þ | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
o | Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
Delaware | 11-2962080 | |
(State or other jurisdiction of | (I.R.S. employer identification no.) | |
incorporation or organization) |
4400 Biscayne Blvd., Suite A-100, Miami, Florida | 33137 | |||
(Address of principal executive offices) | (Zip code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
2
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 328 | $ | 3,032 | ||||
Other receivable related-party |
58 | 64 | ||||||
Prepaid expenses |
131 | 117 | ||||||
Inventories |
86 | 91 | ||||||
Total Current Assets |
603 | 3,304 | ||||||
FIXED ASSETS |
||||||||
Property and equipment, net |
416 | 337 | ||||||
OTHER ASSETS |
||||||||
Security deposits |
2 | 2 | ||||||
Deferred financing costs, net |
15 | 51 | ||||||
Total Other Assets |
17 | 53 | ||||||
TOTAL ASSETS |
$ | 1,036 | $ | 3,694 | ||||
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Accounts payable and accrued liabilities |
$ | 415 | $ | 221 | ||||
Notes payable |
| 49 | ||||||
Total Current Liabilities |
415 | 270 | ||||||
Stockholders loans, including accrued interest (Note 5) |
1,107 | | ||||||
Commitments and contingencies (Note 8) |
| | ||||||
STOCKHOLDERS (DEFICIT) EQUITY |
||||||||
Preferred stock, $0.01 par value per share, 25,000,000 shares authorized
10% Series A Cumulative Convertible Preferred Stock, 4,000,000 shares
authorized, no shares issued and outstanding, respectively; liquidation
preference $0 |
| | ||||||
Common stock, $0.001 par value per share, 225,000,000 shares authorized,
28,003,755 shares issued and outstanding |
28 | 28 | ||||||
Additional paid-in capital |
20,667 | 20,427 | ||||||
Deficit accumulated during the development stage |
(21,181 | ) | (17,031 | ) | ||||
Total Stockholders (Deficit) Equity |
(486 | ) | 3,424 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY |
$ | 1,036 | $ | 3,694 | ||||
3
September | ||||||||||||||||||||
15, 2005 | ||||||||||||||||||||
(Inception) | ||||||||||||||||||||
to | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | September | ||||||||||||||||||
September 30, | September 30, | 30, | ||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | ||||||||||||||||
Revenues |
$ | | $ | (2 | ) | $ | | $ | | $ | | |||||||||
Cost of sales |
| (1 | ) | | | | ||||||||||||||
Gross margin |
| (1 | ) | | | | ||||||||||||||
Operating costs and expenses |
||||||||||||||||||||
Research and development |
975 | 1,026 | 2,480 | 2,106 | 12,051 | |||||||||||||||
Selling, general and administrative |
506 | 712 | 1,627 | 1,758 | 8,316 | |||||||||||||||
Total operating costs and expenses |
1,481 | 1,738 | 4,107 | 3,864 | 20,367 | |||||||||||||||
Operating loss |
(1,481 | ) | (1,739 | ) | (4,107 | ) | (3,864 | ) | (20,367 | ) | ||||||||||
Other income and expense |
||||||||||||||||||||
Other income |
| | | | 1,147 | |||||||||||||||
Interest (expense) income, net |
(7 | ) | 1 | (7 | ) | 1 | 8 | |||||||||||||
Amortization of debt issuance expense |
(5 | ) | (26 | ) | (36 | ) | (179 | ) | (1,969 | ) | ||||||||||
Total other income and expense |
(12 | ) | (25 | ) | (43 | ) | (178 | ) | (814 | ) | ||||||||||
Loss before income tax |
(1,493 | ) | (1,764 | ) | (4,150 | ) | (4,042 | ) | (21,181 | ) | ||||||||||
Provision for income tax |
| | | | | |||||||||||||||
Net loss |
$ | (1,493 | ) | $ | (1,764 | ) | $ | (4,150 | ) | $ | (4,042 | ) | $ | (21,181 | ) | |||||
Loss attributable to common stockholders and loss per
common share: |
||||||||||||||||||||
Net loss |
(1,493 | ) | (1,764 | ) | (4,150 | ) | (4,042 | ) | (21,181 | ) | ||||||||||
Deemed dividend Series A Preferred Stock |
| | | (500 | ) | (700 | ) | |||||||||||||
Deemed dividend Series A Preferred
Conversion |
| (4,301 | ) | | (4,301 | ) | (4,301 | ) | ||||||||||||
Dividends Series A Preferred Stock |
| (80 | ) | | (278 | ) | (366 | ) | ||||||||||||
Net loss attributable to common stockholders |
$ | (1,493 | ) | $ | (6,145 | ) | $ | (4,150 | ) | $ | (9,121 | ) | $ | (26,548 | ) | |||||
Weighted average shares outstanding, basic and diluted |
28,004 | 24,041 | 28,004 | 20,285 | ||||||||||||||||
Net loss per basic and diluted share |
$ | (0.05 | ) | $ | (0.26 | ) | $ | (0.15 | ) | $ | (0.45 | ) | ||||||||
4
Deficit | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Additional | During the | |||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Development | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Stage | Total | ||||||||||||||||||||||
Inception September 15, 2005 |
| $ | | | $ | | $ | | $ | | $ | | ||||||||||||||||
Capital contributed |
| | | | 1 | | 1 | |||||||||||||||||||||
Net loss |
| | | | | (76 | ) | (76 | ) | |||||||||||||||||||
Balance at December 31, 2005 |
| $ | | | $ | | $ | 1 | $ | (76 | ) | $ | (75 | ) | ||||||||||||||
Capital contributed |
| | 11,256 | 11 | 1,493 | | 1,504 | |||||||||||||||||||||
Net loss |
| | | | | (1,060 | ) | (1,060 | ) | |||||||||||||||||||
Balance at December 31, 2006 |
| $ | | 11,256 | $ | 11 | $ | 1,494 | $ | (1,136 | ) | $ | 369 | |||||||||||||||
Capital contributed |
| | 4,837 | 5 | 5,088 | | 5,093 | |||||||||||||||||||||
Net loss |
| | | | | (3,041 | ) | (3,041 | ) | |||||||||||||||||||
Balance at December 31, 2007 |
| $ | | 16,093 | $ | 16 | $ | 6,582 | $ | (4,177 | ) | $ | 2,421 | |||||||||||||||
Issuance of common shares in private
offering May 2008 at $2.15 per share,
net of offering costs |
| | 1,862 | 2 | 3,986 | | 3,988 | |||||||||||||||||||||
Issuance of common shares as repayment
of stockholder note-December 30, 2008 at
$1.22 per share |
8 | | 10 | | 10 | |||||||||||||||||||||||
Stock-based compensation |
| | | | 239 | | 239 | |||||||||||||||||||||
Net loss |
| | | | | (5,185 | ) | (5,185 | ) | |||||||||||||||||||
Balance at December 31, 2008 |
| $ | | 17,963 | $ | 18 | $ | 10,817 | $ | (9,362 | ) | $ | 1,473 | |||||||||||||||
Issuance of Series A Preferred Stock in
July 2009 at $1.00 per share |
2,000 | 20 | | 1,962 | | 1,982 | ||||||||||||||||||||||
Fair value of beneficial conversion
feature of Series A Preferred Stock |
