Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains forward-looking statements. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements contained herein. When used in this report, the words "anticipate," "believe," "estimate," "expect" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Actual results, performance or achievements could differ materially from the results expressed in, or implied by these forward-looking statements. Readers should be aware of important factors that, in some cases, have affected, and, in the future, could affect actual results, and may cause actual results for the three and six months ended June 30, 2019 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. These factors include without limitation, the ability to obtain capital and other financing in the amounts and at the times needed to complete clinical trials and launch new products, market acceptance of new products, the nature and timing of regulatory approvals for both new products and existing products for which the Company proposes new claims, realization of forecasted revenues, expenses and income, initiatives by competitors, price pressures, failure to meet FDA regulated requirements governing the Company’s products and operations (including the potential for product recalls associated with such regulations), risks associated with initiating manufacturing for new products, failure to meet Foreign Corrupt Practice Act regulations, legal proceedings, and other risk factors listed from time to time in our reports with the Securities and Exchange Commission (“SEC”), including, in particular, those set forth in Cesca’s Form 10-K for the year ended December 31, 2018.
Business Overview
Cesca develops and commercializes a range of automated technologies for cell-banking, cell-processing, and cell-based therapeutics. Since the 1990’s Cesca has been a pioneer in, and a leading provider of automated systems that isolate, purify and cryogenically store units of hematopoietic stem and progenitor cells for the cord blood banking industry. In July 2017, Cesca’s subsidiary, ThermoGenesis Corp. (“ThermoGenesis”), completed a strategic acquisition of the business and substantially all of the assets of SynGen Inc. (“SynGen”), a research and development company for automated cellular processing. Following this acquisition, ThermoGenesis operates Cesca’s device business and SynGen’s automated cellular processing business.
Following the acquisition of SynGen, we utilized the SynGen assets, together with our own proprietary technology, to develop a novel proprietary CAR-TXpress™ platform that addresses the critical unmet need for better efficiency and cost-effectiveness for the emerging immune-oncology field, in particular, the chimeric antigen receptor T cell (“CAR-T”) market. Since the first quarter of 2018, the Company developed and launched three X-Series products, which provide superior performance in the processing of immunotherapy drugs: X-Lab
®
, X-Wash
®
, and X-BACS™.
Cesca now has two separately reported business segments: A “Device Segment” and a “Clinical Development Segment.” The Device Segment develops and commercializes automated systems that provide GMP, clinical grade cell-banking, cell-processing, and cell-based therapeutics commercialized by Cesca’s subsidiary, ThermoGenesis. The Clinical Development Segment is developing autologous (utilizing the patient’s own cells) cell-based therapeutics that address significant unmet medical needs for the vascular, cardiology and orthopedic markets.
Cesca’s Device Segment
Cesca’s Device Segment offers automated devices and technologies for cell-banking, point-of-care applications, and cell-processing. The automated solution offerings include:
AutoXpress Platform for
Clinical Bio-Banking Applications,
which
provides automated isolation, harvest, controlled-rate freezing and cryogenic storage of cord blood stem and progenitor cells for treatment of patients in need, and includes the following products:
|
●
|
AX
P
®
System –
The innovative AXP System defines a new processing standard for isolating and retrieving over 97% of the stem and progenitor cells from collections of umbilical cord blood in an automated, fully closed, sterile system in 30 minutes. AXP is self-powered, microprocessor-controlled, and contains flow control optical sensors to achieve precise separation.
|
|
●
|
BioArchive
®
Cryopreservation
System
–
The BioArchive Cryopreservation System is the industry’s leading, fully automated, robotic, liquid nitrogen controlled-rate-freezing (CRF) and cryogenic storage system for stem cell samples and clinical products. Using proven, computer-controlled technology, it provides the ultimate performance and protection for today’s invaluable cord blood samples and future cell therapeutic products. BioArchive is the preferred system for the highest quality cord blood banks worldwide. A complete technical Master-File has been provided to the FDA to support those highest quality cord blood banks which have been able to qualify for, and obtain, a Biological License from the FDA to allow their cord blood units to be used to treat patients with blood cancers.
|
POCXpress Platform for
Point-of-Care
Applications
allows for the rapid, automated processing of autologous peripheral blood or bone marrow aspirate derived stem cells at the point-of-care, such as surgical centers or clinics and includes the following products:
|
●
|
MX
P
®
System –
Built based on similar technology as our proprietary AXP System, MXP is an automated, fully closed, sterile system that volume-reduces bone marrow to a user-defined volume in less than 1 hour, while retaining over 90% of the MNCs. The MXP is self-powered, microprocessor-controlled, and contains flow control optical sensors to achieve precise separation.
