x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
77-0492262
|
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. employer
identification no.)
|
Large accelerated filer
¨
|
Accelerated filer
x
|
Non-accelerated filer
¨
|
Smaller reporting company
¨
|
Page
|
||||
PART I
|
FINANCIAL INFORMATION
|
|||
|
||||
Item 1.
|
1 | |||
1 | ||||
2 | ||||
3 | ||||
4 | ||||
Item 2.
|
10 | |||
Item 3.
|
19 | |||
Item 4.
|
19 | |||
|
||||
PART II
|
OTHER INFORMATION
|
|||
|
||||
Item 1.
|
21 | |||
tem 1A
|
21 | |||
Item 2
|
32 | |||
Item 3.
|
32 | |||
Item 4
|
32 | |||
Item 5
|
32 | |||
Item 6
|
32 | |||
33 |
ITEM 1.
|
September 30,
|
December, 31,
|
|||||||
2010
|
2009
|
|||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 21,703 | $ | 22,829 | ||||
Marketable investments
|
69,154 | 76,780 | ||||||
Accounts receivable, net
|
3,024 | 3,327 | ||||||
Inventories
|
7,144 | 6,408 | ||||||
Deferred tax asset
|
204 | 175 | ||||||
Other current assets and prepaid expenses
|
2,855 | 2,785 | ||||||
Total current assets
|
104,084 | 112,304 | ||||||
Property and equipment, net
|
624 | 847 | ||||||
Long-term investments
|
6,683 | 7,275 | ||||||
Intangibles, net
|
685 | 829 | ||||||
Deferred tax asset, net of current portion
|
97 | 97 | ||||||
Total assets
|
$ | 112,173 | $ | 121,352 | ||||
Liabilities and Stockholders' Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 1,701 | $ | 1,081 | ||||
Accrued liabilities
|
5,821 | 9,048 | ||||||
Deferred revenue
|
5,757 | 6,160 | ||||||
Total current liabilities
|
13,279 | 16,289 | ||||||
Deferred rent
|
1,504 | 1,493 | ||||||
Deferred revenue, net of current portion
|
1,302 | 1,968 | ||||||
Income tax liability
|
566 | 749 | ||||||
Total liabilities
|
16,651 | 20,499 | ||||||
Commitments and Contingencies (Note 8)
|
||||||||
Stockholders’ equity:
|
||||||||
Common stock
|
14 | 13 | ||||||
Additional paid-in capital
|
89,296 | 85,248 | ||||||
Retained earnings
|
8,016 | 17,254 | ||||||
Accumulated other comprehensive loss
|
(1,804 | ) | (1,662 | ) | ||||
Total stockholders’ equity
|
95,522 | 100,853 | ||||||
Total liabilities and stockholders’ equity
|
$ | 112,173 | $ | 121,352 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net revenue
|
$ | 12,092 | $ | 12,171 | $ | 38,058 | $ | 38,266 | ||||||||
Cost of revenue
|
5,661 | 4,910 | 16,825 | 15,976 | ||||||||||||
Gross profit
|
6,431 | 7,261 | 21,233 | 22,290 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Sales and marketing
|
5,799 | 5,112 | 18,612 | 18,186 | ||||||||||||
Research and development
|
1,871 | 1,684 | 4,831 | 4,922 | ||||||||||||
General and administrative
|
2,352 | 2,121 | 7,338 | 8,257 | ||||||||||||
Litigation settlement
|
- | - | - | 850 | ||||||||||||
Total operating expenses
|
10,022 | 8,917 | 30,781 | 32,215 | ||||||||||||
Loss from operations
|
(3,591 | ) | (1,656 | ) | (9,548 | ) | (9,925 | ) | ||||||||
Interest and other income, net
|
132 | 288 | 439 | 1,398 | ||||||||||||
Loss before income taxes
|
(3,459 | ) | (1,368 | ) | (9,109 | ) | (8,527 | ) | ||||||||
Provision for income taxes
|
- | 12,126 | 129 | 9,159 | ||||||||||||
Net loss
|
$ | (3,459 | ) | $ | (13,494 | ) | $ | (9,238 | ) | $ | (17,686 | ) | ||||
Net loss per share:
|
||||||||||||||||
Basic and Diluted
|
$ | (0.25 | ) | $ | (1.01 | ) | $ | (0.68 | ) | $ | (1.33 | ) | ||||
Weighted-average number of shares used in per share calculations:
|
||||||||||||||||
Basic and Diluted
|
13,589 | 13,382 | 13,512 | 13,274 |
Nine Months Ended
|
||||||||
September 30,
|
||||||||
2010
|
2009
|
|||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$ | (9,238 | ) | $ | (17,686 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Stock-based compensation
|
3,670 | 3,396 | ||||||
Tax deficit from stock-based compensation
|
(2 | ) | ||||||
Depreciation and amortization
|
560 | 664 | ||||||
Provision for excess and obsolete inventories
|
217 | 247 | ||||||
Provision for doubtful accounts receivable
|
(91 | ) | 550 | |||||
Gain on sale of marketable investments
|
74 | 103 | ||||||
Change in deferred tax asset
|
(29 | ) | 10,540 | |||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable
|
394 | 2,607 | ||||||
Inventories
|
(953 | ) | 1,796 | |||||
Other current assets and prepaid expenses
|
1,613 | 469 | ||||||
Accounts payable
|
620 | (478 | ) | |||||
Accrued liabilities
|
(3,058 | ) | (1,686 | ) | ||||
Deferred rent
|
(158 | ) | (46 | ) | ||||
Deferred revenue
|
(1,069 | ) | (3,039 | ) | ||||
Income tax liability
|
(183 | ) | (570 | ) | ||||
Net cash used in operating activities
|
