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EXCEL - IDEA: XBRL DOCUMENT - REVA Medical, Inc. | Financial_Report.xls |
EX-32.1 - EX-32.1 - REVA Medical, Inc. | a59746exv32w1.htm |
EX-31.2 - EX-31.2 - REVA Medical, Inc. | a59746exv31w2.htm |
EX-31.1 - EX-31.1 - REVA Medical, Inc. | a59746exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
or
o | 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: 000-54192
REVA MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
33-0810505 (I.R.S. Employer Identification No.) |
5751 Copley Drive, Suite B San Diego, CA 92111 |
(858) 966-3000 (Registrants telephone number, |
|
(Address of principal executive offices) | including area code) | |
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
þ 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.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
As of July 31, 2011, a total of 32,775,003 shares of the registrants Common Stock, $0.0001 par
value per share, were outstanding.
REVA MEDICAL, INC.
FORM 10-Q - QUARTERLY REPORT
For the Quarter Ended June 30, 2011
For the Quarter Ended June 30, 2011
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EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
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EX-101 DEFINITION LINKBASE DOCUMENT |
REFERENCES
Corporate Information
We were incorporated in Delaware in October, 2010. Our principal executive offices are located
at 5751 Copley Drive, Suite B, San Diego, CA 92111, U.S.A., and our telephone number is (858)
966-3000. Our website address is www.revamedical.com. The information on, or accessible
through, our website is not part of this report. Unless the context implies otherwise, references
in this report and the information incorporated herein by reference to REVA Medical, REVA, the
Company, we, us, and our refer to REVA Medical, Inc.
Currency
Unless indicated otherwise in this report, all references to $ or dollars refer to United
States dollars, the lawful currency of the United States of America. References to A$ refer to
Australian dollars, the lawful currency of the Commonwealth of Australia.
Trademarks
We have applied for registration of the trademark ReZolvetm in the United
States, European Union, Brazil, and Australia. All other trademarks, trade names, and service marks
appearing in this report are the property of their respective owners. Use or display by us of other
parties trademarks, trade dress, or products is not intended to and does not imply a relationship
with, or endorsement or sponsorship of, us by the trademark or trade dress owner.
i
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
REVA Medical, Inc.
(a development stage company)
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(a development stage company)
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
June 30, | ||||||||
December 31, | 2011 | |||||||
2010 | (Unaudited) | |||||||
Assets |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 81,747 | $ | 72,980 | ||||
Prepaid expenses and other current assets |
765 | 316 | ||||||
Total current assets |
82,512 | 73,296 | ||||||
Property and equipment, net |
963 | 1,175 | ||||||
Total Assets |
$ | 83,475 | $ | 74,471 | ||||
Liabilities and Stockholders Equity |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 937 | $ | 622 | ||||
Accrued expenses and other current liabilities |
591 | 861 | ||||||
Total Current Liabilities |
1,528 | 1,483 | ||||||
Commitments and Contingencies (Note 5) |
||||||||
Stockholders Equity: |
||||||||
Common stock $0.0001 par value; 100,000,000 shares authorized; 32,760,503 and
32,775,003 shares issued and outstanding at December 31, 2010 and June 30, 2011,
respectively |
3 | 3 | ||||||
Class B common stock $0.0001 par value; 25,000,000 shares authorized; no shares
issued or outstanding |
| | ||||||
Undesignated preferred stock $0.0001 par value; 5,000,000 shares authorized; no shares
issued or outstanding |
| | ||||||
Additional paid-in capital |
210,847 | 212,370 | ||||||
Accumulated other comprehensive income |
| 2 | ||||||
Deficit accumulated during the development stage |
(128,903 | ) | (139,387 | ) | ||||
Total Stockholders Equity |
81,947 | 72,988 | ||||||
Total Liabilities and Stockholders Equity |
$ | 83,475 | $ | 74,471 | ||||
The accompanying notes are an integral part of these financial statements
- 1 -
Table of Contents
REVA Medical, Inc.
(a development stage company)
Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share amounts)
(a development stage company)
Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share amounts)
Period from | ||||||||||||||||||||
June 3, 1998 | ||||||||||||||||||||
Three Months Ended | Six Months Ended | (inception) to | ||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||
2010 | 2011 | 2010 | 2011 | 2011 | ||||||||||||||||
Operating Expense: |
||||||||||||||||||||
Research and development |
$ | 1,977 | $ | 3,486 | $ | 3,840 | $ | 6,727 | $ | 81,048 | ||||||||||
General and administrative |
641 | 1,928 | 1,009 | 3,856 | 24,048 | |||||||||||||||
Loss from operations |
(2,618 | ) | (5,414 | ) | (4,849 | ) | (10,583 | ) | (105,096 | ) | ||||||||||
Other Income (Expense): |
||||||||||||||||||||
Interest income |
1 | 70 | 2 | 116 | 1,211 | |||||||||||||||
Related party interest expense |
(397 | ) | | (775 | ) | | (21,113 | ) | ||||||||||||
Interest expense |
(10 | ) | | (21 | ) | | (952 | ) | ||||||||||||
Interest from amortization of notes payable
premium |
| | | | 2,283 | |||||||||||||||
Gain
(loss) on change in fair value of preferred stock rights and warrant liabilities |
(380 | ) | | (755 | ) | | 1,795 | |||||||||||||
Loss on extinguishment of notes payable |
| | | | (13,285 | ) | ||||||||||||||
Other income (expense) |
17 | (7 | ) | 35 | (17 | ) | (57 | ) | ||||||||||||
Net Loss |
(3,387 | ) | (5,351 | ) | (6,363 | ) | (10,484 | ) | (135,214 | ) | ||||||||||
Cumulative dividends and deemed dividends on
Series H convertible preferred stock |
(5,069 | ) | | (5,724 | ) | | (10,695 | ) | ||||||||||||
Net Loss Attributable to Common Stockholders |
$ | (8,456 | ) | $ | (5,351 | ) | $ | (12,087 | ) | $ | (10,484 | ) | $ | (145,909 | ) | |||||
Net Loss Per Common Share: |
||||||||||||||||||||
Net loss per share, basic and diluted |
$ | (3.08 | ) | $ | (0.16 | ) | $ | (4.41 | ) | $ | (0.32 | ) | ||||||||
Shares used to compute net loss per share,
basic and diluted |
2,741,943 | 32,774,199 | 2,741,053 | 32,769,294 | ||||||||||||||||
The accompanying notes are an integral part of these financial statements
- 2 -
Table of Contents
REVA
Medical, Inc.
(a development stage company)
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
(a development stage company)
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Period from | ||||||||||||
June 3, 1998 | ||||||||||||
(inception) to | ||||||||||||
Six Months Ended June 30, | June 30, | |||||||||||
2010 | 2011 | 2011 | ||||||||||
Cash Flows from Operating Activities: |
||||||||||||
Net loss |
$ | (6,363 | ) | $ | (10,484 | ) | $ | (135,214 | ) | |||
Non-cash
adjustments to reconcile net loss to net cash used for operating activities: |
||||||||||||
Depreciation and amortization |
243 | 241 | 3,082 | |||||||||
Loss (gain) on property and equipment disposal and impairment |
| (1 | ) | 584 | ||||||||
Stock-based compensation |
159 | 1,517 | 3,545 | |||||||||
Interest on notes payable |
795 | | 8,562 | |||||||||
Repayment premium on notes payable |
| | 11,100 | |||||||||
Loss on change in fair value of preferred stock warrant liability |
755 | | 970 | |||||||||
Gain on change in fair value of preferred stock rights liability |
| | (2,765 | ) | ||||||||
Loss on extinguishment of notes payable |
| | 13,285 | |||||||||
Other non-cash expenses (income) |
(17 | ) | 23 | 66 | ||||||||
Changes in operating assets and liabilities: |
||||||||||||
Prepaid expenses and other current assets |
(24 | ) | 449 | (316 | ) | |||||||
Accounts payable |
(653 | ) | (315 | ) | 622 | |||||||
Accrued expenses and other current liabilities |
746 | 247 | 807 | |||||||||
Net cash used for operating activities |
(4,359 | ) | (8,323 | ) | (95,672 | ) | ||||||
Cash Flows from Investing Activities: |
||||||||||||
Purchases of property and equipment |
(42 | ) | (459 | ) | (5,009 | ) | ||||||
Sales of property and equipment |
| 7 | 168 | |||||||||
Purchases of short-term investments |
| | (17,886 | ) | ||||||||
Maturities of short-term investments |
| | 17,886 | |||||||||
Net cash used for investing activities |
(42 | ) | (452 | ) | (4,841 | ) | ||||||
Cash Flows from Financing Activities: |
||||||||||||
Proceeds from issuances of convertible preferred stock, net of costs |
8,034 | | 68,917 | |||||||||
Proceeds from issuances of common stock |
| 6 | 84,939 | |||||||||
Initial public offering costs |
(133 | ) | | (8,490 | ) | |||||||
Proceeds from exercises of warrants |
| | 263 | |||||||||
Repurchases of stock |
(550 | ) | | (638 | ) | |||||||
Proceeds from issuances of notes payable |
| | 28,600 | |||||||||
Repayments of notes payable |
| | (100 | ) | ||||||||
Net cash provided by financing activities |
7,351 | 6 | 173,491 | |||||||||
Effect of foreign exchange rates |
(4 | ) | 2 | 2 | ||||||||
Net increase (decrease) in cash and cash equivalents |
2,946 | (8,767 | ) | 72,980 | ||||||||
Cash and cash equivalents at beginning of period |
7,233 | 81,747 | | |||||||||
Cash and cash equivalents at end of period |
$ | 10,179 | $ | 72,980 | $ | 72,980 | ||||||
Supplemental Cash and Non-Cash Information |
||||||||||||
Cash paid for interest |
$ | | $ | | $ | 126 | ||||||
Non-cash conversions of notes payable, accrued interest, note premiums and
discounts, preferred stock, non-voting common stock, preferred warrants,
and common warrants upon initial public offering in December 2010 |
$ | | $ | | $ | 120,349 | ||||||
The accompanying notes are an integral part of these financial statements.