|
|
●
|
PXP
®
System
–
The PXP System is our newly launched point-of-care device. PXP is an automated, closed system that harvests a precise volume of cell concentrate from bone marrow aspirates. PXP can generate a concentration of bone marrow in less than 20 minutes, with consistently high MNC and CD34
+
stem cell progenitor recovery rates and greater than 98% depletion of contaminating red blood cells (RBCs). Processing data is captured using our proprietary DataTrak™ software to assist with Good Manufacturing Practice (GMP) process monitoring and reporting information.
|
CAR-TXpress
™
Platform for
Immuno-Oncology Applications
addresses the critical unmet need for chemistry, manufacturing and controls (CMC) improvement of the emerging CAR-T therapies for cancer patients. CAR-TXpress eliminates the need of using the labor intensive and “open system” ficoll MNC purification process and traditional magnetic bead T-Cell selection process, thereby dramatically reducing processing time and increasing efficiency of the manufacturing process, which should reduce the overall manufacturing cost. The CAR-TXpress platform includes the following X-Series products:
|
●
|
X-Lab
®
System for
Cell Isolation
–
a semi-automated, functionally-closed, ficoll-free, system for the rapid isolation of mononuclear cells (“MNCs”) with, or without, platelets from collected units of peripheral blood, cord blood, bone marrow aspirate or leukapheresis. On November 13, 2018, the Company announced that ThermoGenesis had filed a Device Master File (“MAF”) with the FDA for the X-LAB. The MAF contains all the relevant information that the FDA will need to allow principal investigators to include Cesca’s systems in their investigational new drug applications.
|
|
●
|
X-BACS™
System
for Cell Purification
–
a semi-automated, functionally-closed system employs a microbubble/antibody reagent to isolate target cells by buoyancy-activated cell sorting (BACS). These microbubble/antibody reagents bind to user-selected target cells to increase their buoyancy and provide a complete separation from non-target cells during centrifugation and allowing the harvest of a highly purified population of target cells, with high recovery efficiency and cell viability.
|
|
●
|
X-Wash
®
System
for W
ashing and
R
eformulation –
a semi-automated, functionally-closed system that separates, washes, and volume-reduces units of fresh or thawed units of blood, bone marrow, leukapheresis or cell cultures and presents these washed cells in a predetermined small volume.
|
Cesca’s Clinical Development Segment
Using our proprietary automated point-of-care cellular processing technologies, Cesca’s Clinical Development Segment is developing autologous (utilizing the patient’s own cells) stem cell-based therapeutics that will address significant unmet medical needs for the vascular, cardiology and orthopedic markets that include:
|
●
|
VXP
®
for
Critical Limb Ischemia (CLI) –
Cesca has a proprietary point-of-care, autologous stem cell-based therapy under development which is intended for the treatment of patients with CLI. The FDA has cleared the Company to proceed with a 362 subject, multi-center pivotal Phase III CLIRST study, which is designed to evaluate the safety and efficacy of Cesca’s autologous stem cell-based therapy in patients with no-option or poor option late stage CLI. Previous clinical studies using Cesca’s proprietary, point-of-care-technologies have demonstrated the regeneration of blood vessels and improved blood circulation in the limbs, using a patient’s own bone marrow derived stem cells.
|
|
●
|
VXP
®
for
Acute Myocardial Infarction
– Cesca has a proprietary, point-of-care autologous stem cell-based therapy under development which is intended as an adjunct treatment for patients who have suffered an acute STEMI, the most serious type of heart attack. Such treatments are aimed at minimizing the adverse remodeling of the heart post-STEMI.
|
|
●
|
PXP
®
for
Orthopedics – Osteoarthritis (OA) -
Cesca is in early stage development of an autologous stem cell-based therapy intended to treat patients with cartilage tissue degeneration that may lead to progressive cartilage loss and painful joint diseases. Localized articular cartilage defects can potentially be repaired by transplantation of autologous cell therapy. Therapies in development using Cesca’s proprietary PXP
system are expected to delay further deterioration and repair the damaged joint cartilage. Treatment is typically via a single procedure in the hospital or clinic.
|
Critical Accounting Policies
Management’s discussion and analysis of its financial condition and results of operations is based upon the condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a full discussion of our accounting estimates and assumptions that have been identified as critical in the preparation of the Company’s condensed consolidated financial statements, please refer to Cesca’s 2018 Form 10-K for the year ended December 31, 2018.