(7,631 | ) | (3,135 | ) | ||||
Cash flows from investing activities:
|
||||||||
Acquisition of property and equipment
|
(193 | ) | (98 | ) | ||||
Proceeds from sales of marketable investments
|
38,800 | 20,794 | ||||||
Proceeds from maturities of marketable investments
|
34,135 | 10,560 | ||||||
Purchase of marketable investments
|
(66,617 | ) | (30,795 | ) | ||||
Net cash provided by investing activities
|
6,125 | 461 | ||||||
Cash flows from financing activities:
|
||||||||
Proceeds from exercise of stock options and employee stock purchase plan
|
380 | 436 | ||||||
Net cash provided by financing activities
|
380 | 436 | ||||||
Net decrease in cash and cash equivalents
|
(1,126 | ) | (2,238 | ) | ||||
Cash and cash equivalents at beginning of period
|
22,829 | 36,540 | ||||||
Cash and cash equivalents at end of period
|
$ | 21,703 | $ | 34,302 |
September 30, 2010
|
||||||||||||||||
Gross
|
Gross
|
Fair
|
||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Market
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
Cash and cash equivalents
|
$ | 21,703 | $ | — | $ | — | $ | 21,703 | ||||||||
Marketable investments- debt securities
|
69,086 | 79 | (11 | ) | 69,154 | |||||||||||
Long-term investments in auction rate securities
|
8,325 | — | (1,642 | ) | 6,683 | |||||||||||
Total cash and cash equivalents, marketable investments and long-term investments
|
$ | 99,114 | $ | 79 | $ | (1,653 | ) | $ | 97,540 |
December 31, 2009
|
||||||||||||||||
Gross
|
Gross
|
Fair
|
||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Market
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
Cash and cash equivalents
|
$ | 22,829 | $ | — | $ | — | $ | 22,829 | ||||||||
Marketable investments:
|
||||||||||||||||
Municipal securities
|
76,512 | 182 | (14 | ) | 76,680 | |||||||||||
Auction rate securities
|
100 | — | — | 100 | ||||||||||||
Total marketable investments
|
76,612 | 182 | (14 | ) | 76,780 | |||||||||||
Long-term investments in auction rate securities
|
8,875 | — | (1,600 | ) | 7,275 | |||||||||||
Total cash and cash equivalents, marketable investments and long-term investments
|
$ | 108,316 | $ | 182 | $ | (1,614 | ) | $ | 106,884 |
·
|
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.
|
·
|
Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.
|
·
|
Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Cash equivalents
|
$ | 20,061 | $ | — | $ | — | $ | 20,061 | ||||||||
Securities available for sale:
|
||||||||||||||||
Marketable investments–debt securities
|
— | 69,154 | — | 69,154 | ||||||||||||
Long-term investments–auction rate securities
|
— | — | 6,683 | 6,683 | ||||||||||||
Total assets at fair value
|
$ | 20,061 | $ | 69,154 | $ | 6,683 | $ | 95,898 |
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Beginning balance, January 1, 2010
|
$ | 19,346 | $ | 76,780 | $ | 7,275 | $ | 103,401 | ||||||||
Total gains or losses:
|
||||||||||||||||
Included in earnings (or changes in net assets)
|
1 | (75 | ) | — | (74 | ) | ||||||||||
Included in other comprehensive loss
|
(31 | ) | (27 | ) | (42 | ) | (100 | ) | ||||||||
Purchases, issuance, sales and settlements (net)
|
745 | (7,524 | ) | (550 | ) | (7,329 | ) | |||||||||
Ending balance, September 30, 2010
|
$ | 20,061 | $ | 69,154 | $ | 6,683 | $ | 95,898 |
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Tax receivable
|
$ | 1,526 | $ | 1,517 | ||||
Deposits
|
661 | 737 | ||||||
Prepaid expense
|
668 | 531 | ||||||
Total
|
$ | 2,855 | $ | 2,785 |
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Raw materials
|
$ | 4,299 | $ | 3,775 | ||||
Finished goods
|
2,845 | 2,633 | ||||||
Total
|
$ | 7,144 | $ | 6,408 |
September 30, 2010
|
||||||||||||
Accumulated
|
||||||||||||
Gross Carrying
|
Amortization
|
Net Carrying
|
||||||||||
Amount
|
Amount
|
Amount
|
||||||||||
Patent sublicense
|
$ | 1,218 | $ | (620 | ) | $ | 598 | |||||
Technology sublicense
|
538 | (451 | ) | 87 | ||||||||
Total
|
$ | 1,756 | $ | (1,071 | ) | $ | 685 |
December 31, 2009
|
||||||||||||
Gross Carrying
|
Accumulated Amortization
|
Net Carrying
|
||||||||||
Amount
|
Amount
|
Amount
|
||||||||||
Patent sublicense
|
$ | 1,218 | $ | (517 | ) | $ | 701 | |||||
Technology sublicense
|
538 | (410 | ) | 128 | ||||||||
Other intangible
|
20 | (20 | ) | — | ||||||||
Total
|
$ | 1,776 | $ | (947 | ) | $ | 829 |
Fiscal Year Ending December 31,
|
||||
2010 (remainder)
|
$ | 48 | ||
2011
|
192 | |||
2012
|
158 | |||
2013
|
138 | |||
2014
|
138 | |||
Thereafter
|
11 | |||
Total
|
$ | 685 |
September 30,
|
||||||||
2010
|
2009
|
|||||||
