Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 |
for
the Quarterly Period ended June 30, 2010
or
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o |
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Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
for the Transition Period from to
Commission File Number 0-19437
SAFESTITCH MEDICAL, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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11-2962080 |
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(State or other jurisdiction of
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(I.R.S. employer identification no.) |
incorporation or organization) |
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4400 Biscayne Blvd., Suite A-100, Miami, Florida
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33137 |
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(Address of principal executive offices)
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(Zip code) |
Registrants telephone number, including area code: (305) 575-4600
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
22,940,718 shares of the Companys common stock, par value $0.001 per share, were outstanding
as of August 6, 2010.
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
TABLE OF CONTENTS FOR FORM 10-Q
2
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in 000s, except share and per share data)
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June 30, |
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December 31, |
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2010 |
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2009 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
|
$ |
5,929 |
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$ |
871 |
|
Accounts receivable trade |
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2 |
|
|
|
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|
Other receivable related-party |
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55 |
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21 |
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Prepaid expenses |
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130 |
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131 |
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Inventories |
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161 |
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Total Current Assets |
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6,277 |
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|
1,023 |
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FIXED ASSETS |
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Property and equipment, net |
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387 |
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|
147 |
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OTHER ASSETS |
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Security deposits |
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2 |
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2 |
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Deferred financing costs, net |
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102 |
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255 |
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|
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Total Other Assets |
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104 |
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|
257 |
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TOTAL ASSETS |
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$ |
6,768 |
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$ |
1,427 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and accrued liabilities |
|
$ |
542 |
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$ |
93 |
|
Notes payable |
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7 |
|
|
|
50 |
|
|
|
|
|
|
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Total Current Liabilities |
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549 |
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|
143 |
|
Stockholder loans (Note 5) |
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Commitments and contingencies (Note 8) |
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STOCKHOLDERS EQUITY |
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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, 4,000,000 and 2,000,000 shares issued and outstanding,
respectively; liquidation preference $4,286 and $2,088, respectively |
|
|
40 |
|
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|
20 |
|
Common stock, $0.001 par value per share, 225,000,000 shares authorized,
22,940,718 and 17,962,718 shares issued and outstanding, respectively |
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23 |
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|
18 |
|
Additional paid-in capital |
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20,162 |
|
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|
12,974 |
|
Deficit accumulated during the development stage |
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|
(14,006 |
) |
|
|
(11,728 |
) |
|
|
|
|
|
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|
Total Stockholders Equity |
|
|
6,219 |
|
|
|
1,284 |
|
|
|
|
|
|
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
6,768 |
|
|
$ |
1,427 |
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|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in 000s, except per share amounts)
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September 15, |
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|
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2005 |
|
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Three Months Ended |
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Six Months Ended |
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(Inception) |
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June 30, |
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June 30, |
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to June 30, |
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2010 |
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2009 |
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2010 |
|
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2009 |
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2010 |
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Revenues |
|
$ |
2 |
|
|
$ | |
|
|
$ |
2 |
|
|
$ | |
|
|
$ |
2 |
|
Cost of sales |
|
|
1 |
|
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| |
|
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|
1 |
|
|
| |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Gross margin |
|
|
1 |
|
|
|
|
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|
|
1 |
|
|
|
|
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|
|
1 |
|
|
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|
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|
|
|
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|
|
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|
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|
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Operating costs and expenses |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Research and development |
|
|
730 |
|
|
|
449 |
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|
|
1,080 |
|
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|
798 |
|
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|
7,923 |
|
Selling, general and administrative |
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|
619 |
|
|
|
417 |
|
|
|
1,047 |
|
|
|
748 |
|
|
|
5,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
1,349 |
|
|
|
866 |
|
|
|
2,127 |
|
|
|
1,546 |
|
|
|
13,041 |
|
|
|
|
|
|
|
|
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|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(1,348 |
) |
|
|
(866 |
) |
|
|
(2,126 |
) |
|
|
(1,546 |
) |
|
|
(13,040 |
) |
|
|
|
|
|
|
|
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|
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Other income and expense |
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|
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|
|
|
|
|
|
|
|
|
|
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Other income |
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| |
|