Res
ults of Operations for the Three
Months Ended
June 30
, 2019 as Compared to the Three
Months Ended
June 30
,
2018
Net Revenues
Consolidated net revenues for the three months ended June 30, 2019 were $4,305,000 compared to $2,004,000 for the three months ended June 30, 2018, an increase of $2,301,000 or 115%. The increase was driven by AXP and CAR-TXpress sales in the Device Segment. The AXP revenues increase was driven by approximately 550 cases sold to a distributor in China as compared to no cases sold to that distributor in the quarter ended June 30, 2018 and approximately 450 more cases were sold to domestic end users in the current quarter (resulting in approximately $1,900,000 more in AXP disposables revenue). Additionally, AXP device sales increased approximately $200,000 in the second quarter of 2019 as compared to the same period last year. This increase was driven by customers upgrading to AXP II devices in the current year. CAR-TXpress sales increased by $152,000 due to relaunching the product line in the second half of 2018. Sales in the Clinical Development Segment were flat compared to prior year.
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Device Segment:
|
|
|
|
|
|
|
|
|
AXP
|
|
$
|
3,082,000
|
|
|
$
|
915,000
|
|
BioArchive
|
|
|
784,000
|
|
|
|
760,000
|
|
Manual Disposables
|
|
|
205,000
|
|
|
|
229,000
|
|
CAR-TXpress
|
|
|
182,000
|
|
|
|
30,000
|
|
Other
|
|
|
8,000
|
|
|
|
24,000
|
|
|
|
|
4,261,000
|
|
|
|
1,958,000
|
|
Clinical Development Segment:
|
|
|
|
|
|
|
|
|
Disposables
|
|
|
37,000
|
|
|
|
1,000
|
|
Other
|
|
|
7,000
|
|
|
|
45,000
|
|
|
|
|
44,000
|
|
|
|
46,000
|
|
|
|
$
|
4,305,000
|
|
|
$
|
2,004,000
|
|
Gross Profit
The Company’s gross profit was $1,951,000 or 45% of net revenues for the three months ended June 30, 2019, compared to $363,000 or 18% for three months ended June 30, 2018, an increase of $1,588,000. Device Segment gross profit margin increased to $1,964,000 or 46% for the three months ended June 30, 2019, compared to $366,000 or 19% for the three months ended June 30, 2018, an increase of $1,598,000. The increase was primarily due to the $2,167,000 increase in AXP sales, generating approximately $650,000 more from disposables and approximately $100,000 from sales of AXP II devices. Additionally, lower AXP disposable costs through price efficiencies from contract manufacturers decreased cost of goods expense related to AXP disposables by approximately $550,000 and reduced overhead expenses of approximately $200,000 as a result of the June 2018 reorganization. The remainder of the increase is due primarily to additional sales of CAR-TXpress which resulted in approximately $75,000 more gross profit.
Sales and Marketing Expenses
Consolidated sales and marketing expenses were $384,000 for the three months ended June 30, 2019, as compared to $359,000 for the three months ended June 30, 2018, an increase of $25,000 or 7%. The variance was driven by increased stock compensation expense for new options granted to ThermoGenesis employees during the current quarter.
Research and Development Expenses
Consolidated research and development expenses were $611,000 for the three months ended June 30, 2019, compared to $908,000 for the three months ended June 30, 2018, a decrease of $297,000 or 33%. Research and development expenses in the Device Segment decreased by $242,000 and in the Clinical Development Segment decreased by $53,000. The decrease in both segments is primarily due to a decline in personnel costs related to the June 2018 reorganization.
General and Administrative Expenses
Consolidated general and administrative expenses for the three months ended June 30, 2019 were $1,218,000, compared to $2,399,000 for the three months ended June 30, 2018, a decrease of $1,181,000 or 50%. The decrease is driven by the decline in personnel costs associated with the June 2018 reorganization and other headcount reductions in 2018 of approximately $250,000, severance expenses of $225,000, a one-time legal settlement of $150,000 and a loss on the disposal of fixed assets of $420,000 in the quarter ended June 30, 2018. The Company also eliminated its management bonus program in 2019, reducing expenses by $115,000.
