Cytori Therapeutics Inc Reports Operating Results (10-Q)

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May 12, 2009
Cytori Therapeutics Inc (CYTX, Financial) filed Quarterly Report for the period ended 2009-03-31.

Cytori Therapeutics Inc. is discovering and developing proprietary cell-based therapeutics utilizing adult stem and regenerative cells derived from adipose tissue also known as fat. The Company's preclinical investigational therapies target cardiovascular disease spine and orthopedic conditions gastrointestinal disorders and new approaches for aesthetic and reconstructive surgery. To facilitate processing and delivery of adipose stem and regenerative cells Cytori has developed its proprietary Celution System to isolate and concentrate a patient's own stem and regenerative cells in about an hour. This system will dramatically improve the speed in which personalized cell-based therapies can be delivered to patients. Cytori Therapeutics Inc has a market cap of $108.7 million; its shares were traded at around $3.19 with and P/S ratio of 24.

Highlight of Business Operations:

Research and development efforts and other operational activities, offset in part by product sales, generated an operating loss of $6,098,000 for the three months ended March 31, 2009. The operating cash impact of this loss was $6,074,000, after adjusting for the consideration of non-cash share-based compensation, other adjustments for material non-cash activities, such as depreciation and amortization, change in fair value of option liabilities and warrants, changes in working capital due to timing of product shipments (accounts receivable) and payment of liabilities.

Research and development efforts and other operational activities, offset in part by product sales, generated an operating loss of $8,273,000 for the three months ended March 31, 2008. The operating cash impact of this loss was $9,162,000, after adjusting for the recognition of non-cash development revenue of $774,000, the consideration of non-cash share-based compensation of $554,000, other adjustments for material non-cash activities, such as depreciation and amortization, change in fair value of option liabilities, changes in working capital due to timing of product shipments (accounts receivable) and payment of liabilities.

The net cash provided by financing activities for the three months ended March 31, 2009 related primarily to an equity offering of approximately $10,000,000 in gross proceeds to institutional investors for a total of 4,771,174 shares of our common stock and warrants to purchase up to a total of 6,679,644 additional shares of our common stock with an exercise price of $2.59 per share.

Effective January 1, 2009 we adopted the provisions of Emerging Issues Task Force (“EITF”) Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity s Own Stock” (“EITF 07-5”). EITF 07-5 applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and to any freestanding financial instruments that are potentially settled in an entity s own common stock. As a result of adopting EITF 07-5, the original amount of 1,412,758 of our issued and outstanding common stock purchase warrants previously classified as a component of stockholders deficit are now presented as liabilities.. These warrants had an original exercise price of $8.50 and expire in August 2013. (see note 15 for warrant adjustments) As such, effective January 1, 2009 we reclassified the fair value of these common stock purchase warrants, which have exercise price reset features, from equity to liability status as if these warrants were treated as a derivative liability since their date of issue in August 2008. On January 1, 2009, we reclassified from additional paid-in capital, as a cumulative effect adjustment, $2.9 million to beginning accumulated deficit and $1.7 million to a long-term warrant liability to recognize the fair value of such warrants on that date. The fair value of these warrants declined to $677,000 as of March 31, 2009, and we recognized a $1.0 million gain from the change in fair value of warrants for the three months ended March 31, 2009.

In late 2002, we purchased StemSource, Inc. and recognized over $4,600,000 in goodwill associated with the acquisition, of which $3,922,000 remains on our balance sheet as of March 31, 2009. As required by Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), we must test this goodwill at least annually for impairment as well as when an event occurs or circumstances change such that it is reasonably possible that impairment may exist. The application of the goodwill impairment test involves a substantial amount of judgment. The judgments employed may have an effect on whether a goodwill impairment loss is recognized.

Effective January 1, 2009, we adopted the provisions of Emerging Issues Task Force (“EITF”) Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity s Own Stock” (“EITF 07-5”). EITF 07-5 applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and to any freestanding financial instruments that are potentially settled in an entity s own common stock. As a result of adopting EITF 07-5, the original amount of 1,412,758 of our issued and outstanding common stock purchase warrants previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment. These warrants had an original exercise price of $8.50 and expire in August 2013. (see note 15 for warrant adjustments) As such, effective January 1, 2009, we reclassified the fair value of these common stock purchase warrants, which have exercise price reset features, from equity to liability status as if these warrants were treated as a derivative liability since their date of issue in August 2008. On January 1, 2009, we reclassified from additional paid-in capital, as a cumulative effect adjustment, $2.9 million to beginning accumulated deficit and $1.7 million to a long-term warrant liability to recognize the fair value of such warrants on that date. The fair value of these warrants declined to $677,000 as of March 31, 2009, and we recognized a $1.0 million gain from the change in fair value of warrants for the three months ended March 31, 2009.

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