- 3 -
Table of Contents
REVA Medical, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and per unit amounts)
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and per unit amounts)
1. Background and Basis of Presentation
Background: REVA Medical, Inc. (REVA) was incorporated in California in 1998 under the name MD3,
Inc. In March 2002, we changed our name to REVA Medical, Inc. In October 2010, we reincorporated in
Delaware. We established a non-operating wholly owned subsidiary, REVA Germany GmbH, in 2007. In
these notes the terms us, we, or our refer to REVA and our consolidated subsidiary unless
context dictates otherwise.
In December 2010, we completed an initial public offering of our common stock, as more fully
described below.
We are currently developing proprietary designs and biomaterial technologies that will be used
primarily for a bioresorbable stent to treat vascular disease in humans. We initiated the first
human clinical trial of our bioresorbable stent during 2007 and plan to initiate a pilot clinical
trial of the next generation device, our
ReZolveTM
stent, following completion of all design verification testing, which we expect to finish during the fourth quarter 2011.
Basis of Presentation: We have prepared the accompanying consolidated financial statements in
accordance with U.S. generally accepted accounting principles (GAAP) and the rules and
regulations of the Securities and Exchange Commission (SEC) for reporting of interim financial
information and, therefore, certain information and footnote disclosures normally included in
annual financial statements have been omitted. Accordingly, these interim financial statements
should be read in conjunction with Managements Discussion and Analysis of Financial Condition and
Results of Operations contained in this report and with the audited financial statements and
accompanying footnotes included in our Annual Report on Form 10-K for the year ended December 31,
2010.
The consolidated financial statements include the accounts of REVA and our wholly owned subsidiary,
REVA Germany GmbH. All intercompany transactions and balances, if any, have been eliminated in
consolidation. The interim consolidated balance sheet as of June 30, 2011, the consolidated
statements of operations for the three and six months ended June 30, 2010 and 2011 and the period
from June 3, 1998 (inception) through June 30, 2011 and the consolidated statements of cash flows
for the six months ended June 30, 2010 and 2011 and the period from June 3, 1998 through June 30,
2011 are unaudited. The unaudited interim financial statements have been prepared on the same basis
as the annual financial statements and, in our opinion, all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair statement of the results of these interim
periods have been included. The results of operations for the three and six months ended June 30,
2011 are not necessarily indicative of the results to be expected for the year ending December 31,
2011 or for any other interim period.
Development Stage and Capital Resources: We are considered a development stage enterprise, as we
have not yet generated revenues from the sale of products. Although we have been researching and
developing new technologies and product applications and have initiated the first human clinical
trial of our bioresorbable stent, we do not anticipate having a product available for sale for at
least the next several years. Until revenue is generated from a saleable product, we expect to
continue to incur substantial operating losses and experience significant net cash outflows. As
discussed below, we completed an initial public offering of our common stock in December 2010. We
believe that we have sufficient capital to fund our operations at least through June 30, 2012.
Initial Public Offering: In December 2010 we completed an initial public offering (the IPO) of
our common stock in Australia. We issued 7,727,273 shares of common stock at $10.9065 per share for
gross proceeds of $84,278. We incurred $8,490 in issuance costs in connection with the IPO. Our
stock is traded in the form of CHESS Depository Interests (CDIs) on the Australian Securities
Exchange; each share of our common stock is equivalent to ten CDIs. Our trading symbol is RVA.
Concurrent with the completion of our IPO, all of our outstanding convertible preferred stock,
non-voting common stock, notes payable, and accrued interest on notes payable converted to common
stock. Additionally, all outstanding warrants were exercised for common stock, either through a
cash payment to us or on a net exercise basis. We also issued common stock for cumulative dividends
on our Series H convertible preferred stock. A total of 22,419,771 shares of common stock were
issued from these conversions, exercises, and dividends.
- 4 -
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and per unit amounts)
(Unaudited)
(in thousands, except share, per share, and per unit amounts)
1. Background and Basis of Presentation (continued)
Use of Estimates: In order to prepare our financial statements in conformity with GAAP, we are
required to make estimates and assumptions that affect the reported amounts in the financial
statements and accompanying notes. Our most significant estimates relate to, or have related to,
expense accruals and fair market value determinations of notes payable and embedded conversion
features, common and preferred stock warrants, preferred stock rights liability, and stock-based
compensation. Actual results could differ from our estimates.
Recent Accounting Pronouncements: There were no accounting pronouncements issued or adopted by
us during the six months ended June 30, 2011 that had a material effect on our consolidated
financial statements or that are reasonably certain to have a material impact on the consolidated
financial statements in future periods.
2. Balance Sheet Details
December 31, | June 30, | |||||||
2010 | 2011 | |||||||
Property and equipment: |
||||||||
Furniture and office equipment |
$ | 351 | $ | 370 | ||||
Laboratory equipment |
2,400 | 2,807 | ||||||
Leasehold improvements |
559 | 559 | ||||||
3,310 | 3,736 | |||||||
Accumulated depreciation and amortization |
(2,347 | ) | (2,561 | ) | ||||
$ | 963 | $ | 1,175 | |||||
Accrued expenses and other current liabilities: |
||||||||
Accrued salaries and other employee costs |
$ | 353 | $ | 458 | ||||
Accrued operating expenses |
192 | 372 | ||||||
Accrued use taxes |
15 | 23 | ||||||
Deferred rent |
31 | 8 | ||||||
$ | 591 | $ | 861 | |||||
3. Income Taxes
We have reported net losses for all periods through June 30, 2011; therefore, no provision for
income taxes has been recorded since our inception. The net operating loss carryforwards arising
from our net losses may be available to offset future taxable income for income tax purposes;
however, under Internal Revenue Code (IRC) Sections 382 and 383, use of the net operating loss
carryforwards, as well as our research tax credit carryforwards, may be limited based on cumulative
changes in ownership. Since we have not completed an IRC Section 382/383 analysis regarding the
limitations on carryforwards, we have removed the deferred tax assets arising from net operating
losses and research credits from our deferred tax asset schedule. We have established a valuation
allowance against the remainder of our net deferred tax assets due to the uncertainty surrounding
the realization of those assets. We periodically evaluate the recoverability of the deferred tax
assets and, when it is determined that it is more-likely-than-not that the deferred tax assets are
realizable, the valuation allowance will be reduced. Due to the existence of the valuation
allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate.