Beginning Balance
|
$ | 1,049 | $ | 1,916 | ||||
Add: Accruals for warranties issued during the period
|
2,058 | 1,402 | ||||||
Less: Settlements made during the period
|
(2,447 | ) | (2,229 | ) | ||||
Ending Balance
|
$ | 660 | $ | 1,089 |
September 30,
|
||||||||
2010
|
2009
|
|||||||
Beginning Balance
|
$ | 8,128 | $ | 11,665 | ||||
Add: Payments received
|
6,004 | 4,643 | ||||||
Less: Revenue recognized
|
(7,210 | ) | (7,682 | ) | ||||
Ending Balance
|
$ | 6,922 | $ | 8,626 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Cost of revenue
|
$ | 191 | $ | 161 | $ | 566 | $ | 568 | ||||||||
Sales and marketing
|
214 | 250 | 476 | 817 | ||||||||||||
Research and development
|
316 | 116 | 904 | 364 | ||||||||||||
General and administrative
|
360 | 368 | 1,724 | 1,647 | ||||||||||||
Total stock-based compensation expense
|
$ | 1,081 | $ | 895 | $ | 3,670 | $ | 3,396 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net loss – Basic and Diluted
|
$ | (3,459 | ) | $ | (13,494 | ) | $ | (9,238 | ) | $ | (17,686 | ) | ||||
Denominator:
|
||||||||||||||||
Weighted-average number of common shares outstanding used in computing basic and diluted net loss per share
|
13,589 | 13,382 | 13,512 | 13,274 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Options to purchase common stock
|
3,484 | 2,846 | 3,110 | 2,769 | ||||||||||||
Restricted stock units
|
72 | - | 40 | 7 | ||||||||||||
Employee stock purchase plan shares
|
23 | 29 | 45 | 63 | ||||||||||||
Total
|
3,579 | 2,875 | 3,195 | 2,839 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net loss
|
$ | (3,459 | ) | $ | (13,494 | ) | $ | (9,238 | ) | $ | (17,686 | ) | ||||
Net change in unrealized gain (loss)
,
on available-for sale-securities
|
(54 | ) | (105 | ) | (142 | ) | 1,635 | |||||||||
Change in income tax effect on unrealized gain (loss) on available-for sale-securities
|
— | (66 | ) | — | 1 | |||||||||||
Comprehensive loss
|
$ | (3,513 | ) | $ | (13,665 | ) | $ | (9,380 | ) | $ | (16,050 | ) |
Fiscal Year Ending December 31,
|
||||
2010 (remainder)
|
$ | 469 | ||
2011
|
1,652 | |||
2012
|
1,498 | |||
2013
|
1,278 | |||
2014
|
1,232 | |||
Thereafter
|
3,922 | |||
Future minimum rental payments
|
$ | 10,051 |
|
·
|
Executive Summary.
This section provides a general description and history of our business, a brief discussion of our product lines and the opportunities, trends, challenges and risks we focus on in the operation of our business.
|
|
·
|
Critical Accounting Policies and Estimates.
This section describes the key accounting policies that are affected by critical accounting estimates.
|
|
·
|
Recent Accounting Pronouncements
. This section describes the issuance and effect of new accounting pronouncements that may be applicable to us.
|
|
·
|
Results of Operations.
This section provides our analysis and outlook for the significant line items on our Consolidated Statements of Operations.
|
|
·
|
Liquidity and Capital Resources.
This section provides an analysis of our liquidity and cash flows, as well as a discussion of our commitments that existed as of September 30, 2010.
|
|
·
|
Continuing to expand our product offerings.
|
|
·
|
Investments made in our global sales and marketing infrastructure.
|
|
·
|
Use of clinical results to support new aesthetic products and applications.
|
|
·
|
Enhanced luminary development and reference selling efforts (to develop a location where our products can be displayed and used to assist in selling efforts).
|
|
·
|
Customer demand for our products and consumer demand for the applications they offer.
|
|
·
|
Marketing to physicians in the core dermatology and plastic surgeon specialties, as well as outside those specialties.
|
|
·
|
Generating Service, Upgrade, Titan hand piece refill, and Dermal filler and cosmeceuticals revenue from our growing installed base of customers.
|
|
·
|
many of our current and prospective customers that do not have established medical offices continue to be reluctant to purchase capital equipment. In times of general economic uncertainty and tight credit, individuals often reduce or delay their capital equipment purchase decisions;
|
|
·
|
there continues to be a lack of availability of consumer credit for some of our customers that do not have established medical offices, e.g. Med - Spas, which is contributing to reduced volume; and
|
|
·
|
lower average selling price (ASP), which is resulting from our customers purchasing fewer applications on our platforms and competitive pricing pressures in the marketplace.
