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| IMRX.OB > SEC Filings for IMRX.OB > Form 10-Q on 16-Nov-2009 | All Recent SEC Filings |
16-Nov-2009
Quarterly Report
Product Sales, Research and Development Revenue
Our primary source of revenue was derived from sales of urokinase product which
commenced in October 2006 following our purchase of the product from Abbott
Laboratories. Future revenue has been eliminated as the product and related
assets were sold to Microbix on September 23, 2008. As a result of the sale of
the urokinase assets and inventory to Microbix, revenues will no longer be
recognized. In addition to our commercial product sales, we also generated a
limited amount of revenue by providing research services for projects funded
under various government grants. We currently have no outstanding grants under
which we are receiving revenue.
Cost of Product Sales
Cost of product sales had been determined using a weighted-average method and
includes the acquisition cost of the inventory as well as additional labeling
costs we incurred to bring the product to market. Our product pricing was fixed,
but had the potential to include a variable sales or cash discount depending on
the nature of the sale. Our gross margins were affected by chargebacks,
discounts and administrative fees paid to the wholesale distributors and GPOs.
Due to the divestiture of our urokinase product, we will cease to have cost of
product sales once all vials at the wholesale distributors have been sold to a
hospital or other end user or have expired.
Research and Development Expenses
We classify our research and development expenses into four categories of
activity, namely; research, development, clinical and regulatory. Our research
and development efforts were focused primarily on product candidates from our
SonoLysis program. As part of our restructuring effort announced in June 2008,
we have ceased substantially all research related activities.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related
expenses and other costs and fees associated with our general corporate
activities, such as sales and marketing, administrative support, business
development, intellectual property protection, public reporting and corporate
compliance, as well as a portion of our overhead expenses. Although these
expenses will be at reduced levels, we have incurred and will continue to incur
expenses in the areas of legal compliance, accounting and corporate governance
as a public company.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations are based on our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
U.S. The preparation of these consolidated financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosed amounts of contingent assets and liabilities and our
reported revenue and expenses. Significant management judgment was previously
required to make estimates in relation to inventory and intangible asset
valuation, chargebacks and administrative fee accruals, clinical trial costs and
costs associated with transitioning to a public reporting company. We evaluate
our estimates, and judgments related to these estimates, on an ongoing basis. We
base our estimates of the carrying values of assets and liabilities that are not
readily apparent from other sources on historical experience and on various
other factors that we believe are reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions. There has been no significant change in our critical accounting
policies or estimates from those policies or estimates disclosed under the
heading "Critical Accounting Policies and Significant Judgments and Estimates"
in our Annual Report on form 10-K, filed with the Securities and Exchange
Commission on March 6, 2009.
Long-lived and Intangible Assets
We account for long-lived assets in accordance with the FASB guidance for the
impairment or disposal of long-lived assets. This guidance addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability is measured by comparing the
carrying amount of an asset to the expected future net cash flows generated by
the asset. If it is determined that the asset may not be recoverable and if the
carrying amount of an asset exceeds its estimated fair value, an impairment
charge is recognized to the extent of the difference. The FASB guidance requires
companies to separately report discontinued operations, including components of
an entity that either have been disposed of (by sale, abandonment or in a
distribution to owners) or classified as held for sale. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less costs to
sell.
On September 4, 2009, pursuant to the terms of an Asset Purchase Agreement dated
June 15, 2009, we sold to WA 32609, Inc. substantially all of our remaining
assets, including but not limited to our clinical-stage SonoLysis product
candidate for $0.5 million. At the closing, WA32609 paid to us $0.4 million of
the total purchase price. The remaining $0.1 million was deposited into an
escrow account to satisfy certain potential claims by WA32609 that may arise
post-closing. Following expiration of an approximately five (5) month holdback
period and assuming no post-closing claims arise, the remaining proceeds will be
released from escrow and distributed to us. The carrying value of the IT related
equipment was adjusted to its fair value less costs to sell in June 2009
resulting in an impairment charge of $18,000. As of September 30, 2009, the
assets held for sale were netted with the proceeds received and the $0.1 million
receivable from the sale resulting in a gain on sale of assets recorded in the
statement of operations of $0.3 million.
