|
COLLABRX, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations - (Amounts in thousands)
(Edgar Glimpses Via Acquire Media NewsEdge) Special Note Regarding Forward Looking Statements
Information contained or incorporated by reference in this report contains
forward-looking statements. These forward-looking statements are based on
current expectations and beliefs and involve numerous risks and uncertainties
that could cause actual results to differ materially from expectations. These
forward-looking statements should not be relied upon as predictions of future
events as we cannot assure you that the events or circumstances reflected in
these statements will be achieved or will occur. You can identify
forward-looking statements by the use of forward-looking terminology such as
"may," "will", "expect," "anticipate," "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology which constitutes
projected financial information. These forward-looking statements are subject to
risks, uncertainties and assumptions about the Company including, but not
limited to, industry conditions, economic conditions and acceptance of new
technologies. For a discussion of the factors that could cause actual results to
differ materially from the forward-looking statements, see "Part II, Item
1A.-Risk Factors" and the "Liquidity and Capital Resources" section set forth in
this section and such other risks and uncertainties as set forth below in this
report or detailed in our other SEC reports and filings. We assume no obligation
to update forward-looking statements.
During fiscal years 2010 through 2012, we were engaged in the sale of
product-line assets and intellectual property that we had either previously
acquired or internally developed during the previous decade or more in the
semiconductor and MEMS capital equipment industries. This effort followed
extensive consideration by the Company's Board of Directors of our strategic
options in light of the global financial crisis, rapidly declining sales and our
relatively weak competitive position in those industries. Following the decision
to sell assets or discontinue development programs associated with each of the
major product lines, we classified those operations as "discontinued" and sought
appropriate buyers. The first such sale of assets occurred on March 19, 2010, in
which we sold our 6500 series and 900 series legacy etch products to OEM Group,
Inc. At the end of Fiscal 2010, we discontinued our development efforts in our
Nano Layer Deposition ("NLD") and Compact platform projects in an effort to
reduce expenses and conserve capital. On February 9, 2011, we sold our Deep
Reactive Ion Etch ("DRIE") product lines and technology, which we had acquired
in 2008 from Alcatel Micro Machining Systems ("AMMS"), to SPP Process Technology
Systems Limited ("SPTS"). This sale included all of the shares of Tegal France,
SAS, the Company's wholly-owned subsidiary. On December 23, 2011, we sold a
portfolio of 35 US and international patents in the areas of pulsed-chemical
vapor deposition ("pulsed-CVD"), plasma-enhanced atomic layer deposition
("ALD"), and nano layer deposition ("NLD") to multiple IC and semiconductor
equipment manufacturers, and we continue at the present time a marketing effort
to sell additional related patents in our portfolio.
Throughout the fiscal years 2010 through 2012, we were continuously downsizing
our operations, through transfers of our employees to other companies in
connection with the sale of specific product lines, as well as through attrition
and lay-offs. We also began a process of closing and/or liquidating all of our
wholly-owned subsidiary companies, including SFI and Tegal GmbH, along with
branches in Taiwan, Korea and Italy. As a result, all of our activities related
to our legacy etch and PVD business, our DRIE business, our NLD development
activities and our subsidiaries and branches are now included in discontinued
operations.
Throughout most of fiscal 2012, our operations consisted mainly of our
management agreement with Sequel Power, LLC, a company dedicated to development
of large-scale solar photovoltaic ("PV") power plants and in providing related
advisory services. In January of 2011, we contributed $2 million in cash to
Sequel Power in exchange for an approximate 25% economic interest and voting
control on its Board of Managers. In connection with the investment, our
President and CEO was appointed Chairman of Sequel Power. In addition to our
management role in Sequel Power, we were engaged in the sale of remaining
intellectual property from our discontinued operations in semiconductor capital
equipment and in researching potential new investment opportunities in several
areas, including solar technology, medical devices and health technology.
On November 22, 2011, we made an investment of $300 in NanoVibronix, Inc. in the
form of a convertible promissory note. NanoVibronix is a private company that
develops medical devices and products that implement its proprietary therapeutic
ultrasound technology which may be utilized for a variety of medical
applications requiring low cost therapeutic ultrasound qualities. NanoVibronix
is focused on creating products utilizing its unique, patented approach which
enables the transmission of low-frequency, low-intensity ultrasound surface
acoustic waves ("SAWs") through a variety of soft, flexible materials, including
skin and tissue, enabling low-cost, breakthrough devices targeted at large,
high-growth markets.
