UNITED
STATES
SECURITIES
AND
EXCHANGE COMMISSION
Washington
, DC
20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
|
For the quarterly period ended
|
March 31, 2008
|
|
|
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: 0-21214
(Exact
name of registrant as specified in its charter)
Delaware
|
86-0585310
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
|
|
1275
W. Washington Street, Tempe, Arizona
|
85281
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(Registrant's
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
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.
x
Yes
o
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. Large accelerated filer
o
Accelerated
filer
x
Non-accelerated
filer
o
Smaller
reporting company
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
.
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
41,274,383
shares of common stock outstanding as of April 30, 2008.
O
RT
HOLOGIC CORP.
(A
Development Stage Company)
INDEX
|
|
|
Page
No.
|
Part I
|
|
Financial
Information
|
|
|
|
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|
|
|
|
|
Item 1.
|
|
Financial
Statements (Unaudited)
|
|
|
|
|
|
|
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|
|
|
|
|
3
|
|
|
|
|
|
|
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4
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|
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|
5
|
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|
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6
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|
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|
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|
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Item 2.
|
|
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10
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|
|
|
|
|
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|
|
Item 4.
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12
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|
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|
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|
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|
|
Part II
|
|
Other
Information
|
|
|
|
|
|
|
|
|
|
Item 1A.
|
|
|
13
|
|
|
|
|
|
|
|
|
Item 2.
|
|
|
14
|
|
|
|
|
|
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Item 6.
|
|
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14
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|
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|
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|
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EXHIBIT
31.1
|
|
EXHIBIT
31.2
|
|
EXHIBIT
32
|
|
PART
I – Financial Information
Item
1. Financial Statements
O
RT
HOLOGIC
CORP.
(A Development Stage
Company)
CONDENSED BALANCE
SHEETS
(in thousands
, except share data
)
|
|
March
31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
6,063
|
|
|
$
|
20,943
|
|
Short-term
investments
|
|
|
35,791
|
|
|
|
18,236
|
|
Prepaids
and other current assets
|
|
|
1,022
|
|
|
|
906
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
42,876
|
|
|
|
40,085
|
|
|
|
|
|
|
|
|
|
|
Furniture
and equipment, net
|
|
|
339
|
|
|
|
318
|
|
Long-term
investments
|
|
|
15,459
|
|
|
|
21,459
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
58,674
|
|
|
$
|
61,862
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
662
|
|
|
$
|
702
|
|
Accrued
compensation
|
|
|
477
|
|
|
|
824
|
|
Accrued
clinical
|
|
|
30
|
|
|
|
1
|
|
Other
accrued liabilities
|
|
|
759
|
|
|
|
874
|
|
Total
current liabilities
|
|
|
1,928
|
|
|
|
2,401
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Common
Stock $.0005 par value;
|
|
|
21
|
|
|
|
21
|
|
100,000,000
shares authorized; 41,624,438 in 2008 and 41,758,065 in 2007 shares issued
and outstanding
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
188,955
|
|
|
|
189,013
|
|
Accumulated
deficit
|
|
|
(132,230
|
)
|
|
|
(129,573
|
)
|
Total
stockholders' equity
|
|
|
56,746
|
|
|
|
59,461
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
58,674
|
|
|
$
|
61,862
|
|
See
notes to unaudited condensed financial statements
O
RT
HOLOGIC CORP.