- 5 -
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and per unit amounts)
(Unaudited)
(in thousands, except share, per share, and per unit amounts)
4. Stock-Based Compensation
The Plan: Our 2010 Equity Incentive Award Plan was adopted in October 2010; this plan was a
follow-on to our 2001 Stock Option/Stock Issuance Plan, which would have expired in May 2011. The
two plans are collectively referred to as the Plan. The Plan provides for restricted stock awards
as well as grants of incentive and non-qualified stock options for purchase of our common stock at
a price per share equal to the closing market price of our stock on the date of grant. The number
of shares reserved under the Plan may be increased annually by up to three percent of the
outstanding stock of the Company. On January 1, 2011, an additional 981,615 shares were added,
resulting in a total of 5,160,953 shares reserved under the Plan as of June 30, 2011. The term of
the options granted under the Plan may not exceed ten years. Vesting periods of stock awards and
option grants are determined by the Board of Directors and are generally four- or five-year
periods. All options are immediately exercisable upon grant and are subject to repurchase by us at
the exercise price in the event an optionee terminates service prior to being fully vested.
Option activity under the Plan is as follows:
Weighted | ||||||||
Average | ||||||||
Options | Exercise | |||||||
Outstanding | Price | |||||||
Balance at December 31, 2010 |
3,016,800 | $ | 5.96 | |||||
Granted |
401,000 | $ | 13.70 | |||||
Forfeited |
(1,300 | ) | $ | 6.04 | ||||
Exercised |
(4,500 | ) | $ | 1.17 | ||||
Balance at June 30, 2011 |
3,412,000 | $ | 6.88 | |||||
During the six months ended June 30, 2011, we awarded 5,000 shares of restricted stock; we had
not previously awarded any restricted stock under the Plan. Fifty percent of the restricted stock
award vested in May 2011, 25 percent vests in May 2012, and the remaining 25 percent vests in May
2013.
No tax benefits arising from stock-based compensation have been recognized in the consolidated
statements of operations through June 30, 2011.
Stock Options and Restricted Stock to Employees: We account for option grants and restricted stock
awards to employees based on their estimated fair values on the date of grant or award, with the
resulting stock-based compensation recorded over the vesting period on a straight-line basis. We
include non-employee directors as employees for this purpose.
Expense recorded for employee options and awards under the Plan is as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2011 | 2010 | 2011 | |||||||||||||
Research and development |
$ | 21 | $ | 213 | $ | 42 | $ | 277 | ||||||||
General and administrative |
17 | 611 | 35 | 1,225 | ||||||||||||
Total stock-based compensation |
$ | 38 | $ | 824 | $ | 77 | $ | 1,502 | ||||||||
- 6 -
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and per unit amounts)
(Unaudited)
(in thousands, except share, per share, and per unit amounts)
4. | Stock-Based Compensation (continued) |
No options were granted to employees during the six months ended June 30, 2010. The fair value of
options granted and restricted stock awarded during the six months ended June 30, 2011 was
estimated using a dividend yield of zero percent, an expected life of 6.25 years, a risk-free
interest rate of 2.68 percent, and an expected volatility of 63.9 percent. The assumed risk-free
interest rate was based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining
term equal to the expected life of the option. The assumed volatility was calculated from the
historical market prices of a selected group of publicly traded companies considered to be our
peers. We used peer group data due to the fact that we have limited historical trading data. The
expected option life was calculated using the simplified method under the accounting standard for
stock compensation and a ten-year option expiration. The simplified method is used since we believe
our option activity as a public company will differ from that of our own historical experience. The
expected dividend yield of zero reflects that we have not paid cash dividends since inception and
do not intend to pay cash dividends in the foreseeable future. The options granted to employees had
a weighted average grant date fair value of $8.35 per share.
The aggregate intrinsic value of options exercised during the six months ended June 30, 2010 and
2011 was $1 and $55, respectively.
Stock Options to Consultants: We account for stock options granted to consultants at their fair
value. Under this method, the fair value is estimated at each reporting date during the vesting
period using the Black-Scholes option-pricing model. The resulting stock-based compensation
expense, or income if the fair value declines in a reporting period, is recorded over the
consultants service period. During September 2009, consultants were granted options to purchase
50,000 shares of common stock. Stock-based compensation, which was recorded as research and
development expense (income), arising from these options totaled $46 and $(44) for the three months
ended June 30, 2010 and 2011, respectively and $82 and $15 for the six months ended June 30, 2010
and 2011, respectively . The fair value of consultant options at June 30, 2010 and 2011 was
estimated to be $6.59 and $9.67 per share, respectively, based on the following assumptions:
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2011 | |||||||
Dividend yield |
0.00 | % | 0.00 | % | ||||
Expected life years |
9.21 | 8.21 | ||||||
Risk-free interest rate |
2.42 | % | 2.84 | % | ||||
Expected volatility of common stock |
78.40 | % | 63.90 | % |
Non-Plan Options: Prior to establishment of the Plan, we had issued non-qualified options to
purchase common stock under terms similar to those of the Plan. As of December 31, 2010, a total of
10,000 of these options were outstanding. During the six months ended June 30, 2011, a total of
5,000 of the options were exercised and 5,000 expired; none remained outstanding as of June 30,
2011. All stock-based compensation expense related to these options was recorded prior to 2010.
- 7 -
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and per unit amounts)
(Unaudited)
(in thousands, except share, per share, and per unit amounts)
5. Commitments and Contingencies
We have licensed certain patents and other intellectual property rights related to the composition
and coating of our bioresorbable stent and our other biomaterial products. Terms of these licenses
include provisions for royalty payments on any future sales of products, if any, utilizing this
technology, with provisions for minimum royalties once product sales begin. The amount of royalties
varies depending upon type of product, use of product, stage of product, location of sale, and
ultimate sales volume, and ranges from a minimum of approximately $70.00 per unit to a maximum of
approximately $100.00 per unit sold, with license provisions for escalating minimum royalties that
could be as high as $2,200 per year. Additionally, in the event we sublicense the technology and
receive certain milestone payments, the licenses require that 20 percent of the milestone amount be
paid to the licensors.
Additional terms of the technology licenses include annual licensing payments of $175 until the
underlying technology has been commercialized; the $175 for 2011 was paid during the six months
ended June 30, 2011. Terms of the licenses also include other payments to occur during
commercialization that could total $950, payment of $350 upon a change in control of ownership, and
payment of patent filing, maintenance, and defense fees. The license terms remain in effect until
the last patent expires.
6. Comprehensive Loss
Our net loss reconciles to comprehensive loss as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2011 | 2010 | 2011 | |||||||||||||
Net loss, as reported |
$ | (3,387 | ) | $ | (5,351 | ) | $ | (6,363 | ) | $ | (10,484 | ) | ||||
Currency translation adjustments |
(2 | ) | 1 | (4 | ) | 2 | ||||||||||
Comprehensive loss |
$ | (3,389 | ) | $ | (5,350 | ) | $ | (6,367 | ) | $ | (10,482 | ) | ||||
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Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and per unit amounts)
(Unaudited)
(in thousands, except share, per share, and per unit amounts)
7. Net Loss Per Common Share
Basic net loss per common share is calculated by dividing the net loss attributable to common
stockholders by the weighted average number of common shares outstanding for the period, without
consideration for common stock equivalents. Diluted net loss per share is computed by dividing the
net loss attributable to common stockholders by the weighted average number of common share
equivalents outstanding for the period determined using the treasury-stock method and the
if-converted method, as applicable. For purpose of this calculation, convertible preferred stock,
common stock options, preferred and common stock warrants, and convertible notes payable are
considered to be common stock equivalents and are included in the calculation of diluted net loss
per share only when their effect is dilutive. The calculation excludes any impact related to
accrued but undeclared dividends.
The following table presents the potential common shares outstanding or common share equivalents
that were excluded from the computation of diluted net loss per share because including them would
have been antidilutive:
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2011 | |||||||
Convertible preferred stock |
14,929,713 | | ||||||
Common stock options |
1,560,500 | 3,412,000 | ||||||
Convertible notes payable and accrued interest |
3,191,295 | | ||||||
Convertible preferred stock warrants |
289,851 | | ||||||
Common stock warrants |
1,449,725 | | ||||||
21,421,084 | 3,412,000 | |||||||
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results
of operations in conjunction with our unaudited consolidated financial statements and related notes
thereto included in this Quarterly Report on Form 10-Q and with our consolidated financial
statements and the related notes thereto that are contained in our Annual Report on Form 10-K for
the year ended December 31, 2010. In addition to historical information, the following discussion
and analysis includes forward-looking information that involves risks, uncertainties, and
assumptions. Actual results and the timing of events could differ materially from those anticipated
by these forward-looking statements as a result of many factors, including those discussed under
Risk Factors elsewhere in this Form 10-Q and in our Form 10-K.