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| |
|
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| |
|
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| |
|
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|
903 |
|
Interest income (expense), net |
|
|
1 |
|
|
|
(13 |
) |
|
|
1 |
|
|
|
(13 |
) |
|
|
14 |
|
Amortization of debt issuance expense |
|
|
(26 |
) |
|
|
(128 |
) |
|
|
(153 |
) |
|
|
(340 |
) |
|
|
(1,883 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expense |
|
|
(25 |
) |
|
|
(141 |
) |
|
|
(152 |
) |
|
|
(353 |
) |
|
|
(966 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax |
|
|
(1,373 |
) |
|
|
(1,007 |
) |
|
|
(2,278 |
) |
|
|
(1,899 |
) |
|
|
(14,006 |
) |
|
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|
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|
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|
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|
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|
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Provision for income tax |
|
| |
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| |
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| |
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| |
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| |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Net loss |
|
$ |
(1,373 |
) |
|
$ |
(1,007 |
) |
|
$ |
(2,278 |
) |
|
$ |
(1,899 |
) |
|
$ |
(14,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Loss attributable to common stockholders and
loss per common share: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(1,373 |
) |
|
|
(1,007 |
) |
|
|
(2,278 |
) |
|
|
(1,899 |
) |
|
|
(14,006 |
) |
Deemed dividend Series A Preferred
Stock |
|
| |
|
|
| |
|
|
|
(500 |
) |
|
| |
|
|
|
(700 |
) |
Dividends Series A Preferred Stock |
|
|
(102 |
) |
|
| |
|
|
|
(198 |
) |
|
| |
|
|
|
(286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
|
$ |
(1,475 |
) |
|
$ |
(1,007 |
) |
|
$ |
(2,976 |
) |
|
$ |
(1,899 |
) |
|
$ |
(14,992 |
) |
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
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|
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|
|
|
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|
Weighted average shares outstanding, basic and
diluted |
|
|
18,783 |
|
|
|
17,963 |
|
|
|
18,375 |
|
|
|
17,963 |
|
|
|
|
|
|
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|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per basic and diluted share |
|
$ |
(0.08 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.16 |
) |
|
$ |
(0.11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE PERIOD SEPTEMBER 15, 2005 (INCEPTION) THROUGH JUNE 30, 2010
(in 000s, except per share amounts)
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Deficit |
|
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|
|
|
|
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|
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|
|
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|
|
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|
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Accumulated |
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|
|
|
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|
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|
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|
|
|
|
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|
|
Additional |
|
|
During the |
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Development |
|
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|
|
|
|
Shares |
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|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stage |
|
|
Total |
|
Inception September 15, 2005 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options (CTS)-September
23, 2007 at $0.79 per share |
|
| |
|
|
| |
|
|
|
42 |
|
|
| |
|
|
|
35 |
|
|
| |
|
|
|
35 |
|
Stock-based compensation-September
4, 2007 |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
77 |
|
|
| |
|
|
|
77 |
|
Issuance of shares in
recapitalization September 4,
2007 at $0.64 per share |
|
| |
|
|
| |
|
|
|
4,795 |
|
|
|
5 |
|
|
|
3,078 |
|
|
| |
|
|
|
3,083 |
|
SafeStitch expenses associated with
recapitalization |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
(156 |
) |
|
| |
|
|
|
(156 |
) |
Stock-based compensation |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
65 |
|
|
| |
|
|
|
65 |
|
Warrants issued in connection with
credit facility-September 4, 2007
at $2.46 per share |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
1,985 |
|
|
| |
|
|
|
1,985 |
|
Rule 16 payment received |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
4 |
|
|
| |
|
|
|
4 |
|
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, net of offering costs |
|
|
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, net of offering costs |
|
|
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 |
|
|
|
4,970 |
|
|
| |
|
|
|
4,975 |
|
Stock-based compensation |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
240 |
|
|
| |
|
|
|
240 |
|
Net loss |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
(2,278 |
) |
|
|
(2,278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010 (unaudited) |
|
|
4,000 |
|
|
$ |
40 |
|
|
|
22,941 |
|
|
$ |
23 |
|
|
$ |
20,162 |
|
|
$ |
(14,006 |
) |
|
$ |
6,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 15, |
|
|
|
Six Months Ended |
|
|
2005 (Inception) |
|
|
|
June 30, |
|
|
to June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,278 |
) |
|
$ |
(1,899 |
) |
|
$ |
(14,006 |
) |
Adjustments to reconcile net loss to net cash used in
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred finance costs |
|
|
153 |
|
|
|
340 |
|
|
|
1,883 |
|
Stock-based compensation expense |
|
|
240 |
|
|
|
88 |
|
|
|
739 |
|
Stock-based compensation expense related to Share Exchange |
|
| |
|
|
| |
|
|
|
77 |
|
Depreciation and amortization |
|
|
30 |
|
|
|
27 |
|
|
|
145 |
|
Gain on sale of TruePosition investment |
|
| |
|
|
| |
|
|
|
(903 |
) |
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
(161 |
) |
|
| |
|
|
|
(161 |
) |
Other current assets |
|
|
(35 |
) |
|
|
22 |
|
|
|
(167 |
) |
Other assets |
|
| |
|
|
| |
|
|
|
(2 |
) |
Accounts payable and accrued liabilities |
|
|
449 |
|
|
|
136 |
|
|
|
257 |
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES |
|
|
(1,602 |
) |
|
|
(1,286 |
) |
|
|
(12,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment |
|
|
(270 |
) |
|
|
(36 |
) |
|
|
(532 |
) |
Proceeds from sale of True Position investment |
|
| |
|
|
| |
|
|
|
903 |
|
Payment received under Rule 16b |
|
| |
|
|
| |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES |
|
|
(270 |
) |
|
|
(36 |
) |
|
|
375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided in connection with the acquisition of
SafeStitch LLC |
|
| |
|
|
| |
|
|
|
3,192 |
|
Issuance of Common Stock, net of offering costs |
|
|
4,975 |
|
|
| |
|
|
|
8,963 |
|
Issuance of Preferred Stock, net of offering costs |
|
|
1,998 |
|
|
| |
|
|
|
3,980 |
|
Capital contributions |
|
| |
|
|
| |
|
|
|
1,431 |
|
Proceeds from notes payable |
|
| |
|
|
| |
|
|
|
71 |
|
Repayment of notes payable |
|
|
(43 |
) |
|
| |
|
|
|
(64 |
) |
Proceeds from stockholder loans |
|
| |
|
|
|
800 |
|
|
|
2,860 |
|
Repayment of stockholder loans |
|
| |
|
|
| |
|
|
|
(2,776 |
) |
Exercise of options |
|
| |
|
|
| |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
6,930 |
|
|
|
800 |
|
|
|
17,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
5,058 |
|
|
|
(522 |
) |
|
|
5,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
871 |
|
|
|
561 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
5,929 |
|
|
$ |
39 |
|
|
$ |
5,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ | |
|
|
$ | |
|
|
$ |
64 |
|
Non cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder loans contributed to capital |
|
$ | |
|
|
$ | |
|
|
$ |
84 |
|
Warrants issued in connection with credit facility |
|
$ | |
|
|
$ | |
|
|
$ |
1,985 |
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION AND LIQUIDITY
The following (a) condensed consolidated balance sheet as of December 31, 2009, 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 three and six months ended June 30, 2010 are not necessarily indicative of results
that may be expected for the year ending December 31, 2010. 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, 2009 included in the Companys Annual Report on Form
10-K, filed with the Securities and Exchange Commission (SEC) on March 31, 2010.