Deferred Tax Asset Valuation Allowance
Our estimate of the valuation allowance for deferred tax assets requires us to
make significant estimates and judgments about our future operating results. Our
ability to realize the deferred tax assets depends on our future taxable income
as well as limitations on utilization. A deferred tax asset must be reduced by a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax asset will not be realized prior to its expiration. The
projections of our operating results on which the establishment of a valuation
allowance are based involve significant estimates regarding future demand for
our products, competitive conditions, product development efforts, approvals of
regulatory agencies and product cost. We have recorded a full valuation
allowance on our net deferred tax assets due to uncertainties related to our
ability to utilize our deferred tax assets in the foreseeable future. These
deferred tax assets primarily consist of net operating loss carry forwards and
research and development tax credits. Under Section 382 of the Internal Revenue
Code of 1986, as amended, substantial changes in our ownership may limit the
amount of net operating loss carry-forwards that could be utilized annually in
the future to offset taxable income.
Results of Operations
Three Months Ended September 30, 2008 Compared to 2009
Product Sales, Research and Development Revenue. Our total revenues decreased
from $1.7 million in the third quarter of 2008 to $1,000 in the third quarter of
2009. The decrease resulted from the elimination of urokinase channel inventory
due to divesting the urokinase assets to Microbix in September 2008.
Cost of Product Sales. Cost of product sales was $0.7 million in the third
quarter of 2008 compared to zero for the third quarter of 2008. The decrease in
cost of product sales was due to the elimination of urokinase inventory in the
channel as a result of divesting the urokinase assets to Microbix in
September 2008.
Research and Development Expenses. Research and development expenses decreased
from $0.4 million in the third quarter of 2008 to $10,000 in the third quarter
of 2009. This decrease is related to the elimination of clinical trial costs
associated with the wind down of our SonoLysis Phase I/II clinical trial and the
elimination of salaries as a result of our restructuring activities initiated in
June 20008.
General and Administrative Expenses. General and administrative expenses
decreased from $0.8 million in the third quarter of 2008 to $0.4 million in the
third quarter 2009. This decrease was principally a result of reduced salaries
associated with our restructuring activities, reduction of amortization expense
due to intangible assets written off in the second quarter of 2008 offset
partially by the costs associated with the purchase of executive and
organization liability insurance.
Interest and Other Income, net. Interest and other expense of $1,000 in the
third quarter of 2008 was related to loss on the sale of equipment. Interest and
other income of $0.3 million in the third quarter of 2009 was related to the
refund of previously paid Delaware franchise taxes, the recognition of the
remaining deferred revenue related to the urokinase product as we have settled
all remaining liabilities and payments received from Reflow Biomedical in
connection with the supply of microspheres under the terms of a license
agreement entered into with Reflow Biomedical in April 2009 which was
subsequently assigned to WA32609 in connection with the September 2009 asset
sale.
Gain on asset sale. The gain on asset sale of $0.4 million in the three months
ended September 20, 2009 is related to the asset sale to WA 32609 that was
closed on September 4, 2009 for proceeds of $0.5 million.
Nine Months Ended September 30, 2008 Compared to 2009
Product Sales, Research and Development Revenue. Our total revenues decreased
from $5.8 million for the nine month period ended September 30, 2008 to $27,000
for the same period in 2009, primarily as a result of the decline in revenue
recognized on product sales as a result of an ongoing reduction in channel
inventory since divesting the urokinase assets to Microbix in September 2008.
Cost of Product Sales. Cost of product sales decreased from $2.5 million for the
nine month period ended September 30, 2008 to $13,000 for the same period in
2009. The decrease in cost of product sales was due to the decrease in urokinase
inventory in the channel and the lack of current dated inventory to replenish
the channel.
Research and Development Expenses. Research and development expenses decreased
from $3.0 million for the nine month period ended September 30, 2008 to
$0.1 million for the same period in 2009. This decrease was a result of the wind
down of substantially all research and development activities associated with
restructuring activities initiated in June 2008.
General and Administrative Expenses. General and administrative expenses
decreased from $5.8 million for the nine month period ended September 30, 2008
to $1.2 million for the same period in 2009. This decrease was a result of
reduced salaries, accounting fees and consulting fees associated with the
restructuring activities that were initiated in June 2008 as well as the
elimination of selling and marketing costs and amortization of intangibles due
to the sale of the urokinase assets to Microbix in September 2008.