(A
Development Stage Company)
CONDENSED
STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
(Unaudited)
|
|
|
|
|
As
a Development
|
|
|
|
Three
months ended
|
|
|
Stage Company
|
|
|
|
March
31,
|
|
|
August 5, 2004 -
|
|
|
|
2008
|
|
|
2007
|
|
|
March
31, 2008
|
|
OPERATING
EXPENSES
|
|
|
|
General
and administrative
|
|
$
|
821
|
|
|
$
|
979
|
|
|
$
|
17,905
|
|
Research
and development
|
|
|
2,442
|
|
|
|
2,818
|
|
|
|
65,268
|
|
Purchased
in-process research and development
|
|
|
-
|
|
|
|
-
|
|
|
|
34,311
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
(375
|
)
|
Total
operating expenses
|
|
|
3,263
|
|
|
|
3,797
|
|
|
|
117,109
|
|
Interest
and other income, net
|
|
|
(606
|
)
|
|
|
(884
|
)
|
|
|
(11,158
|
)
|
Loss
from continuing operations before taxes
|
|
|
2,657
|
|
|
|
2,913
|
|
|
|
105,951
|
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
356
|
|
Loss
from continuing operations
|
|
|
2,657
|
|
|
|
2,913
|
|
|
|
106,307
|
|
Discontinued
operations - net gain on sale of the bone device business, net of taxes
($267)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,202
|
)
|
NET
LOSS
|
|
$
|
2,657
|
|
|
$
|
2,913
|
|
|
$
|
104,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, basic and diluted
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
|
|
|
|
Basic
and diluted shares outstanding
|
|
|
41,763
|
|
|
|
41,594
|
|
|
|
|
|
See
notes to unaudited condensed financial statements
O
RT
HOLOGIC CORP.
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CASH FLOWS
(in
thousands)
(Unaudited)
|
|
|
|
|
As
a Development
|
|
|
|
Three
months ended
|
|
|
Stage Company
|
|
|
|
March
31,
|
|
|
August 5th 2004 -
|
|
|
|
2008
|
|
|
2007
|
|
|
March
31, 2008
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,657
|
)
|
|
$
|
(2,913
|
)
|
|
$
|
(104,105
|
)
|
Non
cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
770
|
|
Depreciation
and amortization
|
|
|
32
|
|
|
|
67
|
|
|
|
3,466
|
|
Non-cash
stock compensation
|
|
|
111
|
|
|
|
32
|
|
|
|
3,831
|
|
Gain
on sale of bone device business
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,298
|
)
|
In-process
research and development
|
|
|
-
|
|
|
|
-
|
|
|
|
34,311
|
|
Change
in other operating items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaids
and other current assets
|
|
|
(116
|
)
|
|
|
902
|
|
|
|
687
|
|
Accounts
payable
|
|
|
(39
|
)
|
|
|
(576
|
)
|
|
|
(308
|
)
|
Accrued
liabilities
|
|
|
(433
|
)
|
|
|
(413
|
)
|
|
|
(1,750
|
)
|
Cash
flows used in operating activities
|
|
|
(3,102
|
)
|
|
|
(2,901
|
)
|
|
|
(65,396
|
)
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
for furniture and equipment, net
|
|
|
(53
|
)
|
|
|
(60
|
)
|
|
|
(746
|
)
|
Proceeds
from sale of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
7,000
|
|
Cash
paid for assets of AzERx/CBI
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,058
|
)
|
Cash
paid for patent assignment rights
|
|
|
-
|
|
|
|
-
|
|
|
|
(650
|
)
|
Purchases
of investments
|
|
|
(17,253
|
)
|
|
|
(13,817
|
)
|
|
|
(214,542
|
)
|
Maturities
of investments
|
|
|
5,697
|
|
|
|
18,627
|
|
|
|
221,229
|
|
Cash
flows (used in) provided by investing activities
|
|
|
(11,609
|
)
|
|
|
4,750
|
|
|
|
8,233
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from stock option exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
4,612
|
|
Net
proceeds from sale of stock
|
|
|
-
|
|
|
|
-
|
|
|
|
3,376
|
|
Common
stock purchases
|
|
|
(169
|
)
|
|
|
-
|
|
|
|
(169
|
)
|
Cash
flows (used in) provided by financing activities
|
|
|
(169
|
)
|
|
|
-
|
|
|
|
7,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(14,880
|
)
|
|
|
1,849
|
|
|
|
(49,344
|
)
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
20,943
|
|
|
|
18,047
|
|
|
|
55,407
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
6,063
|
|
|
$
|
19,896
|
|
|
$
|
6,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Investing Activities
|
|
|
|
|
|
|
|
|
|
AzERx
and CBI
|
|
AzERx/CBI
Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets acquired
|
|
|
|
|
|
|
|
|
|
$
|
29
|
|
Patents
acquired
|
|
|
|
|
|
|
|
|
|
|
2,142
|
|
Liabilities
acquired, and accrued acquisition costs
|
|
|
|
|
|
|
|
|
|
|
(457
|
)
|
Original
investment reversal
|
|
|
|
|
|
|
|
|
|
|
(750
|
)
|
In-process
research and development acquired
|
|
|
|
|
|
|
|
|
|
|
34,311
|
|
Common
stock issued for acquisition
|
|
|
|
|
|
|
|
|
|
|
(31,217
|
)
|
Cash
paid for acquisition
|
|
|
|
|
|
|
|
|
|
$
|
4,058
|
|
See
notes to unaudited condensed financial statements
O
RT
HOLOGIC CORP.