19--------------------------------------------------------------------------------
Index
On June 29, 2012, we signed a definitive agreement to acquire CollabRx, Inc.
("CollabRx"), a privately held technology company in the rapidly growing market
of interpretive content and data analytics for genomics-based medicine. The
closing of our acquisition of CollabRx occurred on July 12, 2012. In connection
with that transaction, we agreed to issue an aggregate of 236,433 shares of
common stock, representing 14% of our total shares outstanding prior to the
closing, to former CollabRx stockholders in exchange for 100% of the capital
stock of CollabRx, Inc. The Company and certain former CollabRx stockholders
entered into a Stockholders Agreement providing for, among other things,
registration rights, transfer restrictions and voting and standstill
agreements. We also assumed $500 of existing CollabRx indebtedness through the
issuance of 5-year promissory notes in substitution for outstanding notes
previously issued by CollabRx. In addition, we granted a total of 368,417 RSUs
and options as "inducement grants" to newly hired management and employees, all
subject to four-year vesting and other restrictions. At the closing, we
appointed James M. Karis, former CEO of CollabRx to fill a vacancy on our Board
of Directors and elected him Co-CEO. After the completion of the acquisition of
CollabRx, the prior balance of a note receivable due from CollabRx was
reclassified to be included as part of the purchase price.
CollabRx offers cloud-based expert systems that provide clinically relevant
interpretive knowledge to institutions, physicians, researchers and patients for
genomics-based medicine in cancer and other diseases to inform health care
decision making. With access to approximately 50 clinical and scientific
advisors at leading academic institutions and a suite of tools and processes
that combine artificial intelligence-based analytics with proprietary
interpretive content, the company is well positioned to participate in the $300
billion value-added "big data" opportunity in the US health care market (as
reported by McKinsey Global Institute), over half of which specifically targets
areas in cancer and cancer genomics. Originally founded in 2008, CollabRx has
developed clinical advisory networks, expert systems, proprietary tools and
processes, and a pipeline of commercial data products and applications ("apps")
for cancer. CollabRx Therapy Finders™, its first commercial product, provides
sophisticated, credible, personalized, and actionable information to physicians
and patients for rapidly determining which medical tests, therapies, and
clinical trials may be considered in cancer treatment planning with a specific
emphasis on the tumor genetic profile.
CollabRx Therapy Finders™, the company's first commercial product, is a
collection of web-based apps that serve as one type of user interface to access
proprietary CollabRx content. Other interfaces include mobile apps, narrative
published reports, statistical analyses and private-label, customized
reports. CollabRx content is dynamically updated and organized in a
knowledgebase that includes information on molecular diagnostics, medical tests,
clinical trials, drugs, biologics and other information relevant for cancer
treatment planning. Capturing how highly respected practicing physicians use
this information in the clinical setting further refines the knowledgebase.
We intend that our most recent acquisition of CollabRx, Inc. will form the core
of our operations going forward. Although we will continue to have an active
role in the management of Sequel Power, we do not anticipate making any
additional investments in that or any other solar-related businesses. In
September 2012, the Company changed its name to "CollabRx, Inc." and the
Company's common stock, which previously traded under the ticker symbol "TGAL"
on the Nasdaq Capital Market, began trading under the new ticker symbol "CLRX".
We cannot assure you that we will be successful in pursuing our new strategic
initiative in CollabRx. If our efforts do not succeed, we may need to raise
additional capital which may include capital raises through the issuance of debt
or equity securities. If additional funds are raised through the issuance of
preferred stock or debt, these securities could have rights, privileges or
preferences senior to those of our common stock, and debt covenants could impose
restrictions on our operations. Moreover, such financing may not be available to
us on acceptable terms, if at all. Failure to raise any needed funds would
materially adversely affect us. It is not possible to predict when our business
and results of operations will improve. In consideration of these circumstances,
the Company may be forced to consider a merger with or into another company or
the liquidation or dissolution of the Company, including through a bankruptcy
proceeding. We cannot assure you that we will be successful in pursuing this or
any other strategic alternatives. If we were to liquidate or dissolve the
Company through or outside of a bankruptcy proceeding, you could lose all of
your investment in the Company's common stock.