Asset Impairment. The asset impairment in the nine months ended September 30,
2008 of $10.0 million is related to a $0.5 million impairment of all laboratory
equipment that was classified as available for sale in the second quarter of
2008 and a $9.5 million impairment related to the write-down and sale of our
urokinase assets. The asset impairment in the nine months ended September 30,
2009 of $18,000 is related to the write-down of our IT related assets to fair
value as a result of the Asset Purchase Agreement signed with WA 32609 on
June 15, 2009.
Interest and Other Income, net. Interest and other income of $35,000 for the
nine month period ended September 30, 2008 was related to the interest earned on
cash balances offset partially by a loss on the sale of property and equipment.
Other income of $0.4 million for the nine month period ended September 30, 2009
is primarily related to cash received from a licensing agreement we entered into
with Reflow Biomedical, Inc. in April 2009 in relation to providing a supply of
our MRX-801 microspheres which was subsequently assigned to WA32609 in
connection with the September 2009 asset sale, the recognition of the remaining
deferred revenue related to the urokinase product as we have settled all
remaining liabilities and the franchise tax refund received from the State of
Delaware.
Gain on asset sale. The gain on asset sale of $0.4 million in the nine months
ended September 20, 2009 is related to the asset sale to WA 32609 that was
closed on September 4, 2009 for proceeds of $0.5 million.
Gain on extinguishment of debt. Gain on extinguishment of debt was $5.6 million
for the nine months ended September 30, 2008 related to the satisfaction, waiver
and release agreement signed with Abbott Laboratories related to our note
payable for the purchase of the urokinase assets.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred losses since our organization on October 7, 1999. At
September 30, 2009, we had an accumulated deficit of $91.8 million. We have
historically financed our operations principally through the public offering and
private placement of shares of our common and preferred stock and convertible
notes, government grants, and product sales. At September 30, 2009, we had
$0.4 million in cash and cash equivalents.
In April 2006, we acquired from Abbott Laboratories the assets related to
urokinase, including the remaining inventory of finished product, all regulatory
and clinical documentation, validated cell lines, and intellectual property
rights, including trade secrets and know-how relating to the manufacture of
urokinase using the tissue culture method. The purchase price for the assets was
$20.0 million, which was paid in the form of $5.0 million in cash and the
issuance of a $15.0 million non-recourse promissory note with an initial
maturity date of December 31, 2007, which was later extended to March 31, 2008.
On April 17, 2008, we entered into a satisfaction, waiver and release agreement
with Abbott Laboratories regarding payment of the note. Under the terms of the
agreement, we were required to pay Abbott Laboratories $5.2 million in cash and
upon payment of the funds, the debt obligation was deemed to be indefeasibly
paid in full by us and the note was cancelled and returned to us.
On September 23, 2008, we divested our urokinase assets to Microbix. Through
this transaction, Microbix acquired the remaining urokinase inventory and
related assets and assumed full responsibility for ongoing commercial and
regulatory activities associated with the product. Microbix paid to us an
upfront payment of $2.0 million and assumed up to $0.5 million in chargeback and
other liabilities for commercial product currently in the distribution channel.
As of September 30, 2009, the amount of liabilities assumed by Microbix exceeds
$0.5 million. We have either settled with or are in the process of settling all
obligations that are greater than the $0.5 million assumed. Microbix also agreed
to make an additional payment of $2.5 million upon release by the FDA of the
three lots of urokinase that are currently subject to a May 2008 Approvable
Letter. Microbix is presently working with the FDA to secure the release of the
three lots of urokinase. On June 15, 2009, we entered into the First Amendment
with Microbix. The Amendment provides that Microbix shall not be obligated to
pay the $2.5 million bonus due under the Original Agreement on release by the
FDA of certain lots of urokinase to us. Instead, Microbix shall pay to us a sum
of $0.2 million within 90 calendar days of the date of receipt by Microbix of
written authorization from the FDA for the release of the urokinase lots should
such authorization be received on or before September 1, 2010. As of
November 12, 2009, Microbix has not secured the release of the three lots from
the FDA. There can be no assurances that Microbix will be successful in securing
such release. If Microbix is unable to secure the release of the three lots we
will not be entitled to the additional $0.2 million payment.
