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The Company deposits its cash, which at times may be in excess of the Federal Deposit Insurance Corporation insurance limits, with high credit quality financial institutions. For accounts receivable, the Company performs ongoing credit evaluations of its customers financial condition and generally does not require collateral. The Company maintains reserves for credit losses, and such losses have not been significant.
Long-lived Assets
Whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be fully recoverable, the Company evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. If any impairment is indicated as a result of this analysis, the Company would recognize a loss based on the amount by which the carrying amount exceeds the estimated fair value of such asset.
Redeemable Preferred Stock
Preferred stock that can be put back to the Company is recorded as temporary equity.
Income Taxes
Deferred income taxes are provided based on the estimated future tax effects of differences between financial statement carrying amounts and the tax bases of existing assets and liabilities as measured by the enacted tax rates, which will be in effect when the difference reverse. The Company evaluates its ability to realize deferred tax assets, and establishes a valuation allowances to cover amounts in which management is unable to conclude more likely than not will be realized in future periods.
In accordance with the guidance discussed above, the Company recognizes the financial statement effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by taxing authority. Recognized tax positions are initially and subsequently measured as the largest amounts of tax benefit that will more likely than not being realized upon ultimate settlement with a taxing authority. The Company has chosen to treat interest and penalties related to uncertain taxing liabilities as a component of income tax expense.
Fair Value of Financial Instruments
The carrying amounts of the Companys financial instruments, which include cash equivalents, trade receivables, accounts payable and accrued expenses, approximate their fair values due to the short maturities. The Companys debt and capital lease obligations are considered at fair value given their market rates of interest.
The Companys financial assets and liabilities are measured at fair value, which is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. Valuation techniques are based on observable or unobservable inputs. Observable inputs reflect the Companys market assumptions. These two types of inputs have created the following fair value hierarchy:
Level 1 Quoted prices for identical instruments in active markets
Level 2 Quotes prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant value drivers are observable.
Level 3 Valuation derived from valuation techniques in which significant value drivers are unobservable.
NOTE DINTANGIBLE ASSETS
Intangible assets consist of patents and trademarks. Net intangible assets totaled $0.3 million and $0.3 million as of June 30, 2012 and December 31, 2011, respectively. Accumulated amortization as of June 30, 2012 and December 31, 2011 was $0.1 million and $0.1 million, respectively.
NOTE EDEBT
Loan and Security Agreement
In January 2011, the Company entered into and executed a loan and security agreement which provides for additional capacity in funding of up to $3.5 million. The loan and security agreement provides for two draw periods, the first of which provides for $2.5 million in funds and the second provides for $1.0 million in funds. The maturity date of each draw is 36 months after the funding date or date of the draw (for the second draw period the funding date is no later than September 30, 2011). Borrowings under the loan and security agreement accrue interest at a fixed rate per annum of 11.50%. As of June 30, 2012 the Companys obligation under such arrangement was $2.9 million.
In conjunction with the execution of the loan and security agreement the Company issued 150,000 warrants to purchase common stock. The warrants expire on January 6, 2021. The fair value of the warrants has been recorded as a reduction of the obligation as a discount of approximately $0.1 million. Changes in this discount will be recorded as interest expense over the 36 month term of the debt instrument.
The loan and security agreement provides for a consolidated financial statement delivery covenant of 150 days from year-end. For the period ended December 31, 2011 the Company did not comply with such covenant, but obtained a waiver from the lenders to cure such violation.
Furniture Loan
In October 2011 the Company executed a promissory note (Equipment Loan) for $0.3 million. The proceeds from the equipment loan were used to purchase furniture and fixtures for the Companys new headquarters office. The Equipment Loan provides for consecutive monthly payments of $7,625 through the maturity date of October 2014. The Equipment Loan accrues interest at 3.5% and is secured by the furniture and fixtures purchased with the related proceeds. As of June 30, 2012 the Companys obligation under this arrangement was $0.2 million.
LineofCredit
In October 2006, the Company established a line of credit for $0.5 million, as amended, which is secured by the Companys money market account. Interest on the line of credit was based upon the banks prime lending rate minus 1.0 percent and is payable monthly. In 2011 the Company paid off the line of credit with the proceeds from the term loan as described above.
