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EnteroMedics Inc. Reports Operating Results (10-Q)

August 06, 2010 | About:
10qk

10qk

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EnteroMedics Inc. (ETRM) filed Quarterly Report for the period ended 2010-06-30.

Enteromedics Inc. has a market cap of $14.48 million; its shares were traded at around $0.3227 .

Highlight of Business Operations:

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $1.8 million for the three months ended June 30, 2010, compared to $2.2 million for the three months ended June 30, 2009. The decrease of $391,000, or 18.0%, is primarily due to decreases of $166,000, $69,000, and $64,000 in professional services, non-employee stock based compensation and compensation expense, respectively. The decrease in professional services includes decreases of $109,000 in general consulting services and $65,000 in audit and legal fees. The decrease in non-employee stock based compensation is the result of decreases in value of three non-employee grants due to declines in our stock price. The decrease in compensation expense is primarily the result of a 40% reduction-in-force completed October 27, 2009.

Interest Income. Interest income was less than $1,000 for the three months ended June 30, 2010, compared to $24,000 for the three months ended June 30, 2009. The decrease of $23,000, or 98.0%, is primarily due to a decrease in total cash available to invest. The cash, cash equivalents and short-term investment balance was $10.1 million at June 30, 2010 compared to $34.8 million at June 30, 2009. The average cash, cash equivalents and short-term investments balance for the three months ended June 30, 2010 was $12.4 million compared to an average balance for the three months ended June 30, 2009 of $36.3 million. This decrease is the result of $26.8 million in net cash used in operating and investing activities and $13.7 million in debt principal payments from January 1, 2009 through June 30, 2010, offset by net proceeds of $24.4 million from the sale of common stock in a private placement and two registered direct offerings and $5.0 million of debt funding during the same time period.

Interest Income. Interest income was $1,000 for the six months ended June 30, 2010, compared to $72,000 for the six months ended June 30, 2009. The decrease of $71,000, or 97.9%, is primarily due to a decrease in total cash available to invest. The cash, cash equivalents and short-term investment balance was $10.1 million at June 30, 2010 compared to $34.8 million at June 30, 2009. The average cash, cash equivalents and short-term investments balance for the six months ended June 30, 2010 was $14.0 million compared to an average balance for the six months ended June 30, 2009 of $33.3 million. This decrease is the result of $26.8 million in net cash used in operating and investing activities and $13.7 million in debt principal payments from January 1, 2009 through June 30, 2010, offset by net proceeds of $24.4 million from the sale of common stock in a private placement and two registered direct offerings and $5.0 million of debt funding during the same time period.

We have incurred losses since our inception in December 2002 and, as of June 30, 2010, we had experienced net losses during the development stage of $142.2 million. We have financed our operations to date principally through the sale of capital stock, debt financing and interest earned on investments. Through December 31, 2009, we had received net proceeds of $122.2 million from the sale of common stock and preferred stock, including $39.1 million from our initial public offering in November 2007 and $19.9 million from private placement and registered direct offerings in 2009, and $35.8 million in debt financing, $746,000 to finance equipment purchases and $35.0 million to finance working capital. On January 20, 2010, we completed the sale of 1,239,717 shares of our common stock in a registered direct offering, at a purchase price of $3.90 per share. We received gross proceeds of $4.8 million before deducting estimated offering expenses.

On July 8, 2010 we entered into a Second Amendment (the Second Amendment) with SVB to the Loan Agreement. The Second Amendment modifies the repayment terms of the Term Loan such that from the date of the Second Amendment through December 31, 2010, we are only required to make interest only monthly payments on the Term Loan, thereby reducing our monthly debt payment. Then, beginning on January 1, 2011, the remaining balance due on the Term Loan will amortize over 30 equal payments of principal and interest, which will be payable monthly. In addition, the Second Amendment amends the interest rate due on the remaining principal amount of the Term Loan from 10% to a fixed annual rate of 11%, payable monthly. The Second Amendment also revises the terms of the financial covenants related to the liquidity ratio and new capital transactions. Pursuant to the Second Amendment, the liquidity ratio equals the ratio of (i) the sum of our unrestricted cash and cash equivalents held with SVB and SVBs affiliates plus eligible accounts, divided by (ii) the outstanding principal amount of the Term Loan and is not permitted to be less than 1.00:1.00. Pursuant to the Second Amendment, we must receive aggregate net proceeds from New Capital Transactions (as defined in the Loan Agreement) of not less than $2.0 million from the date of the Second Amendment through August 31, 2010, $7.0 million from the date of the Second Amendment through October 31, 2010, $15.0 million from the date of the Second Amendment through January 31, 2011 and $35.0 million from the date of the Second Amendment through June 30, 2011. If we meet these financing requirements, we will satisfy the covenant; however, if we do not receive aggregate net proceeds from New Capital Transactions of at least $3.5 million from the date of the Second Amendment through August 31, 2010, $7.5 million from the date of the Second Amendment through October 31, 2010, $15.0 million from the date of the Second Amendment through January 31, 2011 and $35.0 million from the date of the Second Amendment through June 30, 2011, SVBs springing lien on our intellectual property will convert to a full lien on the intellectual property as of the date such Proposed Capital Raise was missed. Finally, the Second Amendment, revises the definition of Make-Whole Premium so that only Term Loan payments of principal made after the date of the Second Amendment will be counted for purposes of determining whether we have made twelve regularly scheduled monthly payments of principal in accordance with Section 2.1.1(d) of the Loan Agreement when the Make-Whole Premium comes due.

Net cash provided by financing activities was $2.6 million and $20.1 million for the six months ended June 30, 2010 and 2009, respectively. Net cash provided by financing activities for the six months ended June 30, 2010 is primarily attributable to the sale of 1,239,717 shares of our common stock in a registered direct offering, at a purchase price of $3.90 per share, partially offset by repayments on our long-term debt. We received gross proceeds of $4.8 million offset by $340,000 in financing costs from the registered direct offering. Net cash provided by financing activities for the six months ended June 30, 2009 is primarily attributable to the completion of a private placement transaction that resulted in gross proceeds of $15.9 million for the issuance of common stock and common stock warrants, offset by $806,000 in financing costs incurred through June 30, 2009 and debt funding proceeds of $5.0 million automatically funded on April 28, 2009 per the terms of the $20.0 million debt facility we entered into on November 18, 2008.

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