Impairment Charges
The Company incurred impairment charges of $0 during the three months ended June 30, 2019 as compared to $27,202,000 during the three months ended June 30, 2018. During the quarter ended June 30, 2018, the Company experienced a significant and sustained decline in its stock price resulting in its market capitalization falling significantly below the recorded value of its consolidated assets. The Company performed a quantitative assessment which determined that the carrying amount for the Company’s goodwill and indefinite lived intangible assets relating to the clinical protocols exceeded its estimated fair value. As a result, impairment charges of $12,695,000 to goodwill and $14,507,000 to the intangible assets were recorded during the period to the Clinical Development Segment.
Interest Expense
Interest expense increased to $1,211,000 for the three months ended June 30, 2019 as compared to $733,000 for the three months ended June 30, 2018, an increase of $478,000. The increase is driven by interest recorded and the amortization of the debt discount on the beneficial conversion feature related to the January 2019 Note of approximately $105,000, as well as approximately $325,000 more in interest expense and amortization of the debt discount on the beneficial conversion feature related to the Revolving Credit Agreement with Boyalife, for which amortization started in May 2018.
Benefit for Income Taxes
The income tax benefit to the Company was $0 in the three months ended June 30, 2019 as compared to $3,451,000 in the three months ended June 30, 2018. The income tax benefit for the three months ended June 30, 2018 was due to the impairment of the indefinite lived intangible assets for the clinical protocols and goodwill during the quarter ended June 30, 2018. The Company’s deferred tax liability was tied to the intangible assets and goodwill in the Clinical Development Segment. The impairment caused the deferred tax liability to decrease resulting in a $3,451,000 benefit for income taxes recorded in the period ended June 30, 2018. The current quarter had $0 income tax expense.
Res
ults of Operations for the Six
Months Ended
June 30
,
2019
as Compared to the Six
Months Ended
June 30
,
2018
Net Revenues
Consolidated net revenues for the six months ended June 30, 2019 were $7,268,000, compared to $3,871,000, for the six months ended June 30, 2018, an increase of $3,397,000 or 88%. Device Segment revenues increased across all product lines. The AXP revenues increase was driven by the sale of 640 cases sold to a distributor in China as compared to no cases sold to that distributor in the quarter ended June 30, 2018 and 400 more cases were sold to domestic end users in the current quarter (resulting in approximately $1,900,000 more in AXP disposables revenue). Additionally, AXP device sales increased approximately $360,000 in the first six months of 2019 as compared to the same period last year. This increase was driven by customers upgrading to AXP II devices in the current year. BioArchive sales increased by $270,000 driven by the sale of one additional BioArchive device to our distributor in China. CAR-TXpress sales increased by $459,000 due to relaunching the product line in the second half of 2018. Sales in the Clinical Development Segment were $53,000 less than prior year due to reduced clinical services in India.
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Device Segment:
|
|
|
|
|
|
|
|
|
AXP
|
|
$
|
4,405,000
|
|
|
$
|
1,665,000
|
|
BioArchive
|
|
|
1,797,000
|
|
|
|
1,527,000
|
|
Manual Disposables
|
|
|
499,000
|
|
|
|
462,000
|
|
CAR-TXpress
|
|
|
489,000
|
|
|
|
30,000
|
|
Other
|
|
|
22,000
|
|
|
|
79,000
|
|
|
|
|
7,212,000
|
|
|
|
3,763,000
|
|
Clinical Development Segment:
|
|
|
|
|
|
|
|
|
Disposables
|
|
|
44,000
|
|
|
|
23,000
|
|
Other
|
|
|
12,000
|
|
|
|
85,000
|
|
|
|
|
56,000
|
|
|
|
108,000
|
|
|
|
$
|
7,268,000
|
|
|
$
|
3,871,000
|
|
Gross Profit
The Company’s gross profit was $3,211,000 or 44% of net revenues for the six months ended June 30, 2019, compared to $715,000 or 18% for the six months ended June 30, 2018, an increase of $2,496,000. Device Segment gross profit margin increased to $3,265,000 or 45% of net revenues for the six months ended June 30, 2019, compared to $727,000 or 19% of net revenues for the six months ended June 30, 2018, an increase of $2,538,000. The increase was primarily due to increased AXP sales, generating approximately $800,000 more in gross profit from disposables and approximately $150,000 from sales of AXP II devices. Additionally, lower AXP disposable costs through price efficiencies from contract manufacturers decreased cost of goods expense for AXP disposables by approximately $750,000 and reduced overhead expenses of approximately $450,000 driven by the June 2018 reorganization. The remainder of the increase is due primarily to additional sales of CAR-TXpress which resulted in approximately $250,000 more gross profit.