SafeStitch is a developmental stage medical device company focused on the development of
medical devices that manipulate tissues for endoscopic and minimally invasive surgery for the
treatment of obesity, gastroesophageal reflux disease (GERD), Barretts Esophagus, esophageal
obstructions, upper gastrointestinal bleeding, hernia formation 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 Agreement) with SafeStitch LLC, a limited liability company formed in Virginia on
September 15, 2005. Pursuant to the Share Exchange Agreement, on September 4, 2007, Cellular
acquired all of the members equity of SafeStitch LLC in exchange for 11,256,369 shares of
Cellulars common stock (the Share Exchange), which represented a majority of Cellulars
outstanding shares immediately following the Share Exchange. 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). Effective January 8, 2008, Cellular changed its name to SafeStitch Medical, Inc.
and increased the aggregate number of shares of the Companys capital stock that it may issue 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.
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 June 30,
2010, the Company has accumulated a deficit of $14.0 million and has not generated positive cash
flows from operations. At June 30, 2010, the Company had cash of $5.9 million and working capital
of $5.7 million. The Company has been dependent upon equity financing and loans from stockholders
to meet its obligations and sustain its operations, including the January 2010 and June 2010 equity
transactions described in Note 6. The Companys efforts have been devoted principally to
developing its technologies and commercializing its products. Based upon its current cash
position; the availability under its $4.0 million credit facility with The Frost Group LLC (The
Frost Group) and the Companys President and CEO, Jeffrey G. Spragens (the Credit Facility), and
by monitoring its discretionary expenditures, management believes that the Company will be able to
fund its existing operations through June 30, 2011. However, in order to fund all planned
operations, including the commercialization of certain of the Companys products and the
anticipated commencement in 2010 of clinical trials for certain of the Companys product
candidates, the Company anticipates that additional external financing will be required before June
30, 2011. Management considered the June 30, 2011 expiration of the Credit Facility when it
evaluated the Companys ability to continue funding its operations. If adequate funds are not
available, 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.
Although the Company plans to secure 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. The Companys 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.
7
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the reporting period.
Such items include the collectability of receivables, the useful lives of property and equipment,
input variables relating to valuation of stock-based compensation and other financial instruments.
Actual results could differ from those estimates.
Cash and cash equivalents. We consider all highly liquid investments purchased 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 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 Companys accounts receivable each period and
subjective assessments of the Companys 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. Inventories at June 30, 2010 primarily
consist of AMID Staplers and reinforcing mesh used for hernia surgery. Provisions for potentially
obsolete or slow-moving inventory are made based on managements 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 $8,000 and $12,000, respectively, for the three and six months ended
June 30, 2010. Advertising and promotional costs and expenses totaled $1,000 for each of the three
and six months ended June 30, 2009.
Research and development. Research and development costs principally represent salaries of the
Companys medical and biomechanical engineering professionals, material and shop costs associated
with manufacturing product prototypes and devices to be used in clinical trials 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.
8
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
Companys 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 selling, general and administrative costs and expenses for
all periods presented.
Fair value of financial instruments. The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses and notes payable approximate fair value based on
their short-term maturity. Related party receivables and stockholder 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 Companys 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 Companys comprehensive net loss is equal to its net loss for all periods
presented.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Lives |
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
Machinery and equipment |
|
5 years |
|
$ |
456,000 |
|
|
$ |
190,000 |
|
Furniture and fixtures |
|
3-5 years |
|
|
39,000 |
|
|
|
35,000 |
|
Software |
|
3-5 years |
|
|
37,000 |
|
|
|
37,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532,000 |
|
|
|
262,000 |
|
Accumulated depreciation and amortization |
|
|
|
|
|
|
(145,000 |
) |
|
|
(115,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
$ |
387,000 |
|
|
$ |
147,000 |
|
|
|
|
|
|
|
|
|
|
|
|
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 $19,000
and $14,000, respectively for the three months ended June 30, 2010 and 2009, and was $30,000 and
$27,000, respectively, for the six months ended June 30, 2010 and 2009.