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Operating Ratio:
|
||||||||||||||||
Net revenue
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Cost of revenue
|
47 | % | 40 | % | 44 | % | 42 | % | ||||||||
Gross profit
|
53 | % | 60 | % | 56 | % | 58 | % | ||||||||
Operating expenses:
|
||||||||||||||||
Sales and marketing
|
48 | % | 42 | % | 49 | % | 47 | % | ||||||||
Research and development
|
16 | % | 14 | % | 13 | % | 13 | % | ||||||||
General and administrative
|
19 | % | 17 | % | 19 | % | 22 | % | ||||||||
Litigation settlement
|
— | % | — | % | — | % | 2 | % | ||||||||
Total operating expenses
|
83 | % | 73 | % | 81 | % | 84 | % | ||||||||
Loss from operations
|
(30 | )% | (13 | )% | (25 | )% | (26 | )% | ||||||||
Interest and other income, net
|
1 | % | 2 | % | 1 | % | 4 | % | ||||||||
Loss before income taxes
|
(29 | )% | (11 | )% | (24 | )% | (22 | )% | ||||||||
Provision for income taxes
|
— | % | 100 | % | — | % | 24 | % | ||||||||
Net loss
|
(29 | )% | (111 | )% | (24 | )% | (46 | )% |
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||
(Dollars in thousands)
|
2010
|
% Change
|
2009
|
2010
|
% Change
|
2009
|
||||||||||||||||||
Revenue mix by geography:
|
|
|
|
|
|
|
||||||||||||||||||
United States
|
$ | 4,214 | (13 | )% | $ | 4,825 | $ | 13,545 | (14 | )% | $ | 15,721 | ||||||||||||
International
|
7,878 | 7 | % | 7,346 | 24,513 | 9 | % | 22,545 | ||||||||||||||||
Consolidated total revenue
|
$ | 12,092 | (1 | )% | $ | 12,171 | $ | 38,058 | (1 | )% | $ | 38,266 | ||||||||||||
|
||||||||||||||||||||||||
United States as a percentage of total revenue
|
35 | % | 40 | % | 36 | % | 41 | % | ||||||||||||||||
International as a percentage of total revenue
|
65 | % | 60 | % | 64 | % | 59 | % | ||||||||||||||||
Revenue mix by product category:
|
||||||||||||||||||||||||
Products
(1)
|
$ | 5,767 | (3 | )% | $ | 5,964 | $ | 18,888 | 1 | % | $ | 18,758 | ||||||||||||
Upgrades
|
1,414 | 5 | % | 1,352 | 3,955 | (8 | )% | 4,307 | ||||||||||||||||
Service
|
3,166 | (1 | )% | 3,210 | 9,917 | 1 | % | 9,860 | ||||||||||||||||
Titan hand piece refills
|
647 | (50 | )% | 1,287 | 2,929 | (28 | )% | 4,075 | ||||||||||||||||
Dermal fillers and cosmeceuticals
(1)
|
1,098 | 207 | % | 358 | 2,369 | 87 | % | 1,266 | ||||||||||||||||
Consolidated total revenue
|
$ | 12,092 | (1 | )% | $ | 12,171 | $ | 38,058 | (1 | )% | $ | 38,266 |
(1)
|
Beginning in 2010, we classified revenue from sales of BioForm’s Radiesse® dermal filler product in Japan and sales of Obagi’s cosmeceuticals product in the revenue category ‘Dermal filler and cosmeceuticals.’ Previously, we classified these sales in the revenue category ‘Products.’ As such, we reclassified the 2009 revenue from BioForm’s Radiesse® dermal filler product sales in Japan and Obagi cosmeceuticals product sales from ‘Products’ to ‘Dermal filler and cosmeceuticals.’
|
|
·
|
customers purchasing fewer applications on our platforms; and
|
|
·
|
competitive pricing pressures in the marketplace.
|
|
·
|
a decrease in Products and Upgrades revenue of 6% in the three months and 16% in the nine months ended September 30, 2010 due primarily to a decline in the weighted average selling price (ASP) offset by an increase in unit sales; and
|
|
·
|
a decline in Titan hand piece refill revenue by 68% in the three months and 38% in the nine months ended September 30, 2010, which was a result of our Titan XL recall.
|
|
·
|
an increase in our Japan revenue by 48% in the three months and 40% in the nine months ended September 30, 2010, compared to the same periods in 2009 due to higher Product, Upgrade and Cosmeceutical revenue.; partially offset by
|
|
·
|
a decline in our Europe revenue by 38% in the three months and 32% in the nine months ended September 30, 2010, compared to the same periods in 2009, due in part to the economic uncertainty that resulted from the 2010 European debt crisis
and a decline in Titan hand piece refill revenue.