| | | | 200 | | 200 | |||||||||||||||||||||
Deemed dividend to Series A Preferred
Stockholders, charged to additional
paid-in capital in the absence of
retained earnings |
| | | | (200 | ) | | (200 | ) | |||||||||||||||||||
Stock-based compensation |
| | | | 195 | | 195 | |||||||||||||||||||||
Net loss |
| | | | | (2,366 | ) | (2,366 | ) | |||||||||||||||||||
Balance at December 31, 2009 |
2,000 | $ | 20 | 17,963 | $ | 18 | $ | 12,974 | $ | (11,728 | ) | $ | 1,284 | |||||||||||||||
Issuance of Series A Preferred Stock in
January 2010 at $1.00 per share |
2,000 | 20 | | 1,978 | | 1,998 | ||||||||||||||||||||||
Fair value of beneficial conversion
feature of Series A Preferred Stock |
| | | | 500 | | 500 | |||||||||||||||||||||
Deemed dividend to Series A Preferred
Stockholders, charged to additional
paid-in capital in the absence of
retained earnings |
| | | | (500 | ) | | (500 | ) | |||||||||||||||||||
Issuance of common shares in private
offering June 2010 at $1.00 per share,
net of offering costs |
| | 4,978 | 5 | 4,969 | | 4,974 | |||||||||||||||||||||
Conversion of 4,000 shares of Series A
Preferred Stock and accumulated
dividends into 4,366 shares of Common
Stock in September 2010 |
(4,000 | ) | (40 | ) | 4,366 | 4 | 36 | | | |||||||||||||||||||
Issuance of 697 shares of Common Stock
as Consideration Shares in September
2010 |
| | 697 | 1 | (1 | ) | | | ||||||||||||||||||||
Intrinsic value of 5,063 aggregate
shares of Common Stock issued on
conversion of Series A Preferred Stock |
| | | | 4,301 | | 4,301 | |||||||||||||||||||||
Dividend paid to Series A Preferred
Stockholders on conversion, charged to
additional paid-in capital in the
absence of retained earnings |
| | | | (4,301 | ) | | (4,301 | ) | |||||||||||||||||||
Stock-based compensation |
| | | | 471 | | 471 | |||||||||||||||||||||
Net loss |
| | | | | (5,303 | ) | (5,303 | ) | |||||||||||||||||||
Balance at December 31, 2010 |
| $ | | 28,004 | $ | 28 | $ | 20,427 | $ | (17,031 | ) | $ | 3,424 | |||||||||||||||
Stock-based compensation |
| | | | 240 | | 240 | |||||||||||||||||||||
Net loss |
| | | | | (4,150 | ) | (4,150 | ) | |||||||||||||||||||
Balance at September 30, 2011 (unaudited) |
| $ | | 28,004 | $ | 28 | $ | 20,667 | $ | (21,181 | ) | $ | (486 | ) | ||||||||||||||
5
September 15, | ||||||||||||
Nine Months Ended | 2005 (Inception) | |||||||||||
September 30, | to September 30, | |||||||||||
2011 | 2010 | 2011 | ||||||||||
OPERATING ACTIVITIES |
||||||||||||
Net loss |
$ | (4,150 | ) | $ | (4,042 | ) | $ | (21,181 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Amortization of deferred finance costs |
36 | 179 | 1,969 | |||||||||
Stock-based compensation expense |
240 | 360 | 1,210 | |||||||||
Stock-based compensation expense related to Share Exchange |
| | 77 | |||||||||
Depreciation and amortization |
100 | 59 | 302 | |||||||||
Loss from disposal of assets |
20 | | 20 | |||||||||
Inventory Adjustments |
| 23 | 53 | |||||||||
Gain on sale of TruePosition investment |
| | (903 | ) | ||||||||
Changes in operating assets and liabilities |
||||||||||||
Inventories |
5 | (146 | ) | (139 | ) | |||||||
Other current assets |
(8 | ) | 53 | (169 | ) | |||||||
Other assets |
| | (2 | ) | ||||||||
Accounts payable and accrued liabilities |
194 | 150 | 131 | |||||||||
Accrued interest |
7 | | 7 | |||||||||
NET CASH USED IN OPERATING ACTIVITIES |
(3,556 | ) | (3,364 | ) | (18,625 | ) | ||||||
INVESTING ACTIVITIES |
||||||||||||
Purchase of property and equipment |
(199 | ) | (277 | ) | (738 | ) | ||||||
Proceeds from sale of True Position investment |
| | 903 | |||||||||
Payment received under Rule 16b |
| | 4 | |||||||||
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES |
(199 | ) | (277 | ) | 169 | |||||||
FINANCING ACTIVITIES |
||||||||||||
Net cash provided in connection with the acquisition of SafeStitch LLC |
| | 3,192 | |||||||||
Issuance of Common Stock, net of offering costs |
| 4,974 | 8,962 | |||||||||
Issuance of Preferred Stock, net of offering costs |
| 1,998 | 3,980 | |||||||||
Capital contributions |
| | 1,431 | |||||||||
Proceeds from notes payable |
| | 141 | |||||||||
Repayment of notes payable |
(49 | ) | (50 | ) | (141 | ) | ||||||
Proceeds from stockholders loans |
1,100 | | 3,960 | |||||||||
Repayment of stockholders loans |
| | (2,776 | ) | ||||||||
Exercise of options |
| | 35 | |||||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES |
1,051 | 6,922 | 18,784 | |||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
(2,704 | ) | 3,281 | 328 | ||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
3,032 | 871 | | |||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 328 | $ | 4,152 | $ | 328 | ||||||
Supplemental disclosures: |
||||||||||||
Cash paid for interest |
$ | | $ | | $ | 64 | ||||||
Non cash activities: |
||||||||||||
Non-cash dividend upon issuance & conversion of
Preferred |
$ | | $ | 4,801 | $ | 5,001 | ||||||
Stock dividends |
$ | | $ | | $ | 366 | ||||||
Stockholder loans contributed to capital |
$ | | $ | | $ | 84 | ||||||
Warrants issued in connection with credit facility |
$ | | $ | | $ | 1,985 |
6
7
8
Estimated Useful Lives | September 30, 2011 | December 31, 2010 | ||||||||||
Machinery and equipment |
5 years | $ | 566,000 | $ | 452,000 | |||||||
Furniture and fixtures |
3-5 years | 81,000 | 50,000 | |||||||||
Software |
3-5 years | 57,000 | 37,000 | |||||||||
704,000 | 539,000 | |||||||||||
Accumulated
depreciation and amortization |
(288,000 | ) | (202,000 | ) | ||||||||
Property and equipment, net |
$ | 416,000 | $ | 337,000 | ||||||||
9
Nine months ended | Nine months ended | |||
September 30, 2011 | September 30, 2010 | |||
Expected volatility |
76.91% 102.63% | 87.09% 108.28% | ||
Expected dividend yield |
0.00% | 0.00% | ||
Risk-free interest rate |
2.25% 3.25% | 1.21% 3.11% | ||
Expected life |
5.5 10.0 years | 4.0 7.0 years | ||
Forfeiture rate |
0% 5% | 0% 5% |
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Shares | Price | Term (Years) | Value | |||||||||||||
Outstanding at December 31, 2010 |
1,334,667 | $ | 1.41 | 5.74 | ||||||||||||