NOTE 4 STOCK-BASED COMPENSATION
On November 13, 2007, the Board of Directors and a majority of the Companys stockholders
approved the SafeStitch Medical, Inc. 2007 Incentive Compensation Plan (the 2007 Plan). 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 2,000,000 shares of the Companys 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 Companys 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.
9
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company granted 120,000 and 679,000 stock options, respectively under the 2007 Plan during
the three and six months ended June 30, 2010. The options granted during 2010 were issued at
exercise prices between $1.10 and $1.20 per share and had an estimated aggregate grant date fair
value of $593,000. The Company granted zero and 358,500 stock options, respectively, under the
2007 Plan during the three and six months ended June 30, 2009. The options granted during the six
months ended June 30, 2009 were issued at an exercise price of $0.80 per share and had an estimated
aggregate grant date fair value of $180,000. The weighted average grant date fair value of the
options granted during the six months ended June 30, 2010 and 2009 was $0.87 per share and $0.50
per share, respectively.
Total stock-based compensation recorded for the three and six months ended June 30, 2010 was
$114,000 and $240,000, respectively. Total stock-based compensation recorded for the three and six
months ended June 30, 2009 was $52,000 and $88,000, 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 Companys 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 managements estimates. The
fair value of each option granted during the six months ended June 30, 2010 and 2009 was estimated
using the following assumptions.
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
Six months ended |
|
|
June 30, 2010 |
|
June 30, 2009 |
Expected volatility
|
|
87.09% 107.94%
|
|
74.59% 86.43%
|
Expected dividend yield
|
|
|
0.00% |
|
|
|
0.00% |
|
Risk-free interest rate
|
|
|
1.89% 3.11% |
|
|
|
1.39% 1.79% |
|
Expected life
|
|
4.0 7.0 years
|
|
4.0 5.5 years
|
Forfeiture rate
|
|
|
0% 2.50% |
|
|
|
2.50% |
|
The following summarizes the Companys stock option activity for the six months ended June 30,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Term (Years) |
|
|
Value |
|
Outstanding at December 31, 2009 |
|
|
615,167 |
|
|
$ |
1.63 |
|
|
|
5.98 |
|
|
$ |
162,540 |
|
Granted |
|
|
679,000 |
|
|
$ |
1.18 |
|
|
|
6.66 |
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled or expired |
|
|
(17,000 |
) |
|
$ |
3.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010 |
|
|
1,277,167 |
|
|
$ |
1.38 |
|
|
|
6.19 |
|
|
$ |
681,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2010 |
|
|
404,500 |
|
|
$ |
1.73 |
|
|
|
5.80 |
|
|
$ |
185,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at
June 30, 2010 |
|
|
1,229,082 |
|
|
$ |
1.38 |
|
|
|
6.19 |
|
|
$ |
652,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,500 of the 679,000 options granted during the first six months of the Companys 2010 fiscal year
were vested as of June 30, 2010. At June 30, 2010, there was approximately $470,000 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 1.80 years.
10
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
No options were exercised during the three and six months ended June 30, 2010 and 2009. The
$88,000 of stock-based compensation recorded for the six months ended June 30, 2009 is net of an
approximately $15,000 credit related to the January 2009 modification of 17,000 stock option awards
for certain former employees. On the modification date, the Compensation Committee accelerated and
fully vested the former employees options, which were originally scheduled to vest on various
dates through 2012. Additionally, the Compensation Committee extended the term of these options to
one year following the modification date. All 17,000 modified options expired during the six
months ended June 30, 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.
NOTE 5 DEBT
The $7,000 notes payable balance at June 30, 2010 relates to the third-party financing of
certain of the Companys insurance policies. This note is a self-amortizing installment loan
bearing interest at 6.19% and maturing in August 2010.
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 Companys Chief Executive Officer and President and a director. The Frost Group is a
Florida limited liability company whose members include Frost Gamma Investments Trust (Frost
Gamma), 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 Companys 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 in March 2009 to extend the maturity date to
June 2010, and was amended again in March 2010 to extend the maturity date to June 2011.
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 $26,000 and
$153,000, respectively, for the three and six months ended June 30, 2010 and $128,000 and $340,000,
respectively, for the three and six months ended June 30, 2009.
The Company borrowed $800,000 under the Credit Facility during the six months ended June 30,
2009 and repaid the entire then-outstanding balance in July 2009 using the proceeds of the 2009
Issuance of Series A Preferred Stock described in Note 6. The Company recognized interest expense
related to the outstanding borrowings of $13,000 and $13,000, respectively, for the three and six
months ended June 30, 2009. The Company has not borrowed any funds under the Credit Facility nor
recorded any related interest expense during the six months ended June 30, 2010 and has no
outstanding loans as of June 30, 2010.
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 the
Companys common stock, par value $0.001 (the PIPE Shares), at a price of $1.00 per share. Among
the PIPE Investors who purchased a portion of the PIPE Shares are Hsu Gamma Investments, L.P. (Hsu
Gamma), an entity of which Dr. Jane Hsiao, the Companys Chairman of the Board, is general
partner, Frost Gamma and 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. Each PIPE Investor represented to the Company that such person was an accredited
investor as defined in Rule 501(a) under the Securities Act and that the PIPE Shares were being
acquired for investment purposes. The PIPE Shares have not been registered under the Securities
Act and are restricted securities as that term is defined by Rule 144 promulgated thereunder.