(A
Development Stage Company)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
March
31, 2008
Description of the
business
OrthoLogic is a biotechnology company
committed to developing a pipeline of novel therapeutic peptides aimed at
helping patients with under-served medical conditions. The Company is
focused on development and commercialization of two product platforms: AZX100
and Chrysalin® (TP508).
AZX100
AZX100, a
novel 24-amino acid peptide, relaxes smooth muscle which modulates blood
pressure and the function of blood vessels, airways, sphincters, the
gastrointestinal tract and the genitourinary tract. Sustained
abnormal contraction of any of these muscles is called spasm. Any
disorders known to be associated with excessive constriction or inadequate
dilation of smooth muscle represent potential applications for
AZX100.
AZX100
may also inhibit the fibrotic phenotype of fibroblasts and smooth muscle cells
in a mechanism similar to that which causes vasorelaxation. Through
phenotypic modulation of fibroblasts and smooth muscle cells, AZX100 may inhibit
the scarring that results from wound healing and may mitigate fibrotic disease
states in the dermis, blood vessels, lungs, liver and other organs.
AZX100 is
currently being evaluated for medically and commercially significant
applications, such as prevention of dermal scarring, treatment of refractory
asthma, pulmonary fibrosis and vascular intimal hyperplasia. We are
executing a development plan for this peptide which included filing an IND for
dermal scarring in 2007 and commencement of a Phase 1 safety study in this
indication in the first quarter of 2008. The study includes
approximately 30 subjects and is expected to be completed in
mid-2008. Pending favorable results, we will initiate further safety
and dose-ranging studies for dermal scarring. In 2008, we also intend
to perform further pre-clinical studies supporting multiple indications for
AZX100.
Chrysalin
Chrysalin
(TP508), a novel synthetic 23-amino acid peptide, is believed to produce
angiogenic and other tissue repair effects in part by 1) activating or
upregulating endothelial nitric oxide synthase (eNOS); 2) upregulating vascular
endothelial growth factor; and 3) inhibiting apoptosis (programmed cell
death). It may have therapeutic value in diseases associated with
endothelial dysfunction.
We have
conducted clinical trials for two potential Chrysalin
applications: acceleration of fracture repair and diabetic foot ulcer
healing. We previously conducted a pilot human study for spine
fusion, and pre-clinical testing for cartilage defect repair, cardiovascular
repair, dental bone repair, and tendon repair. Currently, we are
focusing our efforts on pre-clinical studies in vascular
applications. If successful, these studies will provide additional
support for partnering Chrysalin’s future development.
Company History
Prior to November 26, 2003, we
developed, manufactured and marketed proprietary, technologically advanced
orthopedic products designed to promote the healing of musculoskeletal bone and
tissue, with particular emphasis on fracture healing and spine
repair. Our product lines included bone growth stimulation and
fracture fixation devices
including the OL1000 product line, SpinaLogic® and OrthoFrame/Mayo,
which we sometimes refer to as our “Bone
Device Business.”