Granted |
562,500 | $ | 1.12 | 9.45 | ||||||||||||
Exercised |
| | ||||||||||||||
Canceled or expired |
(267,500 | ) | $ | 1.19 | ||||||||||||
Outstanding at September 30, 2011 |
1,629,667 | $ | 1.34 | 6.51 | | |||||||||||
Exercisable at September 30, 2011 |
852,417 | $ | 1.50 | 5.22 | | |||||||||||
Vested and expected to vest at
September 30, 2011 |
1,586,248 | $ | 1.35 | 6.49 | | |||||||||||
10
11
12
September 30, 2011 | September 30, 2010 | |||||||
Stock options |
1,629,667 | 1,284,667 | ||||||
Stock warrants |
805,521 | 805,521 | ||||||
Series A Preferred Stock |
| | ||||||
Total |
2,435,188 | 2,090,188 | ||||||
13
14
15
16
17
18
Item 4. Controls and Procedures. |
19
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) |
|||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) |
|||
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002* |
|||
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002* |
|||
101.INS | XBRL Instance Document** |
|||
101.SCH | XBRL Taxonomy Extension Schema Document** |
|||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** |
|||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document** |
|||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document** |
|||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** |
* | Pursuant to Item 601(b)(32) of Regulation S-K, this exhibit
is furnished, rather than filed, with this Quarterly Report on
Form 10-Q. |
20
** | Pursuant to Rule 406T of Regulation S-T, these interactive
data files are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the
Securities Act of 1933 or Section 18 of the Securities Act of 1934
and otherwise not subject to liability. |
21
SAFESTITCH MEDICAL, INC. |
||||
Date: November 14, 2011 | By: | /s/ Jeffrey G. Spragens | ||
Jeffrey G. Spragens | ||||
President and Chief Executive Officer | ||||
Date: November 14, 2011 | By: | /s/ James J. Martin | ||
James J. Martin | ||||
Chief Financial Officer |
22
1. | I have reviewed this Quarterly Report on Form 10-Q of SafeStitch Medical, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
||
b. | Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
||
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and |
||
d. | Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
||
b. | Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
By: | /s/ Jeffrey G. Spragens | |||
Jeffrey G. Spragens | ||||
Chief Executive Officer (Principal Executive Officer) November 14, 2011 |
||||
1. | I have reviewed this Quarterly Report on Form 10-Q of SafeStitch Medical, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
b. | Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
b. | Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
By: | /s/ James J. Martin | |||
James J. Martin | ||||
Chief Financial Officer November 14, 2011 |
||||
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
(2) | the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
By: | /s/ Jeffrey G. Spragens | |||
Jeffrey G. Spragens | ||||
Chief Executive Officer and President November 14, 2011 |
||||
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
(2) | the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
By: | /s/ James J. Martin | |||
James J. Martin | ||||
Chief Financial Officer November 14, 2011 |
||||
Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data | Sep. 30, 2011 |
---|---|
Stockholder's Equity | |
Preferred stock at par value | $ 0.01 |
Preferred stock, shares authorized | 25,000,000 |
Aggregate preferred stock liquidation preference | $ 0 |
Common stock at par value | $ 0.001 |
Common stock, shares authorized | 225,000,000 |
Common stock, shares issued | 28,003,755 |
Common Stock, shares outstanding | 28,003,755 |
10% Cumulative Convertible Preferred Stock | |
Stockholder's Equity | |
Preferred stock, shares authorized | 4,000,000 |
Preferred Stock, shares issued | |
Preferred stock, shares outstanding | |
Rate of cumulative convertible preferred stock | $ 10.00% |
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Document and Entity Information (USD $) In Millions, except Share data | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | Nov. 02, 2011 | Jun. 30, 2010 | |
Document And Entity Information [Abstract] | |||
Entity Registrant Name | SAFESTITCH MEDICAL, INC. | ||
Entity Central Index Key | 0000876378 | ||
Document Type | 10-Q | ||
Document Period End Date | Sep. 30, 2011 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | Q3 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 9.5 | ||
Entity Common Stock, Shares Outstanding | 28,003,755 |
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Debt | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Debt [Abstract] | |
DEBT |
NOTE 5 — DEBT
Credit Facility. In connection with the acquisition of SafeStitch LLC, the Company entered
into a Note and Security Agreement (the “Credit Facility”) with both The Frost Group and Jeffrey G.
Spragens, the Company’s Chief Executive Officer and President and a director. The Frost Group is a
Florida limited liability company whose members include Frost Gamma Investments Trust, a trust
controlled by Dr. Phillip Frost, the largest beneficial holder of the issued and outstanding shares
of Common Stock, Dr. Jane H. Hsiao, the Company’s Chairman of the Board, and Steven D. Rubin, a
director. The Credit Facility provides $4.0 million in total available borrowings, consisting of
$3.9 million from The Frost Group and $100,000 from Mr. Spragens. The Company has granted a
security interest in all present and subsequently acquired collateral in order to secure prompt,
full and complete payment of the amounts outstanding under the Credit Facility. The collateral
includes all assets of the Company, inclusive of intellectual property (patents, patent rights,
trademarks, service marks, etc.). Outstanding borrowings under the Credit Facility accrue interest
at a 10% annual rate. The Credit Facility had an initial term of 28 months, expiring in December
2009, and was amended on four occasions to extend the Maturity Date, which is now June 30, 2013.