The Company has not undertaken to register the PIPE Shares and no registration rights have been
granted to the PIPE Investors in respect of the PIPE Shares.
11
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 Companys 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 Companys 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 Stocks
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 other private
investors (the Future Investors, together with the 2009 Investor, the Preferred Investors),
pursuant to which the Future Investors agreed to purchase, at the Companys 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.
12
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company issued the Preferred Shares in reliance upon the exemption from registration under
Section 4(2) of the Securities Act. The Preferred Investors each represented to the Company that
such person was an accredited investor as defined in Rule 501(a) of the Securities Act and that
the Preferred Shares were being acquired for investment purposes. The Preferred Shares have not
been registered under the Securities Act and are restricted securities as that term is defined by
Rule 144 promulgated thereunder. The Company has not undertaken to register the Preferred Shares,
and no registration rights have been granted to the Preferred Investors in respect of the Preferred
Shares.
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 is immediately convertible by the holders thereof to 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. Such deemed dividends have been recorded as increases in losses
attributable to common stockholders and, in the absence of retained earnings, as reductions of
additional paid-in capital.
As of June 30, 2010, the 4,000,000 outstanding shares of Series A Preferred Stock had
accumulated undeclared and unpaid dividends totaling approximately $286,000.
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 six months ended June 30, 2010
and 2009, 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:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
Stock options |
|
|
1,277,167 |
|
|
|
615,167 |
|
Stock warrants |
|
|
805,521 |
|
|
|
805,521 |
|
Series A Preferred Stock |
|
|
4,286,083 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,368,771 |
|
|
|
1,420,688 |
|
|
|
|
|
|
|
|
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
$25,000 and $50,000 for the three and six months ended June 30, 2010, respectively, and $25,000 and
$53,000 for the three and six months ended June 30, 2009, 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. Amids assistance, including the AMID
StaplerTM, for a period of ten years from the first commercial sale of such product.
Less than $100 of royalty expense has been recorded for the three and six months ended June 30,
2010, and no royalties were recorded for the three and six months ended June 30, 2009.
13
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company has placed orders with various suppliers for the purchase of certain tooling,
inventory and 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.
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 Companys 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 Companys research and development expenditures as reimbursement for the use of Creightons
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 $11,000 and $32,000, respectively for the three and six months ended June
30, 2010, and $10,000 and $20,000, respectively, for the three and six months ended June 30, 2009.
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 Companys 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 Companys deferred tax assets have been fully
reserved by a valuation allowance due to managements 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 June 30, 2010 or December 31, 2009.
The tax years 2005-2008 remain open to examination by the major tax jurisdictions in which the
Company operates.
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 Companys President, Chief Executive Officer and director, and
The Frost Group. There were no advances under the Credit Facility during the three and six months
ended June 30, 2010. Advances under the Credit Facility totaled $500,000 and $800,000,
respectively, for the three and six months ended June 30, 2009, and $800,000 was outstanding as of
June 30, 2009. The Company recognized interest expense related to the outstanding borrowings of
$13,000 and $13,000, respectively, for the three and six months ended June 30, 2009. No interest
expense related to the Credit Facility has been recorded for the three and six months ended June
30, 2010, and there were no outstanding borrowings at June 30, 2010.
14
SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company entered into a five-year lease for office space in Miami, Florida with a company
controlled by Dr. Frost. Current rental payments under the Miami office lease, which commenced
January 1, 2008, are approximately $6,000 per month and escalate 4.5% annually over the life of the
lease. The Company recorded rent expense related to the Miami lease totaling approximately $20,000
and $38,000, respectively, for the three and six months ended June 30, 2010, and $19,000 and
$40,000, respectively, for the three and six months ended June 30, 2009.
During 2008 and until August 2009, Dr. Hsiao served as a director of Great Eastern Bank of
Florida, a bank where the Company maintains a bank account in the normal course of business. As of
June 30, 2010, the Company had approximately $97,000 on deposit with Great Eastern Bank of Florida.
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, Cardo
Medical, Inc. (Cardo), a publicly-traded medical device company, and SearchMedia Holdings Limited
(SearchMedia), a publicly-traded media company operating primarily in China. Director Richard
Pfenniger is also a shareholder of NIMS. The Companys 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 Companys 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 Cardo. The Company has recorded reductions to selling,
general and administrative costs and expenses to account for the sharing of costs under these
arrangements of $62,000 and $125,000, respectively, for the three and six months ended June 30,
2010, and $20,000 and $39,000, respectively, for the three and six months ended June 30, 2009.
Aggregate accounts receivable from NIMS, Aero, Cardo and SearchMedia were approximately $55,000 as
of June 30, 2010.
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 participants contributions to the 401k Plan up to a maximum of 4% of
the participants qualified annual earnings. The Company recorded 401(k) Plan matching expense of
approximately $9,000 and $17,000, respectively, for the three and six months ended June 30, 2010
and $5,000 and $11,000, respectively, for the three and six months ended June 30, 2009.
NOTE 13 RECENT ACCOUNTING PRONOUNCEMENTS
Subsequent Events Effective June 30, 2009, the Company adopted authoritative guidance which
establishes general standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. In February 2010, the FASB issued
additional guidance to remove the requirement for SEC filers to disclose the date through which an
entity has evaluated subsequent events. This change removes potential conflicts with current SEC
guidance. The guidance was effective upon issuance and had no impact on the Companys
consolidated financial statements.