On November 26, 2003, we sold our Bone
Device Business. Our principal business remains focused on tissue
repair, although through biopharmaceutical approaches rather than through the
use of medical devices.
On August 5, 2004, we purchased
substantially all of the assets and intellectual property of Chrysalis
Biotechnology, Inc. (“CBI”), including its exclusive worldwide license for
Chrysalin for all medical indications
.
We became a development stage
company
commensurate with the
acquisition. Subsequently, all of our collective efforts
we
re focused on research and development
of our Chrysalin Product Platform, with the goal of commercializing
our
products.
On February
27
, 2006
,
the Company purchase
d
certain assets and assume
d
certain liabilities of AzERx, Inc.
Under the terms of the transaction,
OrthoLogic acquired an exclusive license for the core intellectual property
relating to AZX100
.
Our
development activities for
the Chrysalin Product Platform
and AZX100
represent a single operating
segment
as they share the
same product development path and utilize the same Company resources
. As a result, we have
determined that it is appropriate to reflect our operations as one reportable
segment.
Through March 31,
2008, we have
incurred
$104 million
in
net losses
as a development stage
company.
In these notes, references to “we”,
“our” and the “Company” refer to OrthoLogic Corp. References to our
Bone Device Business refer to our former business line of bone growth
stimulation and fracture fixation devices, including the OL1000 product line,
SpinaLogic®, OrthoFrame® and OrthoFrame/Mayo.
Financial Statement
Presentation
In the opinion of management, the
unaudited condensed interim financial statements include all adjustments
necessary for the fair presentation of our financial position, results of
operations, and cash flows. The results of operations for the interim
periods are not necessarily indicative of the results to be expected for the
complete fiscal year.
Use of estimates: The preparation of
financial statements in accordance with accounting principles generally accepted
in the
United States of
America
requires that
management make a number of assumptions and estimates that affect the reported
amounts of assets, liabilities, and expenses in our financial statements and
accompanying notes. Management bases its estimates on historical
experience and various other assumptions believed to be
reasonable. Although these estimates are based on management’s
assumptions
regarding
current events
and actions that may impact the Company in the future, actual results may differ
from these estimates and assumptions. Our critical accounting
policies are those that affect, or could affect our financial statements
materially and involve a significant level of judgment by
management.
The accounting policies and related
risks described in our Annual Report for the year ended December 31,
200
7
are those that depend most heavily on
these judgments and estimates. As of March 31, 200
8
, there have been no material changes to
any of the critical accounting policies contained therein
.
Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to
Securities and
Exchange Commission
rules
and regulations, although the Company believes that the disclosures herein are
adequate to make the information presented not misleading. It is
suggested that these unaudited condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company’s Annual Report for the year ended December 31, 200
7
.
Information presented as of
December 31, 2007 is derived from audited statements.
Adoption of New Accounting
Standards
Effective January 1, 2008, the Company
adopted the reporting requirements of FASB Statement No. 157, (FAS 157) “Fair
Value Measurements”, and No. 159, (FAS 159) “Fair Value Option for Financial
Assets and Liabilities”. Statements 157 and 159 are effective for
fiscal years beginning after November 15, 2007, though early adoption was
permitted. FAS 157 establishes a standard framework for measuring
fair value in generally accepted accounting principles (GAAP), clarifies the
definition of “fair value” within that framework, and expands disclosures about
the use of fair value measurements. FAS 159 allows entities to
voluntarily choose, at specified election dates, to measure many financial
assets and liabilities (as well as certain nonfinancial instruments that are
similar to financial instruments) at fair value (the “value
option”). The Company did not choose to voluntarily measure any
financial assets or liabilities at fair value. The adoption of FASB
Statements No. 157 and No. 159 did not have any effect on the Company results of
operations or financial position.