Overview
We are a development stage medical device company working toward commercialization of our
proprietary technologies to provide minimally invasive medical devices for treatment of conditions
in the human body. Since the inception of our company in 1998, our efforts have been concentrated
on the development of a stent for use in coronary applications. We currently are in the later
stages of developing a bioresorbable drug-eluting coronary stent that we have named the
ReZolvetm stent. In a clinical use, this stent will be implanted by an
interventional cardiologist during a minimally invasive surgery to a coronary artery location with
a delivery catheter system. The stent combines our proprietary stent design with a proprietary
polymer that is metabolized and cleared from the body over time, leaving the body free of a
permanently implanted device. We have invested significant time and funds in the scientific
research, engineering development, and testing of the stent in laboratory and preclinical studies.
We believe the results of this testing have shown the technology to be safe and effective to date and that
it is suitable for final development and human clinical studies.
In 2007, we enrolled patients in a small clinical study that proved the viability of our stent
technology while confirming the areas needing further development. We have been advancing the
product design and features since that study. We intend to initiate a pilot human clinical trial of
the ReZolvetm stent after we complete the preclinical tests,
including all design verification tests, which are currently scheduled to finish during the fourth
quarter of 2011. We have secured regulatory approval to proceed with the trial in several locations
outside the United States. We will begin enrollment in the trial directly following
completion of the preclinical and design verification tests. Assuming acceptable results from the
pilot clinical trial, we will initiate a larger scale human clinical trial that will provide the
data needed to apply for CE Mark approval in Europe. If and when we receive CE Mark approval, we
plan to sell our stent in Europe. In order to produce quantities of the stent large enough to
accommodate the clinical trials and commercial needs, when that time arrives, we will need to
scale-up our manufacturing processes and expand our capabilities to allow for additional stent
dimensions and other aspects. We have begun preliminary development of the methods and processes
for the manufacturing scale-up and we plan to work on the dimensional and other aspects during the
remainder of this year and in 2012.
We have invented, co-invented, and licensed a portfolio of proprietary technologies. Our
design-related technologies have been invented by our employees and consultants and our
materials-related technologies have been either invented by our employees or licensed from, or
co-invented with, Rutgers, The State University of New Jersey. We consider our patent portfolio to
be significant and have invested considerable time and funds to develop and maintain it. Our goal
is to perform feasibility tests on additional technologies in our patent portfolio at the same time
we are finalizing our ReZolvetm stent and, if feasibility is proven, determine
a course of development for potential products and, thus, provide a follow-on product pipeline.
We have performed all of our research and development activities from our location in San
Diego, California. As of June 30, 2011, we had 60 employees, a significant number of whom are
degreed professionals and four of whom are PhDs. We leverage our internal expertise with contract
research and preclinical laboratories, outside polymer and catheter manufacturing, and other
outside services as needed. We have two clean rooms and multiple engineering and chemistry labs at
our facility, in addition to our corporate and administrative office. We are ISO certified to the
medical device standard 13485:2003 and intend to maintain the certification to support our
commercialization plans.
We have not yet developed a product to a saleable stage and, therefore, we have not generated
any product or other revenues. Our development efforts have been funded with a variety of capital
received from angel investors, venture capitalists, strategic partners, hedge funds, and
individuals. We completed an initial public offering (IPO) of our common stock in December 2010
with a listing on the Australian Securities Exchange. Since our inception, we have received
approximately $153.5 million in equity proceeds and $28.5 million from issuance of notes payable
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(such notes payable were converted to common stock upon the IPO). As of June 30, 2011, we had
approximately $73.0 million in cash available for operations. We have incurred substantial losses
since our inception. As of June 30, 2011, we had accumulated a deficit of approximately $139.4
million. We expect our losses to continue for the next several years as we continue our development
work and clinical trials and, if these efforts are successful and we are able to obtain approval to
sell our products, we expect to commence commercial sales thereafter.
Our company was founded in California in June 1998 and named MD3, Inc. We changed our name to
REVA Medical, Inc. in March 2002. We reincorporated from the State of California to the State of
Delaware in October 2010; as a result, the rights of our stockholders are governed by the Delaware
General Corporation Law. We formed a wholly owned subsidiary in Germany in 2007 to facilitate our
clinical trials and our planned commercialization of products; we have not used this subsidiary yet
for any operating activities.
Key Components of our Results of Operations
Since we are still in a pre-revenue stage and our activities are focused on further developing
and testing our bioresorbable coronary stent with the goal of commercially selling it, as well as
performing minimal research and tests to determine the feasibility of other product possibilities,
our operating results primarily consist of research and development expenses and general and
administrative expenses.
Research and Development Expenses: Our research and development expenses arise from a
combination of internal and external costs. Our internal costs primarily consist of employee
salaries and benefits, facility and other overhead expenses, and engineering and other supplies
that we use in our labs for prototyping, testing, and producing our stents and other product
possibilities. Our external costs primarily consist of contract research, engineering consulting,
polymer production costs, polymer lasing costs, catheter system and restenotic drug purchases,
preclinical and clinical study expenses, and license fees paid for the technology underlying our
polymer materials. All research and development costs are expensed when incurred. We have increased
the level of our research and development activities in 2011 as we prepare for human clinical
trials. We expect a significant increase in our clinical study costs once we begin our pilot
clinical trial and, if the pilot trial is successful, our larger scale follow-on clinical trial
that will provide the data for a CE Mark application in Europe.
General and Administrative Expenses: Our general and administrative expenses consist
primarily of salaries and benefits for our executive officers and administrative staff, corporate
office and other overhead expenses, legal expenses including patent filing and maintenance costs,
audit and tax fees, investor relations and other public company costs, and travel expenses.
Although our patent portfolio is one of our most valuable assets, we record legal costs related to
patent development, filing, and maintenance as expense when the costs are incurred since the
underlying technology associated with these assets is purchased or incurred in connection with our
research and development efforts and the future realizable value cannot be determined. We
anticipate that we will continue to invest in patents at similar levels as we have in the past.
Upon completion of our initial public offering (IPO) in December 2010, we began to expand our
corporate infrastructure and also began to incur public company reporting and other costs. We
anticipate that we will continue to expand our corporate infrastructure, including the addition of
personnel and reporting systems, to support the needs of being a public company and to prepare for
commercial sales of our products, which will increase our general and administrative expenses
significantly.
Other Expense and Income: After completion of our IPO in December 2010, our non-operating
income and expense primarily consist of interest income earned on our investments. Prior to
completion of the IPO, non-operating expenses primarily arose from interest expense on notes
payable, losses from the change in value of outstanding warrants to purchase preferred stock, and
losses from the extinguishment of notes payable. All the notes payable, along with the accumulated
accrued interest, converted into common stock upon our IPO and all the warrants for purchase of
preferred stock were exercised for cash and on a net issuance basis upon the IPO. No notes payable
or warrants remained outstanding after the IPO and, therefore, we have no continuing expense
related to them.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States. The preparation of our financial statements and related
disclosures requires us to make estimates, assumptions, and judgments that affect the reported
amounts of assets, liabilities, stockholders equity, expenses, and the presentation and
disclosures related to those items. We base our estimates and assumptions on historical
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experience and other factors that we believe to be reasonable under the circumstances. We
evaluate our estimates and assumptions on an ongoing basis; changes in our estimates and
assumptions are reasonably likely to occur from period to period. Additionally, actual results
could differ significantly from the estimates we make. To the extent there are material changes in
our estimates or material differences between our estimates and our actual results, our future
financial statement presentation, financial condition, results of operations, and cash flows will
be affected.
While we have other key accounting policies that are less subjective and, therefore, their
application would not have a material impact on our reported results, we believe the following
accounting policies involve a greater degree of judgment and complexity than our other accounting
policies and, therefore, are the most critical to understanding and evaluating our consolidated
financial condition and results of operations.
Research and Development Costs: We expense research and development costs as incurred. Our
preclinical and clinical study costs are incurred on a contract basis and generally span a period
from a few months to longer than a year. We record costs incurred under these contracts as the work
occurs and make payments according to contractual terms. Until a contract is completed, we estimate
the amount of work performed and accrue for estimated costs that have been incurred but not paid.
As actual costs become known, we adjust our accruals. We expect our clinical expense accruals to
increase as we enroll patients in our pilot trial, which we plan to initiate following completion of design verification tests, which are currently scheduled to finish during the fourth quarter 2011.
Additional expenses will be incurred as we enroll increasing numbers of patients into the larger pivotal clinical trial that follows the pilot study.