In connection with the Credit Facility, the Company granted warrants to purchase an aggregate
of 805,521 shares of Common Stock to The Frost Group and Mr. Spragens. The fair value of the
warrants was determined to be $1,985,000 on the grant date based on the Black-Scholes valuation
model using the following assumptions: expected volatility of 82%, dividend yield of 0%, risk-free
interest rate of 4.88% and expected life of 10 years. The fair value of the warrants was recorded
as deferred financing costs and is being amortized over the life of the Credit Facility. The
Company recorded amortization expense related to these deferred financing costs of $5,000 and
$36,000, respectively, for the three and nine months ended September 30, 2011 and $26,000 and
$179,000, respectively, for the three and nine months ended September 30, 2010.
The Company borrowed $1,100,000 under the Credit Facility during the three months ended
September 30, 2011 The Company recognized interest expense related to the outstanding borrowings of
$7,100 for the three months ended September 30, 2011. The Company has $1,100,000 outstanding and
$2,900,000 available under the Credit Facility as of September 30, 2011.
|
Income Taxes | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Income Taxes [Abstract] | |
INCOME TAXES |
NOTE 10 — INCOME TAXES
The Company accounts for income taxes using the asset and liability method, the objective of
which is to establish deferred tax assets and liabilities for the temporary differences between the
financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized or settled. A valuation allowance related
to deferred tax assets is recorded when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. All of the Company’s deferred tax assets have been fully
reserved by a valuation allowance due to management’s uncertainty regarding the future
profitability of the Company.
The Company has recognized no adjustment for uncertain tax provisions. SafeStitch recognizes
interest and penalties related to uncertain tax positions in selling, general and administrative
costs and expenses; however no such provisions for accrued interest and penalties related to
uncertain tax positions have been recorded as of September 30, 2011 or December 31, 2010.
The tax years 2008-2010 remain open to examination by the major tax jurisdictions in which the
Company operates.
|
Basis of Presentation and Liquidity | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Basis of Presentation and Liquidity [Abstract] | |
BASIS OF PRESENTATION AND LIQUIDITY |
NOTE 1 — BASIS OF PRESENTATION AND LIQUIDITY
The following (a) condensed consolidated balance sheet as of December 31, 2010, which has been
derived from audited financial statements, and (b) the unaudited condensed consolidated interim
financial statements of SafeStitch Medical, Inc. (“SafeStitch” or the “Company”) have been prepared
in accordance with accounting principles generally accepted in the United States (“GAAP”) for
interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 2011 are not necessarily indicative of results that
may be expected for the year ending December 31, 2011. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial statements and
notes thereto for the year ended December 31, 2010 included in the Company’s Annual Report on Form
10-K, filed with the Securities and Exchange Commission (“SEC”) on March 30, 2011.
SafeStitch Medical, Inc. (together with its consolidated subsidiaries, “SafeStitch” or the
“Company”) is a developmental stage medical device company focused on the development of medical
devices that manipulate tissues for minimally invasive surgery for the treatment of hernia
formation, endoscopic treatment of obesity, gastroesophageal reflux disease (“GERD”), Barrett’s
Esophagus, esophageal obstructions, upper gastrointestinal bleeding and other intraperitoneal
abnormalities.
Cellular Technical Services Company, Inc. (“Cellular”), a non-operating public company, was
incorporated in 1988 as NCS Ventures Corp. under the laws of the State of Delaware. On July 25,
2007 Cellular entered into a Share Transfer, Exchange and Contribution Agreement (the “Share
Exchange”) with SafeStitch LLC, a Virginia limited liability company. On September 4, 2007,
Cellular acquired all of the members’ equity interests in SafeStitch LLC in exchange for 11,256,369
shares of Cellular’s common stock, which represented a majority of Cellular’s outstanding shares
immediately following the Share Exchange. Effective January 8, 2008, Cellular changed its name to
SafeStitch Medical, Inc. and increased the aggregate number of shares of capital stock that may be
issued from 35,000,000 to 250,000,000, comprising 225,000,000 shares of common stock, par value
$0.001 per share (the “Common Stock”), and 25,000,000 shares of preferred stock, par value $0.01
per share. For accounting purposes, the acquisition has been treated as a recapitalization of
SafeStitch LLC, with SafeStitch LLC as the acquirer (reverse acquisition). The historical
financial statements prior to September 4, 2007 are those of SafeStitch LLC, which began operations
on September 15, 2005. The accompanying financial statements give retroactive effect to the
recapitalization as if it had occurred on September 15, 2005 (inception).
The accompanying financial statements have been prepared assuming that the Company will
continue as a going concern. For the period from September 15, 2005 (inception) through September
30, 2011, the Company has accumulated a deficit of $21.2 million and has not generated positive
cash flows from operations. At September 30, 2011, the Company had cash of $328,000 and working
capital of $188,000. The Company has been dependent upon equity financing and loans from
stockholders to meet its obligations and sustain its operations. The Company’s efforts have been
devoted principally to developing its technologies and commercializing its products. In order to
fund all planned operations, including the commercialization of certain of the Company’s products
and the anticipated expansion in 2012 of clinical trials for certain of the Company’s product
candidates, the Company anticipates that additional external financing will be required beyond the
$4.0 million Credit Facility described in Note 5. If adequate funds are not available, in order to
continue its operations the Company may be required to delay, reduce the scope of or eliminate its
research and development programs, reduce its planned commercialization efforts or obtain funds
through arrangements with collaborators or others that may require the Company to relinquish rights
to certain product candidates that it might otherwise seek to develop or commercialize
independently. Management does not believe that the Company will be able to fund its operations
through and beyond June 30, 2012 without securing additional funds through the issuance of
equity and/or debt. No assurance can be given that additional financing will be available to the
Company on acceptable terms, or at all. This uncertainty raises substantial doubt about the
Company’s ability to continue as a going concern. The accompanying financial statements do not
include any adjustments that might be necessary as a result of the outcome of such uncertainty. In
addition to securing additional funds, the Company’s ability to continue as a going concern is
ultimately dependent upon generating revenues from those products that do not require further
marketing clearance by the U.S. Food and Drug Administration (“FDA”), obtaining FDA clearance to
market its other product candidates, and achieving profitable operations and generating sufficient
cash flows from operations to meet future obligations.
|
Basic and Diluted Net Loss Per Share | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and Diluted Net Loss Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BASIC AND DILUTED NET LOSS PER SHARE |
NOTE 7 — BASIC AND DILUTED NET LOSS PER SHARE
Basic net loss per common share is computed by dividing net loss attributable to common
stockholders by the weighted average number of common shares outstanding for the period reported.
Diluted net loss per common share is computed giving effect to all dilutive potential common shares
that were outstanding for the period reported. Diluted potential common shares consist of
incremental shares issuable upon exercise of stock options and warrants and conversion of preferred
stock. In computing diluted net loss per share for the three and nine months ended September 30,
2011 and 2010, no adjustment has been made to the weighted average outstanding common shares as the
assumed exercise of outstanding options and warrants and conversion of preferred stock is
anti-dilutive.