A. Stock Based
Compensation
2008
Stock Options
On
January 1, 2008, the Board of Directors granted each Director a fully vested
option to purchase 10,000 shares of the Company’s common stock at an exercise
price of $1.35. Additionally, during the three months ended March 31,
2008, the Company granted employees options to purchase 217,173 shares of the
Company’s common stock at an exercise price of $1.02. The options vest over a
two to four year period.
T
he Company used the Black
-
Schole
s
model
with the following
assumptions
, to determine
the total fair value
of
$147,000 for options to purchase
267,173
shares
of
the Company’s common stock issued
during the
three months
ended March 31, 2008:
|
Three
months ended
|
|
March
31, 2008
|
Risk
free interest rate
|
2.4% - 3.4%
|
Volatility
|
57% - 58%
|
Expected
term from vesting
|
3.7
Years
|
Dividend
yield
|
0%
|
200
8
Stock
Awards
On January 1, 2008, the Board of
Directors of the Company awarded 92,595 shares of restricted stock (18,519
shares to each director), which vest on January 1, 2009. The total
fair value of the awards, determined using the closing price of the Company’s
common stock on the date of grant, was $125,000, of which $26,000 has been
recognized as compensation cost in the three months ended March 31,
2008.
On February 21, 2008, the Company
awarded 56,373 fully vested shares of the Company’s common stock, having a fair
value on the date of the awards of $57,500, to various employees.
The fair value of the awards has been
recognized as compensation cost in the three months ended March 31,
2008.
Summary
Non-cash
stock compensation cost for the three months ended March 31, 2008, totaled
$111,000. In the condensed Statements of Operations for the three
months ended March 31, 2008, non-cash stock compensation expense of $88,000 was
recorded as a general and administrative expense and $23,000 was recorded as a
research and development expense.
Non-cash
stock compensation cost for the three months ended March 31, 2007, totaled
$32,000. In the condensed Statements of Operations for the three
months ended March 31, 2007, non-cash stock compensation expense of $49,000 was
recorded as a general and administrative expense and $17,000 was recorded as a
reduction (credit) of research and development expense.
No options were exercised in the three
month periods ended March 31, 2008 and 2007.
It is the
Company’s policy to issue options from shareholder approved incentive plans.
However, if the options are issued as an inducement for an individual to join
the Company, the Company may issue stock options outside of shareholder approved
plans. Options granted to employees under shareholder approved
incentive plans have a ten-year term and vest over a two to four-year period of
service. All options and stock purchase rights are granted with an
exercise price equal to the current market value on the date of grant and,
accordingly, options or stock purchase rights have no intrinsic value on the
date of grant. Based on the closing market price of the Company’s
common stock at March 31, 2008 of $0.85, stock options exercisable or expected
to vest at March 31, 2008, have no intrinsic value. At March 31,
2008, 19,885 shares remain available to grant under the Company’s existing stock
option plans.
Warrants
At March
31, 2008, the Company has warrants outstanding to purchase 46,706 shares of the
Company’s common stock with an exercise price of $6.39 per share which expire in
February 2016, and warrants outstanding to purchase 117,423 shares of the
Company’s common stock with an exercise price of $1.91 per share which expire in
July 2016.
Additionally,
(as described in Note 15 to our Annual Report on Form 10-K for the year ended
December 31, 2007), performance based warrants to purchase 240,000 shares of the
Company’s common stock with an exercise price of $1.91, which expire in February
2016, are outstanding but unvested at March 31, 2008. The total cost
of the performance based warrants will be charged to expense over the period of
performance. The costs will be determined based on the fair value of the
warrants determined by using the Black-Scholes model, revalued at each Company
reporting date until fully vested. The fair value of the milestone
warrants using the Black-Scholes model, 57% volatility, 0% dividend yield,
expected term of 7.9 years, and 2.4% interest rate was $90,000 at March 31,
2008. No costs were charged to expense at March 31, 2008 as it is not
yet probable that any milestone warrants will vest.