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||
(Dollars in thousands)
|
2010
|
% Change
|
2009
|
2010
|
% Change
|
2009
|
||||||||||||||||||
Gross profit
|
$ | 6,431 | (11 | )% | $ | 7,261 | $ | 21,233 | (5 | )% | $ | 22,290 | ||||||||||||
As a percentage of net revenue
|
53 | % | 60 | % | 56 | % | 58 | % |
|
·
|
a 50% decrease in our higher margin Titan hand piece refill revenue
coupled with the expenses associated with refurbishing our global installed base of Titan XL hand pieces, due to our voluntary Titan XL recall; and
|
|
·
|
the write down of our VASER inventory by $171,000, due to our intent to discontinue the distribution of this product.
|
|
·
|
a 28% decrease in our higher margin Titan hand piece refill revenue coupled with the expenses associated with refurbishing our global installed base of Titan XL hand pieces, due to our voluntary Titan XL recall, due to our voluntary Titan XL recall;
|
|
·
|
the write down of our VASER inventory by $171,000, due to our intent to discontinue the distribution of this product; and
|
|
·
|
a decline in the ASP’s for Products and Upgrades, resulting primarily from customers purchasing fewer applications on our platforms and lower pricing ─ see discussion above in the Revenue section.
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||
(Dollars in thousands)
|
2010
|
% Change
|
2009
|
2010
|
% Change
|
2009
|
||||||||||||||||||
Sales and marketing
|
$ | 5,799 | 13 | % | $ | 5,112 | $ | 18,612 | 2 | % | $ | 18,186 | ||||||||||||
As a percentage of total revenue
|
48 | % | 42 | % | 49 | % | 47 | % |
|
·
|
expenses of $236,000 related to the creation of three new departments in the first quarter of 2010: post marketing studies (clinical development), business development and telesales;
|
|
·
|
higher personnel expenses of $235,000, due mainly to higher international sales commission expenses resulting from higher international revenue and increased headcount in Japan resulting from our Obagi cosmeceuticals business; and
|
|
·
|
higher consulting service fees of $152,000, due mainly to the expansion of our Japan operations for the cosmeceuticals business.
|
|
·
|
expenses of $777,000 related to the creation of three new departments in the first quarter of 2010: post marketing studies (clinical development), business development and telesales; partially offset by
|
|
·
|
lower personnel expenses of $321,000, due primarily to lower sales headcount in the U.S., resulting from our 2009 restructuring efforts, and lower sales commission expenses resulting from lower revenue in the U.S. sales.
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||
(Dollars in thousands)
|
2010
|
% Change
|
2009
|
2010
|
% Change
|
2009
|
||||||||||||||||||
Research and development
|
$ | 1,871 | 11 | % | $ | 1,684 | $ | 4,831 | (2 | )% | $ | 4,922 | ||||||||||||
As a percentage of total revenue
|
16 | % | 14 | % | 13 | % | 13 | % |
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||
(Dollars in thousands)
|
2010
|
% Change
|
2009
|
2010
|
% Change
|
2009
|
||||||||||||||||||
General and Administrative
|
$ | 2,352 | 11 | % | $ | 2,121 | $ | 7,338 | (11 | )% | $ | 8,257 | ||||||||||||
As a percentage of total revenue
|
19 | % | 17 | % | 19 | % | 22 | % |
|
·
|
higher personnel and travel expenses of $102,000;
|
|
·
|
higher legal settlement expenses of $59,000; and
|
|
·
|
higher professional services fee expenses of $46,000, resulting from an increase in accounting and tax services.
|
|
·
|
lower bad debt expense of $620,000, resulting primarily from one leasing company that defaulted on its payment in 2009; and
|
|
·
|
lower professional services fee expenses of $345,000, resulting from reduced accounting, tax and legal services in the first-half of 2010 compared to the same period in 2009.
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||
(Dollars in thousands)
|
2010
|
% Change
|
2009
|
2010
|
% Change
|
2009
|
||||||||||||||||||
Interest income
|
$ | 104 | (64 | )% | $ | 288 | $ | 407 | (65 | )% | $ | 1,148 | ||||||||||||
Other income, net
|
28 | N/A | — | 32 | (87 | )% | 250 | |||||||||||||||||
Total Interest and other income, net
|
$ | 132 | (54 | )% | $ | 288 | $ | 439 | (69 | )% | $ | 1,398 |
|
·
|
A decrease in interest income of $184,000 in the three months and $741,000 in the nine months ended September 30, 2010, compared to the same periods in 2009, due primarily to reduced interest yields as a result of the Federal Reserve cutting interest rates; and
|
|
·
|
A decrease in other income of $218,000 in the nine months ended September 30, 2010, compared to the same period in 2009. This decrease was due primarily to net foreign exchange losses resulting primarily from translation losses that arose from the appreciation of the U.S. dollar relative to the currencies of the majority of our foreign subsidiaries in 2010, compared to foreign exchange gains resulting primarily from translation gains that arose from the devaluation of the U.S. dollar relative to the currencies against certain of our foreign subsidiaries in 2009.