Potential common shares not included in calculating diluted net loss per share are as follows:
|
Employee Benefit Plans | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Employee Benefit Plans [Abstract] | |
EMPLOYEE BENEFIT PLANS |
NOTE 12 — EMPLOYEE BENEFIT PLANS
Effective May 1, 2008, the SafeStitch 401(k) Plan (the “401k Plan”) permits employees to
contribute up to 100% of qualified annual compensation up to annual statutory limitations.
Employee contributions may be made on a pre-tax basis to a regular 401(k) account or on an
after-tax basis to a “Roth” 401(k) account. The Company contributes to the 401k Plan a “safe
harbor” match of 100% of each participant’s contributions to the 401k Plan up to a maximum of 4% of
the participant’s qualified annual earnings. The Company recorded 401(k) Plan matching expense of
approximately $9,000 and $28,000, respectively, for the three and nine months ended September 30,
2011 and $11,000 and $28,000, respectively, for the three and nine months ended September 30, 2010.
|
Commitments and Contingencies | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Commitments and Contingencies [Abstract] | |
COMMITMENTS AND CONTINGENCIES |
NOTE 8 — COMMITMENTS AND CONTINGENCIES
The Company is obligated under various operating lease agreements for office space.
Generally, the lease agreements require the payment of base rent plus escalations for increases in
building operating costs and real estate taxes.
Rental expense under operating leases amounted to $58,000 and $163,000 for the three and nine
months ended September 30, 2011, respectively, and $51,000 and $101,000 for the three and nine
months ended September 30, 2010, respectively.
The Company is obligated to pay royalties to Creighton University (“Creighton”) on the sales
of products licensed from Creighton pursuant to an exclusive license and development agreement (see
Note 9). The Company is also obligated under an agreement with Dr. Parviz Amid to pay a 4% royalty
to Dr. Amid on the sales of any product developed with Dr. Amid’s assistance, including the AMID
Stapler®, for a period of ten years from the first commercial sale of such product. No
royalties have been incurred or paid for the three and nine months ended September 30, 2011, and
for the three and nine months ended September 30, 2010.
In the ordinary course of business, the Company has placed orders with various suppliers for
the purchase of certain tooling, contract engineering and research services. Each of these orders
has a duration or expected completion within the next twelve months. The Company currently has no
material commitments with terms beyond twelve months.
|
Capital Transactions | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Capital Transactions [Abstract] | |
CAPITAL TRANSACTIONS |
NOTE 6 — CAPITAL TRANSACTIONS
2010 Private Placement of Common Stock. On June 15, 2010, the Company entered into a stock
purchase agreement (the “Stock Purchase Agreement”) with 20 investors (the “PIPE Investors”)
pursuant to which the PIPE Investors agreed to purchase an aggregate of 4,978,000 shares of Common
Stock (the “PIPE Shares”) at a price of $1.00 per share for aggregate consideration of $4,978,000.
Among the PIPE Investors who purchased a portion of the PIPE Shares were Hsu Gamma Investments,
L.P. (“Hsu Gamma”), an entity of which Dr. Jane Hsiao, the Company’s Chairman of the Board, is
general partner, Frost Gamma, as well as Grandtime Associates Limited (“Grandtime”), a Taiwan-based
investment company. Each of Hsu Gamma, Frost Gamma and Grandtime purchased 1,300,000 PIPE Shares.
The Company issued the PIPE Shares in reliance upon the exemption from registration under Section
4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D
promulgated thereunder.
10.0% Series A Cumulative Convertible Preferred Stock. In June 2009, the Company authorized a
new series of preferred stock, designated as 10.0% Series A Cumulative Convertible Preferred Stock,
par value $0.01 per share (“Series A Preferred Stock”). Holders of the Series A Preferred Stock
are entitled to receive, when, as and if declared by the Company’s Board of Directors, dividends on
each share of Series A Preferred Stock at a rate per annum equal to 10.0% of the sum of (a) $1.00,
plus (b) any and all declared and unpaid and accrued dividends thereon, subject to adjustment for
any stock split, combination, recapitalization or other similar corporate action (the “Liquidation
Amount”). Holders of the Series A Preferred Stock also have the right to receive notice of any
meeting of holders of Common Stock or Series A Preferred Stock and to vote (on an as-converted into
Common Stock basis) upon
any
matter submitted to a vote of the holders of Common Stock or Series A Preferred Stock. With respect to dividend distributions and distributions upon
liquidation, winding up or dissolution of the Company, the Series A Preferred Stock ranks senior to
all classes of Common Stock and to each other class of the Company’s capital stock existing now or
hereafter created that are not specifically designated as ranking senior to or pari passu with the
Series A Preferred Stock. The Company may not issue any capital stock that is senior to or pari
passu with the Series A Preferred Stock unless such issuance is approved by the holders of at least
66 2/3% of the issued and outstanding Series A Preferred Stock voting separately as a class.
Upon the occurrence of a Liquidation Event (as defined in the Series A Preferred Stock’s
Certificate of Designation, which is referred to as the “Certificate of Designation”), holders of
Series A Preferred Stock are entitled to be paid, subject to applicable law, out of the assets of
the Company available for distribution to its stockholders, an amount in cash (the “Liquidation
Payment”) for each share of Series A Preferred Stock equal to the greater of (x) the Liquidation
Amount for each share of Series A Preferred Stock outstanding, or (y) the amount for each share of
Series A Preferred Stock the holders would be entitled to receive pursuant to the Liquidation Event
if all of the shares of Series A Preferred Stock had been converted into Common Stock as of the
date immediately prior to the date fixed for determination of stockholders entitled to receive a
distribution in such Liquidation Event. Such Liquidation Payment will be paid before any cash
distribution will be made or any other assets distributed in respect of any class of securities
junior to the Series A Preferred Stock, including, without limitation, Common Stock. The holder of
any share of Series A Preferred Stock may at any time and from time to time convert such share into
such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (A)
the Liquidation Amount of the share by (B) the conversion price, which was initially $1.00, subject
to adjustment as provided in the Certificate of Designation. To the extent it is lawfully able to
do so, the Company may redeem all of the then outstanding shares of Series A Preferred Stock by
paying in cash an amount per share equal to $1.00 plus all declared or accrued unpaid dividends on
such shares, subject to adjustment for any stock dividends or distributions, splits, subdivisions,
combinations, reclassifications, stock issuances or similar events with respect to the Common
Stock.