B. Authorization
of Company Buy-Back of Common Stock
On
March 5, 2008, the Company announced that its Board of Directors has approved a
stock repurchase program for up to five percent of its then outstanding common
shares. The shares may be repurchased from time to time in open
market transactions or privately negotiated transactions at the Company’s
discretion, subject to market conditions and other factors. There
were approximately 41.8 million shares of common stock outstanding on March 5,
2008.
During the three month period ended
March 31, 2008, the Company purchased 190,000 shares at a total cost of
$169,000.
I
te
m
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The
following is management’s discussion of significant events in the quarter ended
March 31, 2008 and factors that affected OrthoLogic’s interim financial
condition and results of operations. This should be read in
conjunction with our “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included in our Annual Report on Form 10-K
for the year ended December 31, 2007 and Item 1A. Risk Factors included in Part
II of this quarterly report.
Overview
of the Business
OrthoLogic
is a biotechnology company focused on the development and commercialization of
the novel synthetic peptides AZX100 and Chrysalin® (TP508).
In 2008
and 2007 our efforts were:
|
·
|
Evaluating
AZX100 for medically and commercially significant applications, such as
prevention of dermal scarring, pulmonary fibrosis, the treatment of
asthma, and vascular intimal hyperplasia. We performed
pre-clinical work leading to the filing of an IND for a dermal indication
in 2007 and commencement of a Phase 1 safety study in dermal scarring in
the first quarter of 2008. The first safety study will include
approximately 30 healthy subjects and is expected to be completed in mid
2008. Pending favorable results, we will initiate further
safety and dose-ranging studies for dermal scarring. In 2008,
we also intend to perform further pre-clinical studies supporting multiple
indications for AZX100.
|
|
·
|
Pre-clinical
experiments tying Chrysalin to potential modulation of the health of
endothelial tissue in blood vessels and other mechanism-of-action studies
to support our strategy to partner our vascular product
candidates. We did not perform additional pre-clinical or
clinical studies in fracture repair, wound healing, spine fusion,
cartilage defect repair, dental bone repair or tendon
repair. In 2008, we will continue studies to support our
vascular partnering efforts.
|
Results
of Operations Comparing Three-Month Period Ended March 31, 2008 to the
Corresponding Period in 2007.
General and Administrative
(“G&A”) Expenses:
G&A expenses related to our ongoing
development operations decreased by $158,000 from $979,000 in the first quarter
of 2007 to $821,000 in the first quarter of 2008. Our administrative
expenses during the first quarter of 2008 were lower than the same period of
2007 primarily as a result of the timing of expenditures as well as the effect
of general cost containment efforts.
Research and Development
Expenses:
Research and development expenses were $2,442,000
for the first three months in 2008 compared to $2,818,000 for the first three
months in 2007. Our research and development expenses decreased
$376,000 in the first quarter of 2008 compared to the same period in 2007
primarily due to a decline in AZX100 pre-clinical costs related to the filing of
an IND in a dermal scarring indication, which was completed as of December 31,
2007. This decrease was partially offset by costs incurred for the
Phase 1clinical trial in dermal scarring which commenced in the first quarter of
2008. Given the overlapping nature of our research efforts it is not
possible to clearly separate research expenditures between Chrysalin and AZX100;
however, the substantial majority of our research and development expenses in
2008 and 2007 are directed towards AZX100 development efforts.
Interest and Other Income,
Net
: Interest and Other Income Net decreased from $884,000 in
the first quarter of 2007 to $606,000 in the first quarter of 2008 due to the
decrease in interest rates between the two periods and reduction in the amount
available for investment.
Net Loss
: We
incurred a net loss in the first three months of 2008 of $2.7 million compared
to a net loss of $2.9 million in the first three months of 2007. The
$0.2 million decrease in the net loss for the three months ended March 31, 2008
compared to the same period in 2007, resulted primarily from lower general and
administrative expenses, due to the timing of expenditures and general cost
containment efforts, and reduced AZX100 pre-clinical costs related to the filing
of an IND for a dermal scarring indication, which was completed as of December
31, 2007, partially offset by costs related to commencement of a Phase 1
clinical trial in dermal scarring in 2008, and reduced interest income, due to
the decrease in interest rates between the two periods and reduction in the
amount available for investment.