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||
(Dollars in thousands)
|
2010
|
% Change
|
2009
|
2010
|
% Change
|
2009
|
||||||||||||||||||
Loss before income taxes
|
$ | (3,459 | ) | 153 | % | $ | (1,368 | ) | $ | (9,109 | ) | 7 | % | $ | (8,527 | ) | ||||||||
Provision for income taxes
|
$ | — | (100 | )% | $ | 12,126 | $ | 129 | (99 | )% | $ | 9,159 | ||||||||||||
Effective tax rate
|
— | % | (886 | )% | (1 | )% | (107 | )% |
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||
(Dollars in thousands)
|
2010
|
% Change
|
2009
|
2010
|
% Change
|
2009
|
||||||||||||||||||
Net loss
|
$ | (3,459 | ) | (74 | )% | $ | (13,494 | ) | $ | (9,238 | ) | (48 | )% | $ | (17,686 | ) | ||||||||
Net loss per diluted share
|
$ | (0.25 | ) | (75 | )% | $ | (1.01 | ) | $ | (0.68 | ) | (49 | )% | $ | (1.33 | ) |
|
·
|
lower tax provision of $12.1 million in the three months and $9.0 million in the nine months ended September 30, 2010;
|
|
·
|
― just affecting the
nine
month comparison ―
lower operating expenses of $584,000 in the nine months ended September 30, 2010, due primarily to our 2009 restructuring efforts, and
|
|
·
|
― just affecting the
nine
month comparison ―
lower litigation settlement expense of $855,000 in the nine months ended September 30, 2010, compared to the same period in 2009; partially offset by
|
|
·
|
― just affecting the
three
month comparison ―
higher operating expenses of $1.1 million in the three months ended September 30, 2010, compared to the same period in 2009.
|
(Dollars in thousands)
|
September 30, 2010
|
December 31, 2009
|
||||||
Working Capital
(2)
|
$ | 90,805 | $ | 96,015 | ||||
Current Ratio
(3)
|
7.8:1
|
6.9:1
|
(2)
|
Working capital measures how much in liquid assets a company has available to operate its business. Working capital is defined as the difference between current assets and current liabilities.
|
(3)
|
The current ratio is a financial ratio that measures a company’s resources to pay its current liabilities over the next 12 months. The current ration is defined as current assets divided by current liabilities.
|
(Dollars in thousands)
|
September 30, 2010
|
December 31, 2009
|
Change
|
|||||||||
Cash and cash equivalents
|
$ | 21,703 | $ | 22,829 | $ | (1,126 | ) | |||||
Marketable investments
|
69,154 | 76,780 | (7,626 | ) | ||||||||
Long-term investments
|
6,683 | 7,275 | (592 | ) | ||||||||
Total
|
$ | 97,540 | $ | 106,884 | $ | (9,344 | ) |
|
Nine Months Ended September 30,
|
|||||||
(Dollars in thousands)
|
2010
|
2009
|
||||||
Net cash flow provided by (used in):
|
|
|
||||||
Operating activities
|
$ | (7,631 | ) | $ | (3,135 | ) | ||
Investing activities
|
6,125 | 461 | ||||||
Financing activities
|
380 | 436 | ||||||
Net decrease in cash and cash equivalents
|
$ | (1,126 | ) | $ | (2,238 | ) |
|
·
|
$4.8 million used by the net loss of $9.2 million after adjusting for non-cash related items of $4.4 million; consisting primarily of stock-based compensation expense of $3.7 million and other items of $731,000;
|
|
·
|
$3.1 million used to pay down the higher 2009 year-end accrued liabilities relating primarily to: (i) a reduction of professional and legal fees of $1.4 million resulting primarily from a settlement payment of $950,000 relating to our TCPA litigation matter (see Note 8, “Commitments and Contingencies - Litigation,” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q) and $369,000 related primarily to payment of other legal settlements, (ii) reduction of customer deposits by $588,000 resulting from converting customer prepayments to revenue, (iii) reduction of accrued warranty expenses of $389,000 due primarily to fewer units remaining under warranty, (iv) reduction of accrued personnel expenses by $279,000 resulting primarily from the pay-down of year-end commissions and bonuses, and (v) net reduction of $208,000 for accrued sales and marketing expenses;
|
|
·
|
$1.1 million used as a result of a decrease in deferred revenue due primarily to a decrease in unit sales volume of Products and Upgrades that included purchases of extended service contracts, a reduction in our service contract pricing,
|
|
a shift by customers towards purchasing shorter term contracts, and fewer customers purchasing extended service contracts; and
|
|
·
|
$953,000 used to purchase inventory, which primarily resulted from our distribution agreements with Obagi and BioForm; partially offset by
|
|
·
|
$1.8 million amortization of discounts and purchased interest relating to our marketable and long-term investments.
|
|
·
|
$2.2 million used by the net loss of $17.7 million after adjusting for non-cash related items of $15.5 million- consisting primarily of valuation allowance on our deferred tax asset of $12.3 million as of December 31, 2008, stock-based compensation expense of $3.4 million, net increase in the allowance for doubtful accounts of $550,000 due primarily to one leasing company that has defaulted on its payment and an increase in the provision for excess and obsolete inventories of $247,000 resulting from the reduced future demand for our products;
|
|
·
|
$3.0 million used as a result of a decrease in deferred revenue due primarily to a decrease in unit sales volume of Products and Upgrades that included purchases of extended service contracts, a reduction in our service contract pricing beginning in 2009, a shift by customers towards purchasing shorter term contracts, and fewer customers purchasing extended service contracts in response to improved product reliability and to a tougher economy; and
|
|
·
|
$1.7 million used to pay down the higher 2008 year-end accrued liabilities relating primarily to: (i) lower accrued personnel expenses of $679,000 due primarily to reduced accruals for commissions and employee benefit expenses; (ii) reduction of accrued warranty expenses of $827,000 due primarily to fewer units remaining under warranty; (iii) reduction of the income taxes payable balance by $285,000; and (iv) net reduction of $245,000 of accrued royalties due to the reduced revenue in the third quarter of 2009. This was partially offset by higher accrued legal settlement expense of $850,000 relating to our TCPA litigation matter (see Note 8, “Commitments and Contingencies - Litigation,” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q); partially offset by
|
|
·
|
$2.6 million of cash generated by the decrease in gross accounts receivable balance from December 31, 2008 to September 30, 2009 that resulted from the collection of the higher 2008 year-end accounts receivable balances; and
|
|
·
|
$1.8 million generated by the decrease in gross inventory balance from December 31, 2009 to September 30, 2009, that resulted from the management of our inventories to better match the reduced sales of our products.