Critical Accounting Policies and Estimates
We prepare the condensed consolidated financial statements in conformity with
generally accepted accounting principles ("GAAP") in the United States which
requires management to make certain estimates, judgments and assumptions that
affect the reported amounts in the accompanying condensed consolidated financial
statements, disclosure of contingent assets and liabilities and related
footnotes. Accounting and disclosure decisions with respect to material
transactions that are subject to significant management judgment or estimates
include but are not limited to revenue recognition, accounting for stock-based
compensation, accounts for receivables and allowance for doubtful accounts and
impairment of long-lived assets. Actual results may differ from these estimates
under different assumptions or conditions. Critical accounting policies are
defined as those that are required for management to make estimates, judgments
and assumptions giving due consideration to materiality, in certain
circumstances that affect amounts reported in the condensed, consolidated
financial statements, and potentially result in materially different results
under different conditions and assumptions. We based these estimates and
assumptions on historical experience and evaluate them on an on-going basis to
help ensure they remain reasonable under current conditions. Actual results
could differ from those estimates. During the three and nine months ended
December 31, 2012, there were no significant changes to the critical accounting
policies and estimates discussed in the Company's 2012 Annual Report on Form
10-K.
20--------------------------------------------------------------------------------
Index
Pension Obligations
Prior to fiscal year 2011, the Company began the process of closing and/or
liquidating all of our wholly-owned subsidiary companies, not already sold,
including our German subsidiary. The subsidiaries are now included in
discontinued operations. The Company has recognized an ongoing liability for
pensions related to the German subsidiary. However, in fiscal year 2011, the
Company recognized an additional liability for the independent third-party
administration of the pension program. The total pension liability in the prior
period was $700. The pension liability was settled on October 6, 2011, and the
total pension liability as of December 31, 2012 was $0. The settlement of the
pension obligation was classified as a reduction of liabilities of discontinued
operations. The related foreign exchange gain of $23 was classified as a gain or
loss on the sale of discontinued operations in the third quarter of the prior
fiscal year. The Company has no future pension obligations.
Results of Operations
The following table sets forth certain financial items for the three and nine
months ended December 31, 2012 and 2011:
Three Months Ended Nine Months Ended
December 31, December 31,
2012 2011 2012 2011
Revenue $ - $ - $ 50 $ -
Revenue - related party 25 38 75 75
Total revenue 25 38 125 75
Cost of revenue 18 -- 38 --
Gross profit 7 38 87 75
Operating expenses:
Engineering -- -- 328 --
Research and development 285 -- 285 --
Sales and marketing expenses 127 -- 176 --
General and administrative expenses 864 432 2,546 1,873
Total operating expenses 1,276 432 3,335 1,873
Operating loss (1,269 ) (394 ) (3,248 ) (1,798 )
Equity in loss of unconsolidated
affiliate -- (181 ) -- (501 )
Other income (expense), net 9 (8 ) 29 6
Loss before income tax benefit (1,260 ) (583 ) (3,219 ) (2,293 )
Income tax benefit (52 ) -- (52 ) --
Loss from continuing operations (1,208 ) (583 ) (3,167 ) (2,293 )
Income from discontinued operations, net
of taxes 56 2,852 52 3,091
Net (loss) income and comprehensive
(loss) income $ (1,152 ) $ 2,269 $ (3,115 ) $ 798
Net loss per share from continuing
operations:
Basic and diluted $ (0.64 ) $ (0.34 ) $ (1.76 ) $ (1.36 )
Net income per share from discontinued
operations:
Basic and diluted $ 0.03 $ 1.69 $ 0.03 $ 1.83
Net (loss) income per share:
Basic and diluted $ (0.61 ) $ 1.35 $ (1.73 ) $ 0.47
Weighted-average shares used in per
share computation:
Basic and diluted 1,884 1,689 1,798 1,689
21--------------------------------------------------------------------------------
Index
Revenue
Immediately prior to the acquisition of CollabRx, the Company's sole source of
revenue was from management activities related to Sequel Power. Sequel Power is
a related party. Revenue for the three months ended December 31, 2012 decreased
by $13 compared to the three months ended December 31, 2011, and revenue for the
nine months ended December 31, 2012 increased by $50 from revenue for the nine
months ended December 31, 2011. The decrease in the three month period relates
to a change in Sequel Power revenue during the prior period. The increase in the
nine month period is related to our acquisition of CollabRx.