2009 Issuance of Series A Preferred Stock. On July 21, 2009, the Company entered into a
securities purchase agreement with a private investor (the “2009 Investor”), pursuant to which the
2009 Investor agreed to purchase an aggregate of up to 2,000,000 shares (the “2009 Shares”) of the
Series A Preferred Stock at a purchase price of $1.00 per share. On July 22, 2009, the Company
closed on the issuance of the 2009 Shares for aggregate consideration of $2.0 million. A portion
of the proceeds from the issuance was used to repay all principal and interest outstanding under
the Credit Facility described in Note 5.
2010 Issuance of Series A Preferred Stock. On July 21, 2009, the Company entered into a second
securities purchase agreement (the “Future Purchase Agreement”) with certain private investors (the
“Future Investors,” together with the 2009 Investor, the “Preferred Investors”), pursuant to which
the Future Investors agreed to purchase, at the Company’s election upon ten days written notice
delivered to the Future Investors by the Company, an aggregate of up to 2,000,000 shares of Series
A Preferred Stock (the “Future Shares,” together with the 2009 Shares, the “Preferred Shares”) at a
purchase price of $1.00 per share. On December 30, 2009, the Company provided notice to the Future
Investors that the Company intended to consummate the sale of the Future Shares on January 12,
2010, and on January 12, 2010, the Company closed on the issuance of 2,000,000 Future Shares under
the Future Purchase Agreement for aggregate consideration of $2.0 million. Among the Future
Investors who purchased an aggregate of 995,000 Future Shares were Hsu Gamma, Frost Gamma and Mr.
Spragens, each of whom is the beneficial owner of more than 10% of the Common Stock.
The Company issued the Preferred Shares in reliance upon the exemption from registration under
Section 4(2) of the Securities Act. On July 22, 2009 and January 12, 2010, the closing prices of
the Common Stock on the OTCBB were $1.10 and $1.25, respectively, resulting in beneficial
conversion features of $0.10 and $0.25 per share of Series A Preferred Stock on the respective
issue dates. The $200,000 and $500,000 aggregate beneficial conversion features of the Series A
Preferred Stock on the issue dates were deemed discounts on the issuance of the Preferred Shares
and were recorded as increases to additional paid-in capital in the consolidated financial
statements. Because the Series A Preferred Stock was immediately convertible by the holders
thereof into Common Stock, the $200,000 and $500,000 aggregate intrinsic value was deemed a
dividend paid to the Preferred Investors on the relevant closing date. In the absence of retained
earnings, such deemed dividends were recorded as reductions of additional paid-in capital and, for
calculating net loss per common share, as increases in losses attributable to common stockholders
(see Note 7).
2010 Conversion of Series A Preferred Stock. Effective September 10, 2010 (the “Conversion
Date”), the Preferred Investors elected to convert an aggregate of 4.0 million shares of the Series
A Preferred Stock pursuant to the terms of the Certificate of Designation. Following conversion of
the Series A Preferred Stock, the Company had no issued and outstanding shares of any class of
preferred stock. On the Conversion Date, for each converted share of Series A Preferred Stock, the
holder thereof became entitled to receive one share of Common Stock, plus all accrued and unpaid
dividends (“Unpaid Dividends”) thereon through the Conversion Date, which Unpaid Dividends were
paid in shares of Common Stock in accordance with the Certificate of Designation. Approximately
$366,000 of Unpaid Dividends had accumulated through the Conversion Date and an aggregate of
365,575 shares of Common Stock were issued as a result of the Unpaid Dividends (the “Dividend
Shares”), of which 29,709 Dividend Shares were issued to each of Hsu Gamma and Frost Gamma, and
6,638 Dividend Shares were issued to Mr. Spragens.
To encourage the Preferred Investors to voluntarily convert their respective shares of Series
A Preferred Stock, the Company offered to each Preferred Investor who converted his or her shares
of Series A Preferred Stock on or prior to the Conversion Date the number of shares of Common Stock
(the “Consideration Shares”) equal to the difference between (a) the number of shares of Common
Stock issuable pursuant to a holder-initiated conversion of Series A Preferred Stock on March 31,
2012 and (b) the number of shares of Common Stock issuable pursuant to a holder-initiated
conversion of Series A Preferred Stock on the Conversion Date, each as calculated in accordance
with the Certificate of Designation. The Preferred Investors voluntarily elected to convert all of
their respective shares of Series A Preferred Stock, and an aggregate of 697,462 Consideration
Shares were issued, of which 76,261 Consideration Shares were issued to each of Hsu Gamma and Frost
Gamma, and 17,042 Consideration Shares were issued to Mr. Spragens.
On September 10, 2010, the closing price of the Common Stock on the OTCBB was $1.85, resulting
in an intrinsic value of $0.85 per share for the 4,000,000 shares of Common Stock issued upon
conversion of the Series A Preferred Stock and the 365,575 shares of Common Stock issued as
Dividend Shares. These 4,365,575 shares of Common Stock had an aggregate intrinsic value of $3.7
million on the Conversion Date, which was considered a deemed dividend. The 697,462 Consideration
Shares issued on the Conversion Date had an aggregate market value of approximately $1.3 million,
which was also considered a deemed dividend on the Conversion Date. In the absence of retained
earnings, the $366,000 accumulated dividends and the $5.0 million aggregate deemed dividends were
recorded as reductions of additional paid-in capital and, for calculating net loss per common
share, as increases in losses attributable to common stockholders.
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Condensed Consolidated Statement of Stockholder's Equity (Deficit) (Parenthetical) (USD $) In Thousands, except Per Share data | 12 Months Ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2010 | Dec. 31, 2008 | Dec. 31, 2010
Series A Preferred Stock
Preferred Stock | Dec. 31, 2009
Series A Preferred Stock
Preferred Stock | Dec. 31, 2010
Common Stock | Dec. 31, 2008
Common Stock | Dec. 31, 2010
Series A Preferred Stock
Additional Paid-in Capital | Dec. 31, 2009
Series A Preferred Stock
Additional Paid-in Capital | Dec. 31, 2010
Series A Preferred Conversion
Additional Paid-in Capital | Dec. 31, 2010
Additional Paid-in Capital | Dec. 31, 2008
Additional Paid-in Capital | Dec. 31, 2010
Series A Preferred Stock | Dec. 31, 2009
Series A Preferred Stock | Dec. 31, 2010
Series A Preferred Conversion | |
Private offering related to issuance of common shares | $ 1.00 | $ 2.15 | $ 1.00 | $ 2.15 | $ 1.00 | $ 2.15 | ||||||||
Repayment of stockholder related to Issuance of common shares | $ 1.22 | $ 1.22 | $ 1.22 | |||||||||||
Issuance of Series A Preferred Stock | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | ||||||||
Intrinsic value of aggregate shares of Common Stock issued on conversion of Series A Preferred Stock | 5,063 | 5,063 |
Summary of Significant Accounting Policies | 9 Months Ended |
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Sep. 30, 2011 | |
Summary of Significant Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The condensed consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Isis Tele-Communications, Inc., which has no current operations,
and SafeStitch LLC. All inter-company accounts and transactions have been eliminated in
consolidation.