On September 4, 2009, pursuant to the terms of an Asset Purchase Agreement dated
June 15, 2009, we sold to WA 32609, Inc. substantially all of our remaining
assets, including but not limited to our clinical-stage SonoLysis product
candidate for $500,000. At the closing, WA32609 paid to us $0.4 million of the
total purchase price. The remaining $0.1 million was deposited into an escrow
account to satisfy certain potential claims by WA32609 that may arise
post-closing. Following expiration of an approximately five (5) month holdback
period and assuming no post-closing claims arise, the remaining proceeds will be
released from escrow and distributed to us. The sale was subject to shareholder
approval which was obtained at a special meeting of the shareholders held
August 31, 2009. Following the closing of the asset sale to WA 32609, the
remaining two employees of the Company, including Mr. Zakes, resigned their
positions with the Company.
Cash Flows
Net Cash Used in Operating Activities. Net cash provided by operating activities
in the nine months ended September 30, 2008 primarily reflects net loss offset
in part by changes in working capital. Net cash used in operating activities in
the nine months ended September 30, 2009 primarily reflects the net loss offset
in part by changes in working capital offset by the gain on sale of the
SonoLysis related assets to WA32609 in September 2009.
Net Cash Provided by Investing Activities. Net cash provided by investing
activities was $2.0 million and $0.4 million for the nine months ended
September 30, 2008 and 2009, respectively. Net cash used in investing activities
for the nine months ended September 20, 2008 was attributable to the sale of the
urokinase asset to Microbix offset partially by purchases of property and
equipment, including manufacturing, information technology, laboratory and
office equipment. Net cash provided by investing activities for the nine months
ended September 30, 2009 was attributable to the sale of the SonoLysis related
assets to WA 32609 in September 2009.
Net Cash Used in Financing Activities. Net cash used in financing activities was
$5.9 million for the nine months ended September 30, 2008 and zero for the same
period in 2009. Net cash used in financing activities for the nine months ended
September 30, 2008 was attributable to the $6.3 million payment on the note
payable to Abbott Laboratories offset partially by the $0.4 million change in
the restricted cash balance.
Operating Capital and Capital Expenditure Requirements
Historically, our primary source of liquidity has been the public offering and
private placement of shares of our common and preferred stock and convertible
notes, government grants and product sales of urokinase. We do not currently
have a significant source of cash.
On September 4, 2009, pursuant to the terms of an Asset Purchase Agreement dated
June 15, 2009, we sold to WA 32609, Inc. substantially all of our remaining
assets, including but not limited to our clinical-stage SonoLysis product
candidate for $0.5 million. At the closing, WA32609 paid to us $0.4 million of
the total purchase price. The remaining $0.1 million was deposited into an
escrow account to satisfy certain potential claims by WA32609 that may arise
post-closing. Following expiration of an approximately five (5) month holdback
period and assuming no post-closing claims arise, the remaining proceeds will be
released from escrow and distributed to us. The sale was subject to shareholder
approval which was obtained at a special meeting of the shareholders held
August 31, 2009. Following the closing of the asset sale to WA 32609, the
remaining two employees of the Company, including Mr. Zakes, resigned their
positions with the Company.
We have sold substantially all of the Company's assets and are now engaged in
the orderly settlement and payment of the remaining obligations of the Company
while concurrently entertaining proposals from other parties concerning the
potential merger and/or acquisition of the Company and our remaining assets. We
are also evaluating the potential liquidation and dissolution of the Company.
The Company has no employees and is carrying out these activities through the
use of consultants and other outside service providers. Our ability to continue
operating for a period of time that is sufficient for us to satisfy our
remaining obligations and commitments, and, to either complete a strategic
transaction for our remaining assets or to formally wind down operations and
dissolve the Company depends on our management of our current cash and our
receipt of the final $0.1 million currently held in escrow pursuant to the terms
of the Asset Purchase Agreement with WA 32609. If we receive the entire
$0.1 million held in escrow, we will have sufficient capital to fund operations
of the Company into the first quarter 2010. Our operating needs include the
planned costs to orderly settle and pay our remaining obligations, consider
proposals from other parties concerning the potential merger and/or acquisition
of the Company and our remaining assets, and evaluate the potential liquidation
and dissolution of the Company. At the present time, we have no material
commitments for capital expenditures.
We cannot be sure that our existing cash and cash equivalents will be adequate,
or that additional financing will be available if needed, or that, if available,
such financing will be obtained on terms favorable to us or our stockholders.
Failure to manage our cash resources or obtain adequate cash resources may
adversely affect our ability to carry out the orderly settlement and pay our
remaining obligations, consider proposals from other parties concerning the
. . .
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