As a percentage of total revenue for the three and nine months ended December
31, 2012 and 2011, international sales were 0%. The Company's historical
operations had revenues in international markets. With the acquisition of
CollabRx and if the continued solar project activities of Sequel Power are
successful, we expect that international sales will once again account for a
significant portion of any future revenue.
All DRIE related revenues and expenses are captured in Discontinued Operations
in our statement of operations and comprehensive loss.
Gross Profit
Gross profit for the three and nine months ended December 31, 2012 decreased $31
and increased by $12, respectively, from our gross profit of $38 and $75 for the
three and nine months ended December 31, 2011. Our gross profit for the three
and nine months ended December 31, 2012 reflects the amortization of the
Company's product specific software, which was included in the CollabRx
acquisition.
Our gross margin for the three and nine months ended December 31, 2012 were
28.0% and 69.6%, respectively. Our gross margin for the three and nine months
ended December 31, 2011, respectively, was 100%, as all revenues were management
services revenues and no costs were incurred to record this revenue.
At the present time our core operations consist primarily in the commercial
application of the CollabRx technology and content. We offer cloud-based expert
systems that provide clinically relevant interpretive knowledge to institutions,
physicians, researchers and patients for genomics-based medicine in cancer and
other diseases to inform health care decision-making. While we and our advisors
do not provide specific treatment recommendations, this clinically relevant
knowledge is a key part of the "context engine" for informing healthcare
decision-making.
We expect that we will continue to be involved in supporting the activities of
Sequel Power through our direct management efforts.
Engineering
Following the acquisition of CollabRx, engineering expenses consist primarily
of salaries. Prior to the sale of the DRIE related assets, engineering expenses
consisted primarily of salaries, prototype material and other costs associated
with our ongoing systems and process technology development, applications and
field process support efforts. The difference in Engineering expense of $328 for
the nine months ended December 31, 2012, compared to the same period in 2011,
resulted from the CollabRx acquisition and the employees retained for those
operations. The difference in Engineering expense compared to the second quarter
of the current fiscal year resulted from the year-to-date change in
categorization of certain employee related expenses from engineering to research
and development. (See "Research and Development" below.) The Company had no
expenses associated with engineering for the three and nine months ended
December 31, 2011 due to the exit from our core historical DRIE operations.
Research and Development
The expenses in research and development ("R&D") resulted from the change in
categorization of certain employee related expenses from engineering to R&D. The
efforts of the engineering group include supporting existing product offerings
as well as developing future product offerings. Consequently, these expenses
have been segregated, and these expenses make up the total R&D expenses for the
three and nine months ended December 31, 2012. The Company had no expenses
associated with R&D for continuing operations for the three and nine months
ended December 31, 2011 due to the exit from our core historical DRIE
operations.
22--------------------------------------------------------------------------------
Index
As a result of the sale of the Company's DRIE related assets, and in accordance
with generally accepted accounting principles, the DRIE business operation,
including related and ongoing R&D expenses, have all been reclassified to
discontinued operations. For the nine months ended December 31, 2011, the
Company's R&D expenses were related to the NLD product line, the assets of which
were held for sale and sold to third parties. R&D expenses for that period were
also related to analyzing and evaluating various opportunities that the Company
was reviewing as possible merger or acquisition opportunities in other
diversified technologies.
Sales and Marketing
Following the acquisition of CollabRx, sales and marketing expenses consist
primarily of salaries. Prior to the sale of the DRIE related assets, sales and
marketing expenses consisted primarily of salaries, commissions, trade show
promotion and travel and living expenses associated with those functions. The
change in sales and marketing expense of $127 and $176 for the three and nine
months ended December 31, 2012, compared to the same periods in 2011, resulted
from the CollabRx acquisition. The Company had no expenses associated with sales
and marketing for the three and nine months ended December 31, 2011 due to the
exit from our core historical DRIE operations.