|
|
·
|
$72.9 million in net proceeds from the sales and maturities of marketable investments; partially offset by
|
|
·
|
$66.6 million of cash used to purchase marketable investments.
|
|
·
|
$31.4 million in net proceeds from the sales and maturities of marketable investments; partially offset by
|
|
·
|
$30.8 million of cash used to purchase marketable investments.
|
Less Than
|
More Than
|
|||||||||||||||||||
Contractual Obligations
|
Total
|
1 Year
|
1-3
Years
|
3-5
Years
|
5 Years
|
|||||||||||||||
Operating leases
|
$ | 10,051 | $ | 1,713 | $ | 2,895 | $ | 2,473 | $ | 2,970 | ||||||||||
Purchase Obligations
(1)
|
120 | 120 | — | — | — | |||||||||||||||
Total
|
$ | 10,171 | $ | 1,833 | $ | 2,895 | $ | 2,473 | $ | 2,970 |
(1)
|
In December 2009, we entered into an agreement with Obagi Medical Products, Inc., to distribute certain of their proprietary skin care products in Japan (Obagi Agreement). Our Obagi Agreement requires us to purchase at least $1.25 million of Obagi Medical Products, Inc. product in 2010. The minimum purchase requirement for 2011 and beyond has yet to be determined.
|
ITEM 4.
|
ITEM 1.
|
ITEM 1A.
|
|
·
|
We believe many of our current and prospective customers that do not have established medical offices continue to be reluctant to purchase capital equipment. In times of general economic uncertainty and tight credit, individuals often reduce or delay their capital equipment purchase decisions and we believe the credit market is negatively affecting sales.
|
|
·
|
Our ASPs are lower than their pre-2009 levels as a result of customers purchasing fewer applications and lower prices being charged by our sales representatives due to competitive reasons.
|
|
·
|
We believe there continues to be a lack of availability of consumer credit for some of our customers that do not have established medical offices, e.g. medi-spas, which is contributing to reduced volume.
|
|
·
|
Current lack of credit financing for some of our potential customers;
|
|
·
|
Poor financial performance of market segments that try introducing aesthetic procedures to their businesses;
|
|
·
|
The inability to differentiate our products from those of our competitors;
|
|
·
|
Reduced patient demand for elective aesthetic procedures;
|
|
·
|
Failure to build and maintain relationships with opinion leaders within the various market segments;
|
|
·
|
An increase in malpractice lawsuits that result in higher insurance costs; and
|
|
·
|
Our ability to develop and market our products to the core market specialties of dermatologists and plastic surgeons.
|
|
·
|
Develop and acquire new products that either add to or significantly improve our current product offerings;
|
|
·
|
Convince our existing and prospective customers that our product offerings would be an attractive revenue-generating addition to their practice;
|
|
·
|
Sell our product offerings to a broad customer base;
|
|
·
|
Identify new markets and alternative applications for our technology;
|
|
·
|
Protect our existing and future products with defensible intellectual property; and
|
|
·
|
Satisfy and maintain all regulatory requirements for commercialization.
|
|
·
|
Speed of new and innovative product development;
|
|
·
|
Effective strategy and execution of new product launches;
|
|
·
|
Identify and develop clinical support for new indications of our existing products;
|
|
·
|
Product performance;
|
|
·
|
Product pricing;
|
|
·
|
Quality of customer support;
|
|
·
|
Development of successful distribution channels, both domestically and internationally; and
|
|
·
|
Intellectual property protection.
|
|
·
|
Consumer disposable income and access to consumer credit, which as a result of the unstable economy, may have been significantly impacted;
|
|
·
|
The cost of procedures performed using our products;
|
|
·
|
The cost, safety and effectiveness of alternative treatments, including treatments which are not based upon laser or other energy-based technologies and treatments which use pharmaceutical products;
|
|
·
|
The success of our sales and marketing efforts; and
|
|
·
|
The education of our customers and patients on the benefits and uses of our products, compared to competitors’ products and technologies.
|
|
·
|
Damage to our brand reputation;
|
|
·
|
Loss of customer orders and delay in order fulfillment;
|
|
·
|
Increased costs due to product repair or replacement;
|
|
·
|
Inability to attract new customers;
|
|
·
|
Diversion of resources from our manufacturing and research and development departments into our service department; and
|
|
·
|
Legal action.
|
|
·
|
Warning letters, fines, injunctions, consent decrees and civil penalties;
|
|
·
|
Repair, replacement, recall or seizure of our products;
|
|
·
|
Operating restrictions or partial suspension or total shutdown of production;
|
|
·
|
Refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses, or modifications to existing products;
|
|
·
|
Withdrawing 510(k) clearance or pre-market approvals that have already been granted; and
|
|
·
|
Criminal prosecution.