We expect to make
estimates as to the work performed throughout the term of these trials, which is expected to be
five years. As a public company, we are required to make these estimates in shorter time frames and
with less actual data than we have in the past, which may result in our estimates being less
accurate and subject to possible material changes in our accruals, which could also materially
affect our results of operations within any fiscal period. To date, there have been no material
changes in our research and development expense estimates.
Income Taxes: We are currently subject to taxation in U.S. and California jurisdictions, but
because we have not yet reached the stage of generating revenue and we have accumulated significant
tax losses, we have not been required to pay income taxes. To account for the tax effects of our
accumulated losses and other tax-related items, we use the asset and liability method, as defined
by accounting standards. Under this accounting, we determine our deferred tax assets and
liabilities based on the estimated future tax consequences of current temporary differences between
the financial statement carrying amounts of the assets and liabilities and their respective tax
bases, using tax rates that we expect to be in effect when the temporary difference will be
realized. After we have quantified our deferred tax assets and liabilities, we evaluate their
ability to be realized. If a deferred tax asset or liability is determined to have less than a 50
percent likelihood of being upheld upon an examination by taxing authorities, or if we are unable
to make such a determination, we do not recognize the tax asset or liability. We also establish a
valuation allowance for a deferred tax asset or liability when we determine that it is likely to
not be realized; since our inception, we have recorded valuation allowances for the full amount of
our net deferred tax assets, as the realization of the deferred tax asset is uncertain. In
determining our tax accounting, we use estimates and make assumptions that we believe are
reasonable; however, the ultimate tax determination involves significant judgment that is subject
to audit by tax authorities and actual tax outcomes could vary significantly from our estimates.
Additionally, as a result of our using estimates, if factors change and we use different estimates,
the amounts we have determined related to our tax positions could be materially different in the
future.
Stock-Based Compensation: We recognize stock-based compensation expense in connection with
stock option grants to employees, directors, and consultants and restricted stock awards to
employees. For grants and awards to employees and directors, we determine the amount of
compensation expense by estimating the fair value of the option or stock on the date of grant or
award, and then amortize that fair value on a straight-line basis over the period the recipient
provides service, which generally is four or five years, and record the expense in our statement of
operations as either research and development expense or general and administrative expense based
on the recipients work classification. We estimate the fair value by using the Black-Scholes
option pricing model. For the model inputs, we use the fair value of the underlying common stock, a
risk-free interest rate that corresponds to the expected life of the option, an expected option
life between six and 6.5 years, and an estimate of volatility based on the market trading prices of
comparative peer companies. Additionally, we reduce the amount of recorded compensation expense to
allow for potential forfeitures of the options; the forfeiture rate is based on our actual
historical forfeitures and has ranged from approximately 2.5 percent to 5.3 percent. For options
granted to consultants, we estimate the fair value at the date of grant and at each subsequent
accounting date and record compensation expense in our statement of operations based on the fair
value during the service period of the consultant, which is generally a five-year vesting period.
We estimate the fair value by using the Black-Scholes option pricing model with the same approach
to inputs and assumptions as described above. As a result of our use of estimates, if factors
change and we use different assumptions, the amount of our stock-based compensation expense could
be materially different in the future.
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Results of Operations
In both 2010 and 2011, our primary focus was continuing the development of our
ReZolvetm stent. During 2010, our activities centered around refining the
stents design and delivery system, while in 2011 our activities have been centered around testing
and readying the stent for human clinical trials and increasing manufacturing capabilities.
Following is a discussion of our operating results in 2011 as compared to operating results in
2010.
Comparison of the Three Months Ended June 30, 2010 and 2011
Our operating results for the three month periods indicated are as follows:
Three Months Ended | ||||||||||||
June 30, | % | |||||||||||
2010 | 2011 | Change | ||||||||||
(In thousands) | ||||||||||||
Research and development expense |
$ | 1,977 | $ | 3,486 | 76 | % | ||||||
General and administrative expense |
$ | 641 | $ | 1,928 | >100 | % | ||||||
Interest income |
$ | 1 | $ | 70 | >100 | % | ||||||
Interest expense |
$ | (407 | ) | $ | | (100 | %) | |||||
Loss on change in fair value of preferred stock warrant liability |
$ | (380 | ) | $ | | (100 | %) | |||||
Other income (expense) |
$ | 17 | $ | (7 | ) | >(100 | %) | |||||
Cumulative dividends on Series H convertible preferred stock |
$ | (5,069 | ) | $ | | (100 | %) |
Research and development expense increased $1.51 million, or 76 percent, for the three
months ended June 30, 2011 compared to the three months ended June 30, 2010. The increase was due
to several factors. Personnel costs, including recruitment costs and stock-based compensation
expense, increased $526,000 primarily due to increased headcounts for engineering, manufacturing,
and clinical employees. Stent material costs increased $460,000 primarily due to polymer and lasing
needs in 2011 as design finalization, preclinical testing, and manufacturing process development
required greater quantities. Preclinical study costs increased $152,000 as a result of additional
quantities and varieties of studies performed to test the stent. Other engineering and testing
costs, including lab supplies and consultants, increased $156,000 in support of the testing and
manufacturing development efforts. Clinical costs increased $140,000 as we continued trial
submission and site selection activities. The remainder of the change in research and development
expenses between periods is due to increases in facilities costs offset by a small decrease in
research costs.
General and administrative expense increased $1.29 million, or more than 100 percent, for the
three months ended June 30, 2011 compared to the three months ended June 30, 2010. Stock-based
compensation expense increased $594,000 due to stock option grants made to senior executives and
non-employee directors in October 2010. Other personnel costs increased $202,000 due to our
employment of a chief executive officer in August 2010 and resumption of full salary to senior
executives in July 2010. Marketing costs increased $114,000 due to trademarking and branding
initiatives in 2011 to support entry into clinical trials. Legal fees increased $77,000 primarily
as a result of greater patent maintenance and foreign filing costs and greater general counsel
costs related to both U.S. and Australian public company reporting requirements. Board costs were
$49,000 and investor relations and other costs of being a public company approximated $107,000 in
2011; we had minimal corresponding costs in the prior year period. The remainder of the change in
general and administrative expenses between periods was due to increases in travel and
entertainment, general office, and other expenses.
Interest income increased $69,000 for the three months ended June 30, 2011 compared to the
three months ended June 30, 2010 as a result of interest earned on proceeds from our initial public
offering (IPO) that was completed in December 2010.
Interest expense and the change in the fair value of preferred stock warrant liability were
zero for the three months ended June 30, 2011 due to the conversion to common stock of all
outstanding notes payable and the exercise of all warrants upon our IPO in December 2010.
Other
income and expense remained relatively immaterial for the three months ended June 30, 2011 and
did not change significantly compared to the same period in 2010. This income or expense primarily
arises from gains and losses in foreign currency exchange rates when we purchase goods or services
from foreign suppliers.
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Comparison of the Six Months Ended June 30, 2010 and 2011
Our operating results for the six month periods indicated are as follows:
Six Months Ended | ||||||||||||
June 30, | % | |||||||||||
2010 | 2011 | Change | ||||||||||
(In thousands) | ||||||||||||
Research and development expense |
$ | 3,840 | $ | 6,727 | 75 | % | ||||||
General and administrative expense |
$ | 1,009 | $ | 3,856 | >100 | % | ||||||
Interest income |
$ | 2 | $ | 116 | >100 | % | ||||||
Interest expense |
$ | (796 | ) | $ | | (100 | %) | |||||
Loss on change in fair value of preferred stock warrant liability |
$ | (755 | ) | $ | | (100 | %) | |||||
Other income (expense) |
$ | 35 | $ | (17 | ) | >(100 | %) | |||||
Cumulative dividends on Series H convertible preferred stock |
$ | (5,724 | ) | $ | | (100 | %) |
Research and development expense increased $2.89 million, or 75 percent, for the six
months ended June 30, 2011 compared to the six months ended June 30, 2010. The increase was due to
several factors. Personnel costs, including recruitment costs and stock-based compensation expense,
increased $1.13 million primarily due to increased headcounts for engineering, manufacturing, and
clinical employees. Stent material costs increased $722,000 primarily due to polymer and lasing
needs in 2011 as design finalization, preclinical testing, and manufacturing process development
required greater quantities. Preclinical study costs increased $290,000 as a result of additional
quantities and varieties of studies performed to test the stent. Other engineering and testing
costs, including lab supplies and consultants, increased $327,000 in support of the testing and
manufacturing development efforts. Clinical costs increased $250,000 as we prepared and submitted
requests for trial approval and began site selection activities. The remainder of the change in
research and development expenses between periods is due to increases in research and facilities
costs.