Sales and Marketing Expenses
Consolidated sales and marketing expenses were $725,000 for the six months ended June 30, 2019, as compared to $685,000 for the six months ended June 30, 2018, an increase of $40,000 or 6%. The variance was driven by increased stock compensation expense for new options granted to ThermoGenesis employees during the current quarter.
Research and Development Expenses
Consolidated research and development expenses were $1,175,000 for the six months ended June 30, 2019, compared to $1,949,000 for the six months ended June 30, 2018, a decrease of $774,000 or 40%. Research and development in the Device Segment decreased by $568,000 and the Clinical Development Segment decreased by $206,000. The decrease in both segments is primarily due to a decline in personnel costs related to the June 2018 reorganization.
General and Administrative Expenses
Consolidated general and administrative expenses for the six months ended June 30, 2019 were $2,478,000, compared to $4,641,000 for the six months ended June 30, 2018, a decrease of $2,163,000 or 47%. The decrease was driven by the decline in personnel costs associated with the June 2018 reorganization and other headcount reductions of approximately $500,000, severance expenses of $225,000, a one-time legal settlement of $150,000 and a loss on the disposal of fixed assets of $420,000 in the six months ended June 30, 2018. The remainder of the decrease was due to a reduction of approximately $250,000 as the result of the Company eliminating the management bonus plan in 2019 and reduced legal expense of approximately $150,000 in the current year.
Impairment Charges
The Company incurred impairment charges of $0 during the six months ended June 30, 2019, as compared to impairment charges of $27,202,000 during the six months ended June 30, 2018. During the six months ended June 30, 2018, the Company experienced a significant and sustained decline in its stock price resulting in its market capitalization falling significantly below the recorded value of its consolidated assets. The Company performed a quantitative assessment which determined that the carrying amount for the Company’s goodwill and indefinite lived intangible assets relating to the clinical protocols exceeded its estimated fair value. As a result, impairment charges of $12,695,000 to goodwill and $14,507,000 to the intangible assets were recorded during the period to the Clinical Development Segment.
Interest Expense
Interest expense increased to $2,343,000 for the six months ended June 30, 2019 as compared to $1,093,000 for the six months ended June 30, 2018, an increase of $1,250,000. The increase is driven by interest recorded and the amortization of the debt discount on the beneficial conversion feature related to the January 2019 Note of approximately $105,000, as well as approximately $1,000,000 more in interest and amortization of the debt discount on the beneficial conversion feature related to the Revolving Credit Agreement with Boyalife, for which amortization started in May 2018.
Benefit for Income Taxes
The income tax benefit decreased to $0 in the six months ended June 30, 2019, as compared to $3,451,000 in the six months ended June 30, 2018. The income tax benefit for the six months ended June 30, 2018 was due to the impairment of the indefinite lived intangible assets for the clinical protocols and goodwill during the six months ended June 30, 2018. The Company’s deferred tax liability was tied to the intangible assets and goodwill in the Clinical Development Segment. The impairment caused the deferred tax liability to decrease resulting in a $3,451,000 benefit for income taxes recorded in the period ended June 30, 2018. The current year has no income tax expense.
Liquidity and Capital Resources
At June 30, 2019, the Company had cash and cash equivalents of $2,424,000 and working capital of $3,374,000. This compares to cash and cash equivalents of $2,400,000 and working capital of $2,261,000 at December 31, 2018. We have primarily financed operations through private and public placement of equity securities and our line of credit facility.
The Company has a Revolving Credit Agreement with Boyalife Asset Holding II, Inc. As of June 30, 2019, the Company had drawn down $8,713,000 of the $10,000,000 available under the Credit Agreement. Future draw-downs may be limited for various reasons including default or foreign government policies that restrict or prohibit transferring funds. At the time of this filing, we are currently unable to draw down on the line of credit. This may change in the near future but there is no assurance that the line of credit will become available at such time when it is needed. Boyalife Asset Holding II, Inc. is a wholly owned subsidiary of Boyalife Group Inc., which is owned and controlled by the Company’s Chief Executive Officer and Chairman of the Board.
The Company has incurred recurring operating losses and as of June 30, 2019 had an accumulated deficit of $230,603,000. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date. The Company anticipates requiring additional capital to grow the device business, to fund other operating expenses and to make interest payments on the line of credit with Boyalife. The Company’s ability to fund its cash needs is subject to various risks, many of which are beyond its control. The Company plans to seek additional funding through bank borrowings or public or private sales of debt or equity securities or strategic partnerships. The Company cannot guarantee that such funding will be available on a timely basis, in needed quantities or on terms favorable to us, if at all.