General and Administrative
General and administrative expenses consist of salaries, legal, accounting and
related administrative services and expenses associated with general management,
finance, information systems, human resources and investor relations
activities. The increase of continuing general and administrative expenses of
$432 and $673 for the three and nine month periods ended December 31,
2012 compared to the same periods in 2011 was due primarily to stock related
compensation associated with the issuance of inducement grants and employee
bonuses for key employees. Expenses for legal and consulting services also
increased in connection with the acquisition of CollabRx.
Equity in Loss of Unconsolidated Affiliate
The Company recorded a loss in earnings of the unconsolidated affiliate of $0
and no amortization expenses related to the difference between the net book
value of Sequel Power's assets and the cost of the investment for the three and
nine months ended December 31, 2012. The Company recorded a loss in earnings of
the unconsolidated affiliate of $138 and $43 of amortization expenses related to
the difference between the net book value of Sequel Power's assets and the cost
of the investment for the three months ended December 31, 2011. The Company
recorded a loss in earnings of the unconsolidated affiliate of $372 and $129 of
amortization expenses related to the difference between the net book value of
Sequel Power's assets and the cost of the investment for the nine months ended
December 31, 2011. Currently, the net book value of the Sequel Power investment
is zero.
Other Income (Expense), net
Other income (expense), net consists of the change in fair value of the common
stock warrant liability and interest earned on our NanoVibronix investment.
Income Taxes
As a result of the stock purchase of CollabRx during the nine months ended
December 31, 2012, the Company had no tax basis in the intangible assets
acquired. During the three months ended December 31, 2012, the Company
recognized $52 in tax benefit as a result of this difference.
During the three and nine months ended December 31, 2011, there was no income
tax expense or benefit for federal and state income taxes reflected in our
condensed consolidated statements of operations due to our net loss and a
valuation allowance on the resulting deferred tax asset.
As of March 31, 2012, the Company had net operating loss carryforwards of
approximately $98.7 million and $47.5 million for federal and state tax
purposes, respectively. The federal net operating loss carryforward will begin
to expire in the year ended March 31, 2020 and the state of California net
operating loss carryforward will start to expire in the year ended March 31,
2013. At March 31, 2012, the Company also had research and experimentation
credit carryforwards of $1.3 million and $0.8 million for federal and state
income tax purposes, respectively. A portion of the federal credit began to
expire in the year ended March 31, 2012 and the state of California will never
expire under current law. Net operating loss carryforwards and R&D credits can
only offset 90% of taxable income.
23--------------------------------------------------------------------------------
Index
Discontinued Operations
Discontinued operations consists of interest income from accounts related to
discontinued operations, other income, gains and losses on the disposal of fixed
assets of discontinued operations, gains and losses on foreign exchange and
interest income on money market accounts, as well as the reclassification of net
expenses associated with our exit from our historical core operations. For the
three and nine months ended December 31, 2012 compared to the nine months ended
December 31, 2011, net gain from discontinued operations decreased by $2,796 and
$3,039, respectively. The decreases resulted from the Company's recognition of
$3,550 from the December 23, 2011 sale of the NLD patents in December 2011. As
these assets were internally developed, there was a corresponding zero book
value. The NLD revenue was recognized in discontinued operations, along with the
related costs of $813, which includes $767 in commission expense.
In the nine months ended December 31, 2012, discontinued operations included
discontinued R&D expenses. These expenses were offset by the net settlement of
legal expenses related to closing a foreign subsidiary. The full amount of the
legal expense was accrued in the prior fiscal year.
Prior to the sale of the DRIE related assets, R&D expenses consisted primarily
of salaries, prototype material and other costs associated with our ongoing
systems and process technology development, applications and field process
support efforts for our DRIE product line. As a result of the sale of the
Company's historical DRIE related assets, and in accordance with generally
accepted accounting principles, the DRIE business operation, including related
and continuing R&D expenses, have all been reclassified to discontinued
operations. At the time of the DRIE sale, all the Company's R&D expenses were
related to the DRIE operations. Currently the Company records legacy related R&D
expenses in discontinued operations. Such expenses are immaterial. These R&D
expenses are related to the NLD product line, the assets of which are held for
sale to third parties.