NOTE 14 SUBSEQUENT EVENTS
In late July 2010, the Company voluntarily suspended sales of the AMID StaplerTM in
order to implement a more robust and reliable commercial manufacturing process. The Company
intends to recommence stapler sales before the end of the year. The suspension of stapler sales
and the cost of any necessary design or process modifications implemented will result in increased
expenses in 2010 and will delay revenues associated with the sale of the staplers. No adjustments
have been included in the accompanying financial statements as a result of the suspension of
stapler sales.
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA), Section 27A of the
Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities
Exchange Act of 1934, as amended, (the Exchange Act), about our expectations, beliefs or
intentions regarding our product development and commercialization efforts, business, financial
condition, results of operations, strategies or prospects. You can identify forward-looking
statements by the fact that these statements do not relate strictly to historical or current
matters. Rather, forward-looking statements relate to anticipated or expected events, activities,
trends or results as of the date they are made. Because forward-looking statements relate to
matters that have not yet occurred, these statements are inherently subject to risks and
uncertainties that could cause our actual results to differ materially from any future results
expressed or implied by the forward-looking statements. Many factors could cause our actual
operations or results to differ materially from the operations and results anticipated in
forward-looking statements. These factors include, but are not limited to: our ability to obtain
additional funding to continue our operations; our ability to successfully commercialize our
existing products, including improving the quality of and recommencing manufacturing and sales of
the AMID Stapler; our ability to successfully develop, clinically test and commercialize our
product candidates; the timing and outcome of the regulatory review process for our product
candidates; changes in the health care and regulatory environments of the United States and other
countries in which we intend to operate; our ability to attract and retain key management,
marketing and scientific personnel; competition; our ability to successfully prepare file,
prosecute, maintain, defend and enforce patent claims and other intellectual property rights; our
ability to successfully transition from a research and development company to a marketing, sales
and distribution concern, and our ability to identify and pursue development of additional product
candidates, as well as the factors contained in Item 1A Risk Factors of our Annual Report on
Form 10-K. We do not undertake any obligation to update forward-looking statements, except as
required by applicable law. We intend that all forward-looking statements be subject to the safe
harbor provisions of PSLRA. These forward-looking statements are only predictions and reflect our
views as of the date they are made with respect to future events and financial performance.
Overview
We are a developmental stage medical device company focused on the development of medical
devices that manipulate tissues for endoscopic and minimally invasive surgery for the treatment of
obesity, GERD, hernia formation, esophageal obstructions, Barretts Esophagus, upper
gastrointestinal bleeding and other intraperitoneal abnormalities.
We have utilized our expertise in intraperitoneal surgery to test certain of our devices in in
vivo and ex vivo animal trials and ex vivo human trials, and with certain products, in limited in
vivo human trials. Certain of our products did not or may not require clinical trials, including
our AMID StaplerTM, SMART DilatorTM and standard and airway bite blocks. As
required, we intend to rapidly, efficiently and safely move into clinical trials for certain other
devices, including those utilized in surgery for the treatment of obesity, GERD and for the
treatment and diagnosis of Barretts Esophagus. Clinical trials for our gastroplasty product
candidates are anticipated to begin in the second half of 2010.
Products and Product Candidates
Three of our products may currently be marketed in the United States without further FDA
clearance. We received the necessary FDA 510(k) clearances to market the AMID StaplerTM
and SMART DilatorTM as Class II devices in November 2009 and February 2009,
respectively. The AMID StaplerTM was further granted CE Mark clearance in February 2010
to market the stapler in the European Union and other countries requiring CE clearance. We believe
that our standard and airway bite blocks are Class I 510(k)-exempt devices that require no
preclearance from the FDA prior to marketing. We believe our Intraluminal Gastroplasty Device for
Obesity and GERD (the Gastroplasty Device), and our Barretts Excision and Ablation Device (the
Barretts Device), which are both still in development, will require investigational device
exemption (IDE) clinical data for FDA approval as Class II 510(k) devices. We are preparing our
clinical trial protocols for the Gastroplasty Device and anticipate submitting IDE trial plans to
the FDA for review by the end of August 2010, with in human trials beginning before the end of
2010. We submitted applications to the FDA in June and July 2010 for approval to market individual
components of the Gastroplasty Device for general indications, and anticipate responses before the
end of October 2010. We are beginning preparation of the clinical trial protocols for the Barretts
Device and anticipate conducting the first human testing of this device in 2011.
16
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations set forth
below under Results of Operations and Liquidity and Capital Resources should be read in
conjunction with our financial statements and notes thereto appearing elsewhere in this Form 10-Q.
The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including
the carrying values of our receivables, inventories, long term investments, property and equipment
and contingencies. We base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. A more detailed discussion on the application of these and other accounting
policies can be found in Note 2 in the Notes to the Consolidated Financial Statements set forth in
Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2009. Actual results may
differ from these estimates.