NOTE FPREFERRED STOCK
On February 16, 2006 the Company issued 2,894,356 shares of Series A Redeemable Convertible Preferred Stock, $0.001 par value, at a per share price of $2.764 to various outside investors. Total proceeds received net of issuance costs approximated $7.9 million. Dividends on all shares of preferred stock are due before any distributions on shares of common stock and are payable at the rate of $0.194 per share (seven percent of the original purchase price of such shares).
Upon liquidation of the Company, each preferred shareholder will be entitled to receive, before any distributions to Common Stock holders, the original issue price of such shares, plus any accrued and unpaid dividends, whether or not declared. All remaining proceeds shall be paid to the holders of Common Stock. Each holder shall have the option of converting their shares into Common Stock immediately prior to the effectiveness of the completion of a Liquidity Event, in which case they shall, prior to any such conversion, receive their accrued but unpaid dividends and then be otherwise treated with parity with Common Stock.
Each holder shall have the right, at any time after the fifth anniversary, to convert the Series A Redeemable Convertible Preferred Stock into common stock at a conversion price equal to the purchase price per share. The Series A Preferred Stock will automatically convert to shares of Common Stock upon: (i) the approval of the holders of a majority of the then outstanding Series A Preferred Stock, or (ii) upon closing of an Initial Public Offering (IPO) of Common Stock with a per share price no less than three times the original purchase price per share. The initial conversion price per share of Series A Preferred Stock is $2.764 per share.
Commencing on the fifth anniversary of the original issue date of the Series A Redeemable Convertible Preferred Stock (February 16, 2011) and on each of the successive quarters thereafter, the holders of a majority of the then-outstanding shares of Series A Redeemable Convertible Preferred Stock, voting as a separate class, may require the Company to redeem the Series A Redeemable Convertible Preferred Stock in eight quarterly installments. If such election is made, the Series A Redeemable Convertible Preferred Stock will be redeemed at the greater of the cost plus unpaid accrued dividends or fair market value.
The redemption values for the remainder of 2012 of the Series A Redeemable Convertible Preferred Stock are presented below:
August 16, 2012 |
|
11,641,143 |
|
November 16, 2012 |
|
11,782,309 |
|
NOTE GEQUITY INCENTIVE PLAN
Effective April 30, 2004, the Company adopted the 2004 Equity Incentive Plan (the Plan), under which incentive stock options may be granted to employees. Also, incentive stock options, non-statutory stock options, stock bonuses, and rights to acquire restricted stock may be granted to employees, directors, and consultants of the Company.
The plan is administered by the Board of Directors (the Board). The options are subject to various restrictions as outlined in the Plan. The Board determines the number of options granted to employees, directors, or consultants, as well as the vesting period and the exercisable price of the options, subject to the provisions outlined in the Plan.
The Board has reserved 1,125,000 shares of common stock for issuance under the Plan.
Fair Value Determination
The Company has elected to use both the Black-Scholes option pricing model and straight-line recognition of compensation expense over the requisite service period. The Company will reconsider the use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.
The Company has 10 year options.
Stock Option Activity
During the six months ended June 30, 2012 and 2011 the Company did not grant any stock options.
A summary of the status of the Companys Equity Incentive Plan as of June 30, 2012 is presented below:
|
|
Number of Shares |
|
Weighted-Average |
|
|
|
|
|
|
|
Options exercisable at December 31, 2011 |
|
993,571 |
|
1.83 |
|
Options granted |
|
|
|
|
|
Options exercised |
|
|
|
|
|
Options forfeited |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2012 |
|
993,571 |
|
1.83 |
|
|
|
|
|
|
|
Shares reserved for equity awards at June 30, 2012 |
|
131,429 |
|
|
|
Information with respect to stock options outstanding and stock options exercisable at June 30, 2012 was as follows:
Exercise Price |
|
Options Outstanding |
|
Weighted-Average |
|
Weighted-Average Exercise |
| ||
|
|
|
|
|
|
|
| ||
$ |
0.50 |
|
33,000 |
|
2.15 |
|
$ |
0.50 |
|
1.10 |
|
392,316 |
|
4.38 |
|
1.10 |
| ||
2.50 |
|
568,255 |
|
2.99 |
|
2.50 |
| ||
NOTE HINCOME TAXES
No provision for income taxes has been recorded for the six months ended June 30, 2012 and 2011, as a result of the historical operating losses incurred by the Company.