General and administrative expense increased $2.85 million, or more than 100 percent, for the
six months ended June 30, 2011 compared to the six months ended June 30, 2010. Stock-based
compensation expense increased $1.19 million due to stock option grants made to senior executives
and non-employee directors in October 2010. Other personnel costs increased $540,000 due to our
employment of a chief executive officer in August 2010 and resumption of full salary to senior
executives in July 2010. Legal fees increased $337,000 primarily as a result of greater patent
maintenance and foreign filing costs and greater general counsel costs related to both U.S. and
Australian public company reporting requirements. Travel and entertainment expenses increased
$165,000 due to increased travel outside the U.S. for shareholder relations and clinical trial
preparation. Audit fees increased $116,000 due to public company requirements. Marketing costs
increased $135,000 due to trademarking and
branding initiatives in 2011 to support entry into clinical trials. Board costs were $95,000
and investor relations and other costs of being a public company approximated $151,000 in 2011; we
had minimal corresponding costs in the prior year period. The remainder of the change in general
and administrative expenses between periods was due to increases in general office, insurance, and
other expenses.
Interest income increased $114,000 for the six months ended June 30, 2011 compared to the six
months ended June 30, 2010 as a result of interest earned on proceeds from our initial public
offering (IPO) that was completed in December 2010.
Interest expense and the change in the fair value of preferred stock warrant liability were
zero in 2011 due to the conversion to common stock of all outstanding notes payable and the
exercise of all warrants upon our IPO in December 2010.
Other income and expense remained relatively immaterial in 2011 and did not change
significantly compared to 2010. This income or expense primarily arises from gains and losses in
foreign currency exchange rates when we purchase goods or services from foreign suppliers and our
purchasing activity has not changed significantly in 2011.
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Liquidity and Capital Resources
Sources of Liquidity
We are considered a development stage enterprise, as we have not yet generated revenues from
the sale of products. Although we have been researching and developing new technologies and product
applications and we enrolled patients in a small clinical study of our bioresorbable stent in 2007,
we do not anticipate having a product available for sale for at least the next several years. Until
revenue is generated from a saleable product, we expect to continue to incur substantial operating
losses and experience significant net cash outflows. We have incurred losses since our inception in
June 1998 and through June 30, 2011, we had an accumulated deficit of approximately $139.4 million.
In December 2010 we completed an initial public offering (IPO) of our common stock (on the
Australian Securities Exchange in the form of CHESS Depositary Interests, or CDIs) primarily to
investors in Australia, the United States, Hong Kong, and London. We issued 7,727,273 shares of
common stock at $10.91 per share for gross proceeds of $84.3 million. We incurred $8.5 million in
issuance costs in connection with our IPO. Concurrent with the completion of our IPO, all of our
outstanding convertible preferred stock, non-voting common stock, notes payable, and accrued
interest on notes payable converted to common stock. Additionally, all outstanding warrants were
exercised for common stock, either through a cash payment to us or on a net exercise basis. We also
issued common stock for cumulative dividends on our Series H convertible preferred stock. A total
of 22,419,771 shares of common stock were issued from these conversions, exercises, and dividends.
Prior to our IPO, we funded our operations from a combination of private placements of our
equity securities, for which we received aggregate net proceeds of $68.9 million, and issuances of
notes payable, for which we received $28.5 million in net proceeds.
Based on our current operating plans, we believe that our cash and cash equivalents as of June
30, 2011 of $73.0 million, which represents the remaining proceeds from our IPO, will be sufficient
to meet our capital and operating needs beyond the next year and will be sufficient to satisfy our
liquidity requirements and provide sufficient working capital to carry out our business objectives
during that time.
Cash Flows
Our cash flows for the periods indicated are as follows:
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2011 | |||||||
(In thousands) | ||||||||
Net cash used for operating activities |
$ | (4,359 | ) | $ | (8,323 | ) | ||
Net cash used for investing activities |
(42 | ) | (452 | ) | ||||
Net cash provided by financing activities |
7,351 | 6 | ||||||
Effect of foreign exchange rates |
(4 | ) | 2 | |||||
Net increase (decrease) in cash and cash equivalents |
$ | 2,946 | $ | (8,767 | ) | |||
Net Cash Flow from Operating Activities
Net cash used for operating activities during the first half of 2010 primarily reflects the
net loss of $6.36 million. A total of $69,000 was provided from the net changes in operating assets
and liabilities. Non-cash expenses included $795,000 for interest on notes payable, $755,000 for
the change in fair value of the preferred stock warrant liability, $243,000 of depreciation and
amortization, and $142,000 of stock-based compensation and other expense.
Net cash used for operating activities during the first half of 2011 primarily reflects the
net loss of $10.48 million. A total of $381,000 was provided from the net changes in operating
assets and liabilities. Non-cash expenses included $241,000 of depreciation and amortization,
$1,517,000 of stock-based compensation, and $22,000 of other expense.
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Net Cash Flow from Investing Activities
Net cash used in investing activities during the six months ended June 30, 2010 and 2011
consisted of the net purchases of property and equipment. A majority of the purchases in both
periods was for lab equipment.
Net Cash Flow from Financing Activities
Cash provided by financing activities during the first half of 2010 related primarily to the
sale of our Series H convertible preferred stock in June 2010. The proceeds were partially offset
by $133,000 in costs related to starting the process of our initial public offering (IPO) that
was completed in December 2010.
Cash provided by financing activities during the first half of 2011 resulted from issuances of
common stock upon the exercise of employee stock options.
Operating Capital and Capital Expenditure Requirements
To date, we have not commercialized any products. We do not anticipate generating any revenue
unless and until we successfully obtain CE Mark or FDA marketing approval for, and begin selling,
the ReZolvetm stent or one of our other product possibilities. We anticipate
that we will continue to incur substantial net losses for the next several years as we continue our
development work, conduct and complete preclinical and clinical trials, expand our corporate
infrastructure, and prepare for the potential commercial launch of our products.
We believe that our existing cash and cash equivalents will be sufficient to meet our
anticipated cash requirements beyond the next year. If our available cash and cash equivalents are
insufficient to satisfy our liquidity requirements, or if we develop additional products or pursue
additional applications for our products, we may seek to sell additional equity or debt securities,
or obtain a credit facility. The sale of additional equity and debt securities may result in
additional dilution to our stockholders. If we raise additional funds through the issuance of debt
securities, these securities could have rights senior to those of our common stock and could
contain covenants that would
restrict our operations. We may require additional capital beyond our currently forecasted
amounts. For example, we will need to raise additional funds in order to build our sales force and
commercialize our products. Any such required additional capital may not be available on reasonable
terms, if at all. If we are unable to obtain additional financing, we may be required to reduce the
scope of, delay, or eliminate some or all of our planned clinical trials, research, development,
and commercialization activities, which could materially harm our business.
Our forecasts for the period of time through which our financial resources will be adequate to
support our operations and the costs to complete development of products are forward-looking
statements and involve risks and uncertainties, and actual results could vary materially and
negatively as a result of a number of factors. We have based these estimates on assumptions that
may prove to be wrong, and we could utilize our available capital resources sooner than we
currently expect.
Because of the numerous risks and uncertainties associated with the development of medical
devices, such as our ReZolvetm stent, we are unable to estimate the exact
amounts of, or timing of, capital outlays and operating expenditures necessary to complete
development, continue ongoing preclinical studies, conduct human clinical trials, and successfully
deliver a commercial product to market. Our future funding requirements will depend on many
factors, including, but not limited to:
| the time and effort it will take to successfully complete the development and testing of the ReZolvetm stent; | ||
| the time and effort it will take to identify, develop, and scale-up manufacturing processes; | ||
| the scope, enrollment rate, and costs of our human clinical trials; | ||
| the scope of research and development for any of our other product opportunities; | ||
| the cost of filing and prosecuting patentable technologies and defending and enforcing our patent and other intellectual property rights; | ||
| the terms and timing of any collaborative, licensing, or other arrangements that we may establish; | ||
| the requirements, cost, and timing of regulatory approvals; | ||
| the cost and timing of establishing sales, marketing, and distribution capabilities; |
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| the cost of establishing clinical and commercial supplies of our products and any products that we may develop; | ||
| the effect of competing technological and market developments; and | ||
| the cost and ability to license technologies for future development. |
Future capital requirements will also depend on the extent to which we acquire or invest in
businesses, products, and technologies, although we currently have no commitments or agreements
relating to any of these types of transactions.