Results of Operations
We incurred losses of $2.3 million and $1.9 million for the six months ended June 30, 2010 and
2009, respectively, and we had an accumulated deficit of $14.0 million at June 30, 2010. Since we
do not currently generate significant revenue from any of our products, including those already
cleared for commercial marketing by the FDA, we expect to continue to generate losses in connection
with the initial commercial launch of such FDA-cleared products and the continual development of
our other products and technologies. Our research and development activities are budgeted to
expand over time, particularly as we commence clinical trials for our Gastroplasty Device and other
of our product candidates. We are also continuing to build our marketing and distribution
infrastructure in support of the commercial launch of the AMID StaplerTM, including the
hiring and training of 11 marketing, sales and customer service personnel and the purchase of
inventory. We may further expand our marketing and distribution throughout 2010 and beyond.
We commenced production of the AMID StaplerTM at a contract manufacturing facility
during the first quarter of 2010, and began commercial sales of the AMID StaplerTM in
June 2010. In late July 2010, we voluntarily suspended sales of our stapler so that we could
implement a more robust and reliable commercial manufacturing process. We intend to recommence
stapler sales before the end of the year, however, there can be no assurance our efforts will
result in the improvements or reliability we are seeking. The suspension of stapler sales and the
cost of any necessary design or process modifications will result in increased expenses in 2010 and
will delay revenues associated with the sale of the staplers.
Three and Six Months ended June 30, 2010 Compared to Three and Six Months Ended June 30,
2009
We
commenced sales of the AMID
StaplerTM
at the end of June 2010 and recorded appproximately $2,000 of net revenue in the three and six months then ended. Cost of sales, including
product costs, shipping and handling costs and royalty expense,
totaled approximately $1,000 for the
period, resulting in a $1,000 gross margin for the three and six months ended June 30, 2010. No
revenue, cost of sales or gross margin was recorded in 2009 or any prior period.
Research and development (R&D) costs and expenses were $730,000 and $1.1 million,
respectively, for the three and six months ended June 30, 2010 as compared to $449,000 and
$798,000, respectively, for the three and six months ended June 30, 2009. These $281,000 and
$282,000 respective increases resulted primarily from an approximately $75,000 increase in payroll
costs related to the addition of R&D staff during the six months
ended June 30, 2010 and increased
expenditures during the six months ended June 30, 2010 of approximately $600,000 for contract
research, animal testing and other R&D costs primarily related to the development of prototypes
for, and manufacture of devices to be used in upcoming clinical trials of, our Gastroplasty Device.
These increases were offset in part by an approximately $400,000 reduction in contract research
spending in the six months ended June 30, 2010 related to the development of the AMID
StaplerTM, which was completed in 2009. We expect R&D costs and expenses to increase
significantly in the second half of 2010 and beyond as we enter into more advanced stages of development for our
Gastroplasty Device and other surgical product candidates. These increased costs are expected to
come from increased payroll costs related to the expansion of our engineering and product
development staff, as well as the anticipated commencement of clinical trials.
17
Selling, general and administrative (SG&A) costs and expenses were $619,000 and $1.0
million, respectively, for the three and six months ended June 30, 2010, as compared to $417,000
and $748,000, respectively for the three and six months ended June 30, 2009. These $202,000 and
$299,000 respective increases primarily related to increased payroll costs
from the addition of administrative, marketing and sales personnel, increased stock-based
compensation expense, and increased advertising, travel and trade show expenses related to the
commercialization of the AMID StaplerTM. These increases were offset in part by reductions in
accounting and legal fees. SG&A costs and expenses consist primarily of salaries and other related
costs, including stock-based compensation expense. Other SG&A costs and expenses include
facility-related costs not otherwise included in R&D costs and expenses, and professional fees for
legal and accounting services. We expect that our SG&A costs and expenses will increase
significantly in the second half of 2010 and beyond from the addition of sales and marketing personnel as we continue
commercialization activities, primarily for the AMID StaplerTM.
Liquidity and Capital Resources
We have not generated significant revenues and have incurred operating losses since inception,
and we expect to continue incurring losses from operations for the foreseeable future. Until we
recommence sales of the AMID StaplerTM or commercialize another product, we will not
generate any revenues. Our research and development expenditures are expected to expand
significantly as we commence clinical trials for our Gastroplasty Device and other of our product
candidates. We are also continuing to build our marketing and distribution infrastructure in
support of the commercialization of the AMID Stapler, including significant investment in tooling
and inventory and the hiring and training of marketing, sales and customer service personnel. We
have funded our operations to date primarily with proceeds from the private placement of equity and
from advances under credit facilities available to us. Because of the numerous risks and
uncertainties associated with the development and commercialization of our products and product
candidates, we are unable to estimate the precise amounts of capital outlays and operating
expenditures associated with such development and commercialization activities. Our future capital
requirements will depend on many factors, including the progress and results of our clinical
trials, the duration and cost of discovery and preclinical development, and laboratory testing and
clinical trials for our product candidates, the timing and outcome of regulatory review of our
product candidates, the costs involved in preparing, filing, prosecuting, maintaining, defending
and enforcing patent claims and other intellectual property rights, the number and development
requirements of other product candidates that we pursue and the costs and results of
commercialization activities, including product marketing, sales and distribution activities and
the implementation of improved commercial manufacturing processes. We believe that our $5.9
million cash balance as of June 30, 2010, together with the $4.0 million availability under our
existing line of credit, will be sufficient to fund our current cash flow requirements through June
2011. However, in order to fund all of our planned operations through 2011 and beyond, including
the anticipated commencement in 2010 of clinical trials for the Gastroplasty Device, we believe we
will need to obtain additional external financing prior to June 2011. We considered the June 30,
2011 expiration of the $4.0 million line of credit when evaluating our ability to continue funding
operations.