Liquidity
and Capital Resources
We
historically financed our operations through operating cash flows and the public
and private sales of equity securities. However, with the sale of our
Bone Device Business in November 2003, we sold all of our revenue producing
operations. We received approximately $93.0 million in cash from the
sale of our Bone Device Business. On December 1, 2005, we received
the additional $7.2 million, including interest, from the escrow balance related
to the sale of the Bone Device Business. On February 27, 2006, the
Company entered into an agreement with Quintiles (see Note 15 in our Annual
Report on Form 10-K for the year ended December 31, 2007), which provided an
investment by Quintiles in the Company’s common stock, of which
$2,000,000 was received on February 27, 2006 and $1,500,000 was received on July
3, 2006. We also received net proceeds of $4,612,000 from the
exercise of stock options during our development stage
period. As of March 31, 2008, we had cash and cash equivalents
of $6.1 million, short-term investments of $35.8 million and long-term
investments of $15.4 million.
We announced that we have
no
immediate plans to re-enter clinical trials for Chrysalin-based product
candidates and a strategic shift in our development approach to our Chrysalin
Product Platform. We currently intend to pursue development
partnering or licensing opportunities for our Chrysalin-based product
candidates, a change from our previous development history of independently
conducting human clinical trials necessary to advance our Chrysalin-based
product candidates to market.
We will continue to explore Chrysalin’s
therapeutic value in tissues and diseases exhibiting endothelial dysfunction as
well as the science behind and potential of Chrysalin. We will also continue
research and development expenditures for further pre-clinical studies
supporting multiple indications for AZX100 and plan to continue AZX100 dermal
scarring human clinical trials in 2008.
Our future research and development
expenses may vary significantly from prior periods depending on the Company’s
decisions on its future Chrysalin and AZX100 development
plans.
On March 5, 2008, the Company announced
a stock repurchase program and at March 31, 2008, the Company had repurchased
190,000 shares of its common stock, at a total cost of $169,000, and has
allocated approximately $1,900,000 to fund possible future stock
repurchases.
We anticipate that our cash and
short-term investments will be sufficient to meet our presently projected cash
and working capital requirements for the next year. However, the timing and
amounts of cash used will depend on many factors, including our ability to
continue to control our expenditures related to our current research and
development programs. If we
enter into new
clinical trials or if we consider other
opportunities in the market, our expense levels may change, which could require
us to seek other sources of capital. If additional funding is
required, we would be required to seek new sources of funds, including raising
capital through the sales of securities or licensing
agreements. These sources of funds may not be available or could only
be available at terms that would have a material adverse impact on our existing
stockholders’ interests.
I
te
m 4. Controls and Procedures
Disclosure Controls and
Procedures
Our principal executive officer and
chief financial officer have reviewed and evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
Form 10-Q. Based on their evaluation, the principal executive officer and chief
financial officer have each concluded that, as of the end of such period, our
disclosure controls and procedures are effective and provide reasonable
assurance that we record, process, summarize, and report information required to
be disclosed in the reports we file under the Securities Exchange Act of 1934
within the time periods specified by the Securities and Exchange Commission’s
rules and forms.