Contractual Obligations, Commitments, and Contingencies
The following table summarizes our outstanding contractual obligations as of June 30, 2011:
Payments Due by Period | ||||||||||||
(In thousands) | ||||||||||||
Total | Under 1 Year | Over 1 Year | ||||||||||
Operating lease obligations |
$ | 79 | $ | 79 | $ | | ||||||
Purchase obligations |
165 | 150 | 15 | |||||||||
Employment agreements |
509 | 509 | | |||||||||
Total contractual obligations |
$ | 753 | $ | 738 | $ | 15 | ||||||
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
Occasionally, new accounting standards are issued or proposed by the Financial Accounting
Standards Board or other standards-setting bodies and we adopt them by the effective date specified
within the standard. Unless otherwise discussed, standards that do not require adoption until a
future date are not expected to have a material impact on our financial statements upon adoption.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity
Our cash and cash equivalents of $73.0 million at June 30, 2011 consisted of cash and money
market funds that will be used for working capital purposes. We do not enter into investments for
trading or speculative purposes. Our primary exposure to market risk is interest income
sensitivity, which is affected by changes in the general level of interest rates in the U.S.
Because of the short-term nature of our cash and cash equivalents, we do not believe that we have
any material exposure to changes in their fair values as a result of changes in interest rates.
Foreign Currency Risk
To date, our purchases from foreign suppliers and consultants have been minimal and have been
denominated primarily in the currencies of Australia and the European Union. Although minimal, we
have had and will continue to have exposure to foreign currency exchange rate fluctuations. We do
not enter into foreign currency hedging transactions. Although our German subsidiary is
non-operational, its functional currency is the Euro; accordingly, the effects of exchange rate
fluctuations on the net assets of the subsidiary are accounted for as translation gains or losses
in accumulated other comprehensive income within stockholders equity. A change of ten percent or
more in
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foreign currency exchange rates of the Australian dollar or the Euro would have a material
impact on our financial position and results of operations if we continue or increase our purchases
denominated in these currencies.
Related Party Transactions
Our related parties include the members of our Board of Directors and investors with five
percent or more of our outstanding securities. As of June 30, 2011, our related parties
collectively represented approximately 65 percent of our outstanding stock. Transactions with our
related parties historically consisted of notes payable issued to members of our board of
directors, or firms they represented, or to the investors that held in excess of five percent of
our securities. All of our notes payable together with accrued interest converted into common stock
upon our initial public offering in December 2010.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of our disclosure controls and procedures as of June 30, 2011, the end of the
period covered by this Quarterly Report on Form 10-Q. The term disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and
other procedures of a company that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is accumulated, recorded,
processed, summarized, and reported within the time periods specified in the SECs rules and forms.
In designing and evaluating the disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable, and
not absolute, assurance of achieving the
desired objectives. In reaching a reasonable level of assurance, management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of June 30, 2011 at the
reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the six months ended June 30, 2011 that
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We may from time to time be subject to various claims and legal actions during the ordinary
course of our business. We believe that there are currently no claims or legal actions that would
reasonably be expected to have a material adverse effect on our results of operations or financial
condition.
Item 1A. Risk Factors
Investing in our common stock or our CHESS Depository Interests (or CDIs) involves a high
degree of risk. Our Annual Report on Form 10-K for the year ended December 31, 2010 includes a
detailed discussion of our risk factors in the section, Item 1A. Risk Factors. Set forth below
are certain material changes from the risk factors previously disclosed in the Form 10-K. You
should carefully consider the risk factors discussed in our Form 10-K and in this Quarterly Report
on Form 10-Q, as well as our other public filings, before deciding whether to invest in our common
stock or CDIs. The occurrence of any of the items discussed in the Form 10-K or in this Form 10-Q
could harm our business, financial condition, results of operations, or growth prospects, any of
which could cause the trading price of our CDIs to decline and you may lose all or part of your
investment.
Risks Related to Our Business
Our ability to generate revenue depends upon the successful clinical development, regulatory
approval, and commercialization of our ReZolvetm stent.
Our ReZolvetm stent and any other products that we develop
in the future will require extensive clinical testing, regulatory approval, and significant
marketing efforts before they can be sold and generate any revenue. Our efforts to generate revenue
may not succeed for a number of reasons including:
| we may experience delays in the development program for our ReZolvetm stent, including the initiation and successful completion of our planned human pilot and clinical trials, which have been delayed and may continue to be delayed depending on the length of time needed to successfully complete preclinical and design verification testing; | ||
| our ReZolvetm stent may not demonstrate safety and efficacy in our clinical trials; | ||
| we may not be able to obtain regulatory approvals for our ReZolvetm stent in the markets in which we expect to operate, or the approved indications for our ReZolvetm stent may be narrower than we currently anticipate; | ||
| our ReZolvetm stent may not be accepted in the marketplace by physicians and patients; | ||
| physicians may not receive adequate coverage and reimbursement for procedures using our ReZolvetm stent; | ||
| new product introductions by our competitors or any rapid technological change may make our technology and product candidates, including the ReZolvetm stent, obsolete; | ||
| we may not be able to manufacture our ReZolvetm stent in commercial quantities or at an acceptable cost; | ||
| we are wholly dependent on the efforts undertaken by suppliers of critical components for our ReZolvetm stent, including the stent polymer and the process of lasing the stent components, and we may be significantly impacted by any regulatory delays or barriers that our suppliers may encounter; and | ||
| we may be sued for infringement of intellectual property rights and could be prevented from manufacturing or selling the ReZolvetm stent or our future product candidates. |
We cannot market the ReZolvetm stent in the EU until we
receive a CE Mark or in the United States until we receive a PMA. We cannot guarantee that we will
receive regulatory approval for our ReZolvetm stent on a timely
basis, or at all. Our operating plan is based in part on our expectations regarding the timing for
receipt of the required regulatory approvals for our ReZolvetm
stent. If we experience significant delays in the regulatory approval process, we may be unable to
reduce our expenditures in a timely manner to compensate for such delays and we may not have
adequate financial or other resources to complete the regulatory approval process. Accordingly, a
significant delay in the regulatory approval process for our
ReZolvetm stent would have a material adverse effect on our business
and financial condition. In addition, we may be required to raise additional financing to fund our
operations through various means, including equity or debt financing, which could be dilutive to
existing stockholders or require us to relinquish important rights to our technology or products.
We rely on specialized suppliers for certain components and processes in the manufacture of our
ReZolvetm stent.
We rely on suppliers for several critical components used in our ReZolvetm
stent, including the stent polymer, the process of lasing the polymer, and the supply of delivery
catheters. We also outsource the sterilization of the finished product. Our reliance on third-party
suppliers subjects us to risks that could harm our business, including:
| we are not a major customer of many of our suppliers, and these suppliers may therefore give other customers needs higher priority than ours; | ||
| our suppliers have no contractual obligation to supply, and we are not obligated to purchase, any components used in our ReZolvetm stent, which may result in supply interruptions; | ||
| our suppliers source raw materials through supply chains that periodically are unable to provide needed materials in a timely manner, which may cause delays in providing critical components to us; | ||
| our polymer is complex and must be manufactured to extremely tight tolerances and specifications with the result that our suppliers, especially new suppliers, may make errors in manufacturing that could negatively affect the efficacy or safety of the ReZolvetm stent or cause our components not to be delivered on time or at all or to be delivered outside of specifications; | ||
| the availability of second-source suppliers may be extremely limited or their implementation as a supplier may be lengthy due to the tight tolerances and specifications which we require for the ReZolvetm stent; and | ||
| switching suppliers or changes to our service providers may require product redesign and submission to the regulatory authorities to whom we are seeking approval for our ReZolvetm stent. |
Additionally, we may experience problems or delays in our own manufacturing and assembly
process. Our current product development plan is predicated on maintaining strong relationships and
supply with several external parties to manufacture components of our ReZolvetm
stent. If we are unsuccessful in this regard or are unable to secure or maintain agreements with
these manufacturers on favorable terms or at all, our ability to obtain regulatory approval for our
products will be harmed.
Risks Related to Our CDIs and Common Stock
Future sales of our common stock may depress our share price.