Use of estimates. The preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”) requires management to make estimates and
assumptions, such as useful lives of property and equipment, that affect 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 expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents. We consider all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The Company holds cash and cash equivalent
balances in banks and other financial institutions, and includes overnight repurchase agreements
collateralizing its depository bank accounts (sweep accounts) in its cash balances. Balances in
excess of Federal Deposit Insurance Corporation (“FDIC”) limitations may not be insured.
Allowances for Doubtful Accounts. The Company provides an allowance for receivables it believes it
may not collect in full. Receivables are written off when they are deemed to be uncollectible and
all collection attempts have ceased. The amount of bad debt recorded each period and the resulting
adequacy of the allowance for doubtful accounts at the end of each period are determined using a
combination of customer-by-customer analysis of the Company’s accounts receivable each period and
subjective assessments of the Company’s future bad debt exposure.
Inventories. Inventories are stated at lower of cost or market using the weighted average cost
method and are evaluated at least annually for impairment. The $86,000 inventory balance at
September 30, 2011 and $91,000 inventory balance at December 31, 2010 consists of reinforcing mesh
used for hernia surgery. Provisions for potentially obsolete or slow-moving inventory are made
based on management’s analysis of inventory levels, obsolescence and future sales forecasts.
Property and equipment. Property and equipment are carried at cost less accumulated depreciation.
Major additions and improvements are capitalized, while maintenance and repairs that do not extend
the lives of assets are expensed. Gain or loss, if any, on the disposition of fixed assets is
recognized currently in operations. Depreciation is calculated primarily on a straight-line basis
over estimated useful lives of the assets.
Revenue Recognition. Revenue from product sales is recognized when persuasive evidence of an
arrangement exists, the goods are shipped and title has transferred, the price is fixed or
determinable, and the collection of the sales proceeds is reasonably assured.
Advertising Costs. The Company expenses all costs of advertising as incurred. Advertising and
promotional costs are included in selling, general and administrative costs and expenses for all
periods presented, and totaled $2,000 and $11,000, respectively, for the three and nine months
ended September 30, 2011. Advertising and promotional costs and expenses totaled $44,000 and
$56,000, respectively, for the three and nine months ended September 30, 2010.
Research and development. Research and development costs principally represent salaries of the
Company’s medical and biomechanical engineering professionals, material and shop costs associated
with manufacturing product prototypes and payments to third parties for clinical trials and
additional product development and testing. All research and development costs are charged to
expense as incurred.
Patent costs. Costs incurred in connection with acquiring patent rights and the protection of
proprietary technologies are charged to expense as incurred.
Stock-based compensation. The Company accounts for all share-based payments, including grants of
stock options, as operating expenses, based on their grant date fair values. The fair value of the
Company’s stock option awards is expensed over the vesting life of the underlying stock options
using the graded vesting method, with each tranche of vesting options
valued separately. Stock-based compensation is included in general and administrative costs and
expenses for all periods presented.
Therapeutic discovery project tax credit. The Company records the therapeutic discovery project
tax credit on an accrual basis when approved by the government agency which is reported as other
income in the accompanying financial statements.
Fair value of financial instruments. The carrying amounts of cash and cash equivalents, accounts
payable, accrued expenses and notes payable approximate fair value based on their short-term
maturity. Related party receivables and stockholders loans are carried at cost.
Long-lived assets. The Company reviews the carrying values of its long-lived assets for possible
impairment whenever events or changes in circumstances indicate that the carrying amounts of the
assets may not be recoverable. Any long-lived assets held for disposal are reported at the lower
of their carrying amounts or fair value less costs to sell.
Income taxes. The Company follows the liability method of accounting for income taxes, which
requires the recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and the tax bases of the assets
and liabilities. The Company’s policy is to record a valuation allowance against deferred tax
assets, when the deferred tax asset is not recoverable. The Company considers estimated future
taxable income or loss and other available evidence when assessing the need for its deferred tax
valuation allowance.
Comprehensive income (loss). Comprehensive income (loss) is defined as the change in equity of a
business enterprise during a period from transactions and other events and circumstances from
non-owner sources. The Company’s comprehensive net loss is equal to its net loss for all periods
presented.
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Property and Equipment | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT |
NOTE 3 — PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Depreciation of fixed assets utilized in research and development activities is included in
research and development costs and expenses. All other depreciation is included in selling,
general and administrative costs and expenses. Depreciation and amortization expense was $43,000
and $100,000, respectively for the three and nine months ended September 30, 2011, and was $29,000
and $59,000, respectively for the three and nine months ended September 30, 2010.
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Certain Relationships and Related Party Transactions | 9 Months Ended |
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Sep. 30, 2011 | |
Certain Relationships and Related Party Transactions [Abstract] | |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS |
NOTE 11 — CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
As more fully described in Note 5, the Company entered into a $4.0 million Credit Facility
with both Jeffrey G. Spragens, the Company’s President, Chief Executive Officer and director, and
The Frost Group. The Company borrowed $1,100,000 under the Credit Facility during the three and
nine months ended September 30, 2011 and there were no advances under the Credit Facility during
the three and nine months ended September 30, 2010. Interest expense of $7,100 related to the
Credit Facility has been recorded for the three and nine months ended September 30, 2011 and no
interest expense at September 30, 2010. There is $1,100,000 outstanding borrowings at September 30,
2011 and none at September 30, 2010.
The Company entered into a five-year lease for office space in Miami, Florida with a company
controlled by Dr. Frost. The non-cancelable lease, which commenced January 1, 2008, provides for a
4.5% annual rent increase over the life of the lease. The Miami office lease was amended in July
2010 to include additional office space in the same building, and current rental payments under the
lease are approximately $14,000 per month. The Company recorded rent expense related to the Miami
lease totaling approximately $51,000 and $145,000, respectively, for the three and nine months
ended September 30, 2011, and $44,000 and $82,000, respectively, for the three and nine months
ended September 30, 2010.
Dr. Jane Hsiao, the Company’s Chairman of the Board, served as a director of Great Eastern
Bank of Florida until August 2009, a bank where the Company maintains a bank account in the normal
course of business.