Contractual Obligations
The following summarizes our contractual obligations as of December 31, 2012,
and the effect such obligations are expected to have on our liquidity and cash
flows in future periods (in thousands).
Contractual obligations: Less than After
Total 1 Year 1-3 Years 3-5 Years 5 Years
Non-cancelable operating
lease obligations $ 581 $ 109 $ 247 $ 225 $
Total contractual cash
obligations $ 581 $ 109 $ 247 $ 225 $ -
Most leases provide for the Company to pay real estate taxes and other
maintenance expenses. Rent expense for operating leases related to discontinued
operations, net of sublease income, was $0 for the nine months ended December
31, 2012. Rent expense for operating leases related to continuing operations,
net of sublease income, was $15 for each of the three month periods ended
December 31, 2012 and 2011, respectively. Rent expense for operating leases
related to continuing operations, net of sublease income, was $55 and $72 for
the nine month periods ended December 31, 2012 and 2011, respectively.
As of September 1, 2012, we maintain our headquarters, encompassing our
executive office and storage areas in San Francisco, California. We have a
primary lease for office space, consisting of 2,614 square feet, which expires
August 31, 2017. Prior to moving to San Francisco, we were located in Petaluma,
California. We had a primary lease for office space, consisting of 2,187 square
feet, which expired August 31, 2012. We rent storage/workspace areas on a
monthly basis. We own all of the equipment used in our facilities. Such
equipment consists primarily of computer related assets.
Certain of our past sales contracts included provisions under which customers
would be indemnified by us in the event of, among other things, a third party
claim against the customer for intellectual property rights infringement related
to our products. There were no limitations on the maximum potential future
payments under these guarantees. We have accrued no amounts in relation to these
provisions as no such claims have been made, and we believe we have valid,
enforceable rights to the intellectual property embedded in its products.
Liquidity and Capital Resources
For the nine months ended December 31, 2012, and the fiscal year ended March 31,
2012, we financed our operations from existing cash on hand. Net cash used in
operating activities during the nine months ended December 31, 2012, was
$2,833. The primary changes in our cash flow statement for the nine months ended
December 31, 2012 compared to the corresponding period in the prior fiscal year
were due to our acquisition of CollabRx, a net loss of $3,115, and stock
compensation expense, partially offset by a VAT refund related to the
discontinued operations in our former French subsidiary in the amount of 312
euros. Net cash used in operating activities during the nine months ended
December 31, 2011 was $2,273, due primarily to the income of $3,550 recognized
from the December 23, 2011 sale of the NLD patents. As these assets were
internally developed, there was a corresponding zero book value. The monies from
the patent sale were offset by the net loss from continuing operations of
$2,293, and decreases in the net value of current assets and liabilities of
discontinued operations and other assets related to our Sequel Power investment,
offset by the decrease in accounts payable.
24--------------------------------------------------------------------------------
Index
The consolidated financial statements contemplate the realization of assets and
the satisfaction of liabilities in the normal course of business for the
foreseeable future. We incurred a net loss of $3,115 and a net gain of $798 for
the nine months ended December 31, 2012 and 2011, respectively. We used cash
flows from operations of $2,833 and $2,273 for the nine months ended December
31, 2012 and 2011, respectively. We believe that our existing cash balances will
be adequate to fund operations through fiscal year 2014. CollabRx, Inc. will
form the core of our business and operations going forward. Although we will
continue to have an active role in the management of Sequel Power, we do not
anticipate making any additional investments in that or any other solar-related
businesses. We cannot assure you that we will be successful in pursuing our new
strategic initiative in CollabRx. It is not possible to predict when our
business and results of operations will improve. In consideration of these
circumstances, the Company may be forced to consider a merger with or into
another company or the liquidation or dissolution of the company, including
through a bankruptcy proceeding. If we were to liquidate or dissolve the company
through or outside of a bankruptcy proceeding, you could lose all of your
investment in the Company's common stock.
Off-Balance Sheet Arrangements
We do not currently have, nor have we ever had, any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, established for
the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. In addition, we do not engage in
trading activities involving non-exchange traded contracts.
[ Back To Contact Center Solutions Homepage's Homepage ]
|
MetricNet Publishes 4 New Australian Benchmarks for IT Support, Contact Centres 
Part 1: Home Agents: The Big Game Changer [white paper]