Sales of a substantial number of CDIs in the public market, or the perception that these sales
may occur, could cause the market price of our CDIs to decline.The holders of an aggregate of
21,446,971 shares of our outstanding
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common stock have certain rights to cause us to file a registration statement on their behalf
and to include their shares in registration statements that we may file on behalf of other
stockholders. Additionally, the holders of an aggregate of 21,059,331 shares of our outstanding
common stock had been subject to escrow agreements prohibiting sales since the date of our initial
public offering; the escrow agreements expired on June 23, 2011 and, therefore, those shares are no
longer restricted from sale.
In April 2011, we filed a registration statement covering common stock issued or reserved for
issuance under our stock incentive plans; the underlying shares can now be freely sold under the
federal securities laws and may be tradable under state securities laws if a holder satisfies such
laws or is exempt from them, subject to vesting provisions or other contractual arrangements. In
addition, our 2010 Equity Incentive Plan provides for annual increases in the number of shares
available for issuance under the plan.
We may sell additional common stock in subsequent public offerings, which may adversely affect
the market price for our CDIs and common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds from Registered Securities
On December 16, 2010, we closed our initial public offering, in which we sold 77,272,730 CDIs,
representing 7,727,273 shares of our common stock, at a price to the public of A$1.10 per CDI or
A$11.00 per share. The aggregate offering price for CDIs sold in the offering was A$85.0 million
(which equated to approximately US$84.3 million). The offer and sale of all of the CDIs in the
initial public offering were registered under the Securities Act pursuant to a registration
statement on Form S-1 (File No. 333-168852), which was declared effective by the SEC on November
15, 2010. We also lodged a Prospectus with the Australian Securities and Investments Commission
prior to the allotment and issuance of CDIs under the offering. The offering commenced as of
November 29, 2010 and did not terminate before all of the securities registered in the registration
statement were sold. There was no underwriter and no selling stockholders in the offering. Inteq
Limited (Inteq), acted as our placement agent in connection with the offering of our CDIs outside
of the United States to non-U.S. residents. We raised approximately $75.8 million in net proceeds
after deducting placement agent fees and other offering expenses. No payments were made by us to
directors, officers, or persons owning ten percent or more of our common stock or to their
associates, or to our affiliates, other than payments in the ordinary course of business to
officers for salaries and to non-employee directors as compensation for board or board committee
service.
Of the net proceeds received in the initial public offering, we expect to use approximately:
| $40.0 million for research and development activities, including continuing development of our ReZolvetm stent; | ||
| $10.0 million for clinical trials; | ||
| $4.0 million for building commercial infrastructure, including manufacturing capacity expansion; and | ||
| the balance for working capital and other general corporate purposes. |
The foregoing expected use of the net proceeds represents our current intentions based upon
our present plans and business condition. The amounts and timing of our actual expenditures may
vary significantly and will depend upon numerous factors, including the timing and success of our
development efforts and clinical trials. We plan to commence clinical trials in the U.S. after we
receive acceptable data from the European clinical trials. Due to the regulatory requirements in
the U.S. that require a study with a large number of patients, we anticipate needing additional
funding in order to carry out the U.S. clinical trials.
Pending the use of net proceeds, we invest the offering proceeds in accordance with our
investment policy, which allows short-term, interest-bearing obligations, investment grade
instruments, certificates of deposit, or guaranteed obligations of the U.S. government.
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Item 3. Defaults upon Senior Securities
None
Item 4. (Removed and Reserved)
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by
reference as part of this Quarterly Report on Form 10-Q.
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SIGNATURES
Pursuant to the requirements the Securities Exchange Act of 1934, the Registrant has duly
caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto
duly authorized.
REVA Medical, Inc. |
||||
Date: August 15, 2011 | /s/ Robert B. Stockman | |||
Robert B. Stockman | ||||
Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | ||||
Date: August 15, 2011 | /s/ Katrina L. Thompson | |||
Katrina L. Thompson | ||||
Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer) |
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INDEX TO EXHIBITS
Exhibit |
||
Number | Description of Exhibits | |
3.1
|
Amended and Restated Certificate of Incorporation.* | |
3.2
|
Amended and Restated Bylaws to be effective upon completion of this offering.* | |
4.1
|
Form of Stock Certificate.* | |
4.2
|
Form of Amended and Restated Investors Rights Agreement, by and among REVA Medical, Inc. and the holders of our preferred stock set forth therein.* | |
10.1
|
Telecom Business Center Business Lease between FSP Telecom Business Center Limited Partnership and REVA Medical, Inc. dated December 18, 2001.* | |
10.2
|
First Amendment to Telecom Business Center Business Lease between FSP Telecom Business Center Limited Partnership and REVA Medical, Inc. dated January 3, 2005.* | |
10.3
|
Second Amendment to Telecom Business Center Business Lease between ARI Commercial Properties, Inc. and REVA Medical, Inc. dated February 18, 2006.* | |
10.4
|
Third Amendment to Telecom Business Center Business Lease between ARI Commercial Properties, Inc. and REVA Medical, Inc. dated December 14, 2006.* | |
10.5
|
Fourth Amendment to Telecom Business Center Business Lease between ARI Commercial Properties, Inc. and REVA Medical, Inc. dated May 7, 2008.* | |
10.6
|
Agreement and Plan of Merger, dated October 13, 2004, by and among REVA Medical, Inc., Boston Scientific Corporation, RMI Acquisition Corp. and certain stockholder representatives set forth therein.* | |
10.7
|
Amendment No. 1 to the Agreement and Plan of Merger, dated December 7, 2007, by and among REVA Medical, Inc., Boston Scientific Corporation, RMI Acquisition Corp. and certain stockholder representatives set forth therein.* | |
10.8
|
Securities Purchase Agreement between Boston Scientific Corporation and REVA Medical, Inc. dated October 13, 2004.* | |
10.9
|
Amendment No. 1 to Securities Purchase Agreement between Boston Scientific Corporation and REVA Medical, Inc. dated December 7, 2007.* | |
10.10
|
Distribution Option Agreement, dated December 7, 2007, by and between REVA Medical, Inc. and Boston Scientific Corporation.* | |
10.11
|
Exclusive License Agreement Number between Rutgers, The State University of New Jersey and REVA Medical, Inc. dated July 1, 2010.++* | |
10.12
|
Royalty and License Agreement between Integra/LifeSciences Corporation and REVA Medical, Inc. dated February 2, 2004.++* | |
10.13
|
2001 Stock Option/Stock Issuance Plan.+* | |
10.14
|
Form of Stock Option Agreement.+* | |
10.15
|
Form of Addendum to Stock Option Agreement.+* | |
10.16
|
2010 Equity Incentive Plan.+* | |
10.17
|
Form of Stock Option Agreement.+* | |
10.18
|
Form of Stock Option Agreement entered into with Robert Thomas and Anne Keating.+* | |
10.19
|
Form of Director and Officer Indemnification Agreement.+* | |
10.20
|
Employment Agreement, dated July 1, 2010, by and between REVA Medical, Inc. and Robert B. Stockman.+* | |
10.21
|
Employment Agreement, dated October 21, 2010, by and between REVA Medical, Inc. and Robert Schultz.+* | |
10.22
|
Employment Agreement, dated October 21, 2010, by and between REVA Medical, Inc. and Katrina Thompson.+* | |
10.23
|
Form of Offer Management Agreement between REVA Medical, Inc. and Inteq Limited.* | |
10.24
|
Form of CDI Subscription Application for non U.S. investors.* | |
10.25
|
Form of CDI Subscription Application for U.S. investors.* | |
10.26
|
Form of Escrow Deed between REVA Medical, Inc. and Computershare Investor Services Pty Limited.* | |
21.1
|
List of Subsidiaries.* |
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Exhibit |
||
Number | Description of Exhibits | |
31.1
|
Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
31.2
|
Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
32.1(1)
|
Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350. | |
99.1 | Section 13 of the ASX Settlement Rules.* | |
101(2) | XBRL Instance Document | |
101(2) | XBRL Taxonomy Extension Schema Document | |
101(2) | XBRL Calculation Linkbase Document | |
101(2) | XBRL Taxonomy Label Linkbase Document | |
101(2) | XBRL Taxonomy Presentation Linkbase Document | |
101(2) | XBRL Taxonomy Definition Linkbase Document |
+ | Management Compensation Plan | |
++ | Confidential Treatment Request | |
* | Filed as exhibits to the registrants Registration Statement on Form S-1 (File No. 333-168852), effective November 15, 2010, and incorporated herein by reference. | |
(1) | These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of The Active Network, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing. | |
(2) | Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability. |
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