Dr. Hsiao, Dr. Frost and Mr. Rubin are each significant shareholders and/or directors of
Non-Invasive Monitoring Systems, Inc. (“NIMS”), a publicly-traded medical device company, Aero
Pharmaceuticals, Inc. (“Aero”), a privately-held pharmaceutical distribution company, Tiger X
Medical, Inc. (“Tiger X”) (formerly known as Cardo Medical, Inc.), a publicly-traded shell company,
SearchMedia Holdings Limited (“SearchMedia”), a publicly-traded media company operating primarily
in China and Sorrento Therapeutics, Inc. (“Sorrento”), a development stage biopharmaceutical
company. Director Richard Pfenniger is also a shareholder of NIMS. The Company’s Chief Financial
Officer also serves as the Chief Financial Officer and supervises the accounting staffs of NIMS and
Aero under a Board-approved cost sharing arrangement whereby the total salaries of the accounting
staffs of the three companies are shared. Since December 2009, the Company’s Chief Legal Officer
has served under a similar Board-approved cost sharing arrangement as Corporate Counsel of
SearchMedia and as the Chief Legal Officer of each of NIMS and Tiger X and since June 2011 served
as Corporate Counsel for Sorrento. The Company has recorded reductions to selling, general and
administrative costs and expenses to account for the sharing of costs under these arrangements of
$51,000 and $205,000, respectively, for the three and nine months ended September 30, 2011, and
$85,000 and $210,000, respectively, for the three and nine months ended September 30, 2010.
Aggregate accounts receivable from NIMS, Aero, Tiger X and SearchMedia were approximately $58,000
and $64,000 as of September 30, 2011 and December 31, 2010, respectively. Since June 30, 2011,
Aero no longer participated in the cost sharing arrangement.
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK-BASED COMPENSATION |
NOTE 4 — STOCK-BASED COMPENSATION
On November 13, 2007, the Board of Directors and a majority of the Company’s stockholders
approved the SafeStitch Medical, Inc. 2007 Incentive Compensation Plan (the “2007 Plan”), which was
further amended on June 6, 2011 by the Company’s stockholders. Under the 2007 Plan, which is
administered by the Compensation Committee of the Board of Directors, the Company is allowed to
grant awards of stock options, stock appreciation rights, restricted stock and/or deferred stock to
employees, officers, directors, consultants and vendors up to an aggregate of 3,000,000 shares of
the Company’s Common Stock, which are fully reserved for future issuance. The exercise price of
stock options or stock appreciation rights may not be less than the fair market value of the
Company’s shares at the date of grant and, within any 12 month period, no person may receive stock
options or stock appreciation rights for more than one million shares. Additionally, no stock
options or stock appreciation rights granted under the 2007 Plan may have a term exceeding ten
years.
The Company granted 562,500 and 700,000 stock options under the 2007 Plan during the nine
months ended September 30, 2011 and 2010, respectively. The options granted during 2011 were
issued at an exercise price of $1.12 per share and had an estimated aggregate grant date fair value
of $502,000. The options granted during 2010 were issued at an exercise price of $1.10 to $1.20
per share and had an estimated aggregate grant date fair value of $593,000. The weighted average
grant date fair value of the options granted during the nine months ended September 30, 2011 and
2010 was $0.89 per share and $0.87 per share, respectively.
Total stock-based compensation recorded for the three and nine months ended September 30, 2011
was $98,000 and $240,000, respectively. The stock-based compensation recorded for the nine months
ended September 30, 2011 included a credit of $113,000 for forfeiture true-up. Total stock-based
compensation recorded for the three and nine months ended September 30, 2010 was $120,000 and
$360,000, respectively. All stock-based compensation is included in selling, general and
administrative costs and expenses. The fair values of options granted are estimated on the date of
their grant using the Black-Scholes option pricing model based on the assumptions included in the
table below. The fair value of the Company’s stock option awards is expensed over the vesting life
of the underlying stock options using the graded vesting method, with each tranche of vesting
options valued separately. Expected volatility is based on the historical volatility of the Common
Stock. The risk-free interest rate for periods within the contractual life of the stock option
award is based on the yield of U.S. Treasury bonds on the grant date with a maturity equal to the
expected term of the stock option. The expected life of stock option awards granted to employees
and non-employee directors is based upon the “simplified” method for “plain vanilla” options
described in SEC Staff Accounting Bulletin No. 107, as amended by SEC Staff Accounting Bulletin No.
110. The expected life of all other stock option awards is the contractual term of the option.
Forfeiture rates are based on management’s estimates. The fair value of each option granted during
the nine months ended September 30, 2011 and 2010 was estimated using the following assumptions.
The following summarizes the Company’s stock option activity for the nine months ended
September 30, 2011:
Out of the total 562,500 options granted during the first nine months of the Company’s 2011 fiscal
year 68,000 options were vested as of September 30, 2011. At September 30, 2011, there was
approximately $337,000 of total unrecognized compensation cost related to non-vested employee and
director share-based compensation arrangements. That cost is expected to be recognized over a
weighted-average period of 1.69 years.
No options were exercised during the three and nine months ended September 30, 2011 and 2010.
No tax benefits were attributed to the stock-based compensation expense because a valuation
allowance was maintained for substantially all net deferred tax assets.
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Agreement with Creighton University | 9 Months Ended |
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Sep. 30, 2011 | |
Agreement with Creighton University [Abstract] | |
AGREEMENT WITH CREIGHTON UNIVERSITY |
NOTE 9 — AGREEMENT WITH CREIGHTON UNIVERSITY
On May 26, 2006, SafeStitch LLC entered into an exclusive license and development agreement
(the “Creighton Agreement”) with Creighton, granting the Company a worldwide exclusive (even as to
the university) license, with rights to sublicense, to all the Company’s product candidates and
associated know-how based on Creighton technology, including the exclusive right to manufacture,
use and sell the product candidates.
Pursuant to the Creighton Agreement, the Company is obligated to pay Creighton, on a quarterly
basis, a royalty of 1.5% of the revenue collected worldwide from the sale of any product licensed
under the Creighton Agreement, less certain amounts including, without limitation, chargebacks,
credits, taxes, duties and discounts or rebates. The Creighton Agreement does not provide for
minimum royalties. Also pursuant to the Creighton Agreement, the Company agreed to invest, in the
aggregate, at least $2.5 million over 36 months, beginning May 26, 2006, towards development of any
licensed product. This $2.5 million investment obligation excluded the first $150,000 of costs
related to the prosecution of patents, which the Company invested outside of the Creighton
Agreement. The Company is further obligated to pay to Creighton an amount equal to 20% of certain
of the Company’s research and development expenditures as reimbursement for the use of Creighton’s
facilities. Failure to comply with the payment obligations above will result in all rights in the
licensed patents and know-how reverting back to Creighton. As of December 31, 2007, the Company had
satisfied the $2.5 million investment obligation described above. The Company recorded research
and development costs and expenses related to the 20% facility reimbursement obligation totaling
approximately $12,000 and $33,000, respectively for the three and nine months ended September 30,
2011, and $10,000 and $42,000, respectively, for the three and nine months ended September 30,
2010.
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