Non-GAAP Measures
In addition to the results reported in accordance with US GAAP, we also use a non-GAAP measure, adjusted EBITDA, to evaluate operating performance and to facilitate the comparison of our historical results and trends. The Company calculates adjusted EBITDA as income from operations less depreciation, amortization, stock compensation and impairment of intangible assets. This financial measure is not a measure of financial performance under US GAAP and should not be considered in isolation or as a substitute for loss as a measure of performance. The calculation of this non-GAAP measure may not be comparable to similarly titled measures used by other companies. Reconciliations to the most directly comparable GAAP measure are provided below.
Three months ended June 30, 2019 and 2018, respectively:
|
|
Three Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net loss
|
|
$
|
(1,475,000
|
)
|
|
$
|
(27,511,000
|
)
|
|
|
|
|
|
|
|
|
|
Deduct:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,211,000
|
)
|
|
|
(733,000
|
)
|
Fair value change of derivative instruments and other
|
|
|
(2,000
|
)
|
|
|
276,000
|
|
Benefit for income taxes
|
|
|
--
|
|
|
|
3,451,000
|
|
Loss from operations
|
|
$
|
(262,000
|
)
|
|
$
|
(30,505,000
|
)
|
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
190,000
|
|
|
|
174,000
|
|
Stock-based compensation expense
|
|
|
125,000
|
|
|
|
163,000
|
|
Impairment of intangible asset
|
|
|
--
|
|
|
|
27,202,000
|
|
Adjusted EBITDA
|
|
$
|
53,000
|
|
|
$
|
(2,966,000
|
)
|
The adjusted EBITDA was $53,000 for the three months ended June 30, 2019 compared to a loss of $2,966,000 for the three months ended June 30, 2018. The adjusted EBITDA increase as compared to the second quarter in the prior year was due to $1,588,000 in additional gross profit as the result of $2,301,000 higher sales, while decreasing overhead expenses and lower disposable costs through price efficiencies from contract manufacturers. Additionally, the Company decreased salaried related expenses by approximately $600,000 in the current quarter as a result of the June 2018 reorganization and the elimination of other positions during 2018. Prior year quarter ended June 30, 2018 also included severance expenses of $225,000, a one-time legal settlement of $150,000 and a loss on the disposal of fixed assets of $420,000.
Six months ended June 30, 2019 and 2018, respectively:
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net Loss
|
|
$
|
(3,521,000
|
)
|
|
$
|
(30,881,000
|
)
|
|
|
|
|
|
|
|
|
|
Deduct:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2,343,000
|
)
|
|
|
(1,093,000
|
)
|
Fair value change of derivative instruments and other
|
|
|
(11,000
|
)
|
|
|
523,000
|
|
Benefit for income taxes
|
|
|
--
|
|
|
|
3,451,000
|
|
Loss from operations
|
|
$
|
(1,167,000
|
)
|
|
$
|
(33,762,000
|
)
|
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
402,000
|
|
|
|
333,000
|
|
Stock-based compensation expense
|
|
|
206,000
|
|
|
|
300,000
|
|
Impairment of intangible asset
|
|
|
--
|
|
|
|
27,202,000
|
|
Adjusted EBITDA
|
|
$
|
(559,000
|
)
|
|
$
|
(5,927,000
|
)
|
The adjusted EBITDA loss was $559,000 for the six months ended June 30, 2019 compared to a loss of $5,967,000 for the three months ended June 30, 2018. The adjusted EBITDA increase for the first half of 2019 as compared to the prior year was due to $2,495,000 in additional gross profit as the result of $3,397,000 higher sales, while decreasing overhead expenses and lower disposable costs through price efficiencies from contract manufacturers. Additionally, the Company decreased salaried related expenses by approximately $1,200,000 in the current quarter as a result of the June 2018 reorganization and the elimination of other positions during 2018. Prior year six months ended June 30, 2018 also included severance expenses of $225,000, a one-time legal settlement of $150,000 and a loss on the disposal of fixed assets of $420,000. Finally, the Company eliminated in the management bonus program for 2019, resulting in savings of approximately $350,000 for the first six months of 2019.
Off-Balance Sheet Arrangements
As of June 30, 2019, the Company had no off-balance sheet arrangements.