|
|
·
|
Difficulties in staffing and managing our foreign operations;
|
|
·
|
Export restrictions, trade regulations and foreign tax laws;
|
|
·
|
Fluctuating foreign currency exchange rates;
|
|
·
|
Foreign certification and regulatory requirements;
|
|
·
|
Lengthy payment cycles and difficulty in collecting accounts receivable;
|
|
·
|
Customs clearance and shipping delays;
|
|
·
|
Political and economic instability;
|
|
·
|
Lack of awareness of our brand in international markets;
|
|
·
|
Preference for locally-produced products; and
|
|
·
|
Reduced protection for intellectual property rights in some countries.
|
|
·
|
The general market conditions unrelated to our operating performance;
|
|
·
|
Sales of large blocks of our common stock, including sales by our executive officers, directors and our large institutional investors;
|
|
·
|
Quarterly variations in our, or our competitors’, results of operations;
|
|
·
|
Changes in analysts’ estimates, investors’ perceptions, recommendations by securities analysts or our failure to achieve analysts’ estimates;
|
|
·
|
The announcement of new products or service enhancements by us or our competitors;
|
|
·
|
The announcement of the departure of a key employee or executive officer by us or our competitor;
|
|
·
|
Regulatory developments or delays concerning our, or our competitors’ products; and
|
|
·
|
The initiation of litigation by us or against us.
|
|
·
|
Interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;
|
|
·
|
Delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s variation in a component;
|
|
·
|
A lack of long term supply arrangements for key components with our suppliers;
|
|
·
|
Inability to obtain adequate supply in a timely manner, or on reasonable terms;
|
|
·
|
Difficulty locating and qualifying alternative suppliers for our components in a timely manner;
|
|
·
|
Production delays related to the evaluation and testing of products from alternative suppliers and corresponding regulatory qualifications; and
|
|
·
|
Delay in supplier deliveries.
|
|
·
|
A classified board of directors;
|
|
·
|
Advance notice requirements to stockholders for matters to be brought at stockholder meetings;
|
|
·
|
A supermajority stockholder vote requirement for amending certain provisions of our Amended and Restated Certificate of Incorporation and bylaws;
|
|
·
|
Limitations on stockholder actions by written consent; and
|
|
·
|
The right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer.
|
ITEM 3.
|
ITEM 4.
|
ITEM 5.
|
ITEM 6.
|
|
|
|
Exhibit No.
|
|
Description
|
3.2
(1)
|
|
Amended and Restated Certificate of Incorporation of the Registrant (Delaware).
|
|
|
|
3.4
(1)
|
|
Bylaws of the Registrant.
|
|
|
|
4.1
(2)
|
|
Specimen Common Stock certificate of the Registrant.
|
|
|
|
10.14
(3)
|
|
Cutera, Inc. 2004 Equity Incentive Plan, as amended by its Board of Directors on April 25, 2008.
|
|
|
|
10.19
|
|
First Amendment to Brisbane Technology Park Lease dated August 11, 2010 by and between the Company and BMR-Bayshore Boulevard LLC, as successor-in-interest to Gal-Brisbane, L.P., the original landlord, for office space located at 3240 Bayshore Boulevard, Brisbane, California.
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
(1)
|
Incorporated by reference from our Registration Statement on Form S-1 (Registration No. 333-111928) which was declared effective on March 30, 2004.
|
||
(2)
|
Incorporated by reference from our Annual Report on Form 10-K filed with the SEC on March 25, 2005.
|
|
|
(3)
|
Incorporated by reference from our Definitive Proxy Statement on Form 14A filed with the SEC on April 28, 2008.
|
|
|
CUTERA, INC.
|
|
/S/ RONALD J. SANTILLI
|
Ronald J. Santilli
|
Executive Vice President and Chief Financial Officer
|
(Principal Financial and Accounting Officer)
|
Year
|
Base Rent per square foot per month
|
||
January 1, 2011 - December 31, 2011
|
$1.25
|
||
January 1, 2012 - December 31, 2012
|
$1.35
|
||
January 1, 2013 - December 31, 2013
|
$1.45
|
||
January 1, 2014 - December 31, 2014
|
$1.55
|
January 1, 2015 - December 31, 2015
|
$1.60
|
||
January 1, 2016 - December 31, 2016
|
$1.65
|
||
January 1, 2016 - December 31, 2017
|
$1.70
|
By:
|
/s/ Kent Griffin
|
|
Name:
|
Kent Griffin
|
|
Title:
|
President
|
By:
|
/s/ Kevin Connors
|
|
Name:
|
Kevin Connors
|
|
Title:
|
CEO
|
Date: November 1, 2010
|
/S/ KEVIN P. CONNORS
|
|
Kevin P. Connors
|
||
President, Chief Executive Officer and Director
|
||
(Principal Executive Officer)
|
Date: November 1, 2010
|
/S/ RONALD J. SANTILLI
|
|
Ronald J. Santilli
|
||
Executive Vice President and Chief Financial Officer
|
||
(Principal Financial and Accounting Officer)
|
Date: November 1 , 2010
|
/S/ KEVIN P. CONNORS
|
|||
Kevin P. Connors
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
Date: November 1, 2010
|
/S/ RONALD J. SANTILLI
|
|||
Ronald J. Santilli
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|