We intend to obtain external financing for our future cash needs through public or private
equity offerings, debt financings or corporate collaboration and licensing arrangements.
Additional equity or debt financing or corporate collaboration and licensing arrangements may not
be available on acceptable terms, or at all. We may need to raise additional funds more quickly
than anticipated if our estimates are incorrect or if we choose to expand our product development
efforts more rapidly than we presently anticipate. We may also decide to raise additional funds
before we need them if the conditions for raising capital are favorable. The sale of additional
equity or convertible debt securities may result in dilution to our stockholders. The incurrence
of indebtedness would result in increased fixed obligations, and the terms of such indebtedness
could include covenants restricting, among other things, our operations, our ability to incur
additional indebtedness, our ability to pay dividends on our capital stock or our ability to merge
or otherwise enter into business combination transactions. If adequate funds are not available, we
may be required to delay, reduce the scope of or eliminate our research and development programs,
reduce our planned commercialization efforts or obtain funds through arrangements with
collaborators or others that may require us to relinquish rights to certain product candidates that
we might otherwise seek to develop or commercialize independently.
18
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies as defined in Rule 12b-2 of the Exchange Act.
Item 4. Controls and Procedures.
We maintain a system of disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e)) that is designed to provide reasonable assurance that information we are required to
disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to
management in a timely manner. Our Chief Executive Officer and Chief Financial Officer evaluated
this system of disclosure controls and procedures as of the end of the period covered by this
quarterly report and have concluded that the system is operating effectively to ensure appropriate
disclosure.
There were no significant changes in our internal control over financial reporting identified
in connection with the evaluation required by paragraph (d) of Rule 13a-15 of the Exchange Act that
occurred during period covered by this report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
There have been no material changes in our risk factors since the filing of our Annual Report
on Form 10-K for the year ended December 31, 2009.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. (Removed and Reserved).
Item 5. Other Information.
None.
Item 6. Exhibits.
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Exhibits: |
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31.1 |
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) |
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31.2 |
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) |
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32.1 |
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Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
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32.2 |
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Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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SAFESTITCH MEDICAL, INC.
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Date: August 13, 2010 |
By: |
/s/ Jeffrey G. Spragens
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Jeffrey G. Spragens |
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President and Chief Executive Officer |
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Date: August 13, 2010 |
By: |
/s/ Adam S. Jackson
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Adam S. Jackson |
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Chief Financial Officer |
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21
Exhibit 31.1
Exhibit 31.1
CERTIFICATIONS
I, Jeffrey G. Spragens, certify that:
1. |
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I have reviewed this Quarterly Report on Form 10-Q of SafeStitch Medical, Inc.; |
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2. |
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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; |
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3. |
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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; |
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4. |
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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: |
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a. |
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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; |
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b. |
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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; |
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c. |
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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 |
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d. |
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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. |
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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): |
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a. |
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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 |
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b. |
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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. |
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By: |
/s/ Jeffrey G. Spragens
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Jeffrey G. Spragens |
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Chief Executive Officer (Principal Executive Officer) August 13, 2010 |
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Exhibit 31.2
Exhibit 31.2
CERTIFICATIONS
I, Adam S. Jackson, certify that:
1. |
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I have reviewed this Quarterly Report on Form 10-Q of SafeStitch Medical, Inc.; |
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2. |
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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; |
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3. |
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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; |
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4. |
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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: |
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a. |
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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; |
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b. |
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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; |
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c. |
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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 |
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d. |
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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. |
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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): |
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a. |
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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 |
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b. |
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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. |
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By: |
/s/ Adam S. Jackson
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Adam S. Jackson |
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Chief Financial Officer August 13, 2010 |
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Exhibit 32.1
Exhibit 32.1
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q of SafeStitch Medical, Inc.
for the quarter ended June 30, 2010 (the Report), the undersigned hereby certifies pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the
best of my knowledge and belief, that:
(1) |
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the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
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(2) |
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the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of SafeStitch Medical, Inc. |
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By: |
/s/ Jeffrey G. Spragens
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Jeffrey G. Spragens |
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Chief Executive Officer and President August 13, 2010 |
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The certification set forth above is being furnished as an Exhibit solely pursuant to Section
906 of the SarbanesOxley Act of 2002 and is not being filed as part of the Report or as a separate
disclosure document of SafeStitch Medical, Inc. or the certifying officers.
Exhibit 32.2
Exhibit 32.2
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q of SafeStitch Medical, Inc.
for the quarter ended June 30, 2010 (the Report), the undersigned hereby certifies pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the
best of my knowledge and belief, that:
(1) |
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the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
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(2) |
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the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of SafeStitch Medical, Inc. |
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By: |
/s/ Adam S. Jackson
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Adam S. Jackson |
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Chief Financial Officer August 13, 2010 |
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The certification set forth above is being furnished as an Exhibit solely pursuant to Section
906 of the SarbanesOxley Act of 2002 and is not being filed as part of the Report or as a separate
disclosure document of SafeStitch Medical, Inc. or the certifying officers.