Internal Control Over
Financial Reporting
There have not been any changes in our
internal control over financial reporting during the fiscal quarter to which
this report relates that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Part
II – Other Information
I
te
m 1A. Risk Factors
Forward
looking statements
OrthoLogic
may from time to time make written or oral forward-looking statements, including
statements contained in our filings with the Securities and Exchange Commission
and our reports to stockholders. The safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995
protects companies from liability for their forward looking statements if they
comply with the requirements of that Act. This Quarterly Report on
Form 10-Q should be read in conjunction with the Company’s Annual Report on Form
10-K for the year ended December 31, 2007, and contains forward-looking
statements made pursuant to that safe harbor. These forward-looking
statements relate to future events or to our future financial performance, and
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, levels of activity, performance, or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking
statements. In some cases, you can identify forward-looking
statements by the use of words such as “may,” “could,” “expect,” “intend,”
“plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,”
“continue,” or the negative of these terms or other comparable
terminology. You should not place undue reliance on forward-looking
statements since they involve known and unknown risks, uncertainties and other
factors which are, in some cases, beyond our control and which could materially
affect actual results, levels of activity, performance or
achievements. Factors that may cause actual results to differ
materially from current expectations include, but are not limited
to:
|
·
|
unfavorable results of our product
candidate development
efforts;
|
|
·
|
unfavorable results of our
pre-clinical or clinical
testing;
|
|
·
|
delays in obtaining, or failure to
obtain FDA approvals;
|
|
·
|
increased regulation by the FDA
and other agencies;
|
|
·
|
the introduction of competitive
products;
|
|
·
|
impairment of license, patent or
other proprietary rights;
|
|
·
|
failure to achieve market
acceptance of our products;
|
|
·
|
the impact of present and future
collaborative agreements;
and
|
|
·
|
failure to successfully implement
our drug development
strategy.
|
If one or
more of these or other risks or uncertainties materialize, or if our underlying
assumptions prove to be incorrect, actual results may vary significantly from
what we projected. Any forward-looking statement you read in this Quarterly
Report on Form 10-Q reflects our current views with respect to future events and
is subject to these and other risks, uncertainties and assumptions relating to
our operations, results of operations, business strategy and
liquidity. We assume no obligation to publicly update or revise these
forward-looking statements for any reason, or to update the reasons actual
results could differ materially from those anticipated in these forward-looking
statements, even if new information becomes available in the
future.
There are
no material changes from the risk factors disclosed in our Annual Report on Form
10-K for the year ended December 31, 2007.
It
e
m 2. Unregistered Sales of Equity Securities and
Use of Proceeds
The following table summarizes
information regarding shares purchased during the three months ended March 31,
2008.
Month
|
|
|
|
|
|
|
|
Total
number
of
shares
purchased
as part of
publicly
announced
program
|
|
|
Maximum
number
of
shares
that
may
yet be
purchased
under
the
program
|
|
March
1 - 31, 2008
|
|
|
190,000
|
|
|
$
|
0.88
|
|
|
|
190,000
|
|
|
|
1,900,000
|
|
On March
5, 2008, the Company announced that its Board of Directors has approved a stock
repurchase program for up to five percent of its currently outstanding common
shares. The shares may be repurchased from time to time in open
market transactions or privately negotiated transactions at the Company’s
discretion, subject to market conditions and other factors. There
were approximately 41.8 million shares of common stock outstanding at March 5,
2008.
I
te
m 6. Exhibits
See
Exhibit List following this report
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
ORTHOLOGIC
CORP.
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ John M. Holliman,
III
|
|
Executive
Chairman
|
|
May
7, 2008
|
John M. Holliman, III
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Les M.
Taeger
|
|
Senior
Vice-President and Chief
|
|
May
7, 2008
|
Les
M. Taeger
|
|
Financial
Officer
|
|
|
|
|
(Principal
Financial and Accounting Officer)
|
|
|
OrthoLogic
Corp.
(the
“Company”)
Exhibit
Index to Quarterly Report on Form 10-Q
For
the Quarterly Period Ended March 31, 2008
Exhibit No.
|
Description
|
Incorporated by
Reference To
:
|
Filed
Herewith
|
|
|
|
|
|
Certification
of Principal Executive Officer Pursuant to Securities Exchange Act Rule
13a-14
|
|
X
|
|
|
|
|
|
Certification
of Chief Financial Officer Pursuant to Securities Exchange Act Rule
13a-14
|
|
X
|
|
|
|
|
|
Certification
of Principal Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350*
|
|
|
* Furnished
herwith
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