SEC Company Response from PLUS THERAPEUTICS, INC. (CNSY) (CIK 0001095981) (CNSY) — Dec 17, 2008
PLUS THERAPEUTICS, INC. (CNSY) (CIK 0001095981)
Date: Dec. 17, 2008 · CIK: 0001095981 · Accession: 0001095981-08-000056
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-32501
Letter
Via EDGAR and Facsimile Securities and Exchange Commission Division of Corporation Finance RE: Cytori Therapeutics, Inc. Form 10-K for the Fiscal Year Ended December 31, 2007 Filed March 14, 2008 Form 10-Qs for the Quarterly Periods Ended March 31, June 30, and September 30, 2008 File No. 000-32501
Dear Mr. Cascio:
This letter responds to the comments contained in your letter to Cytori Therapeutics, Inc. (the “Company”) dated November 26, 2008. For ease of reference, we have set forth below each of your comments in bold/italic font and our response thereto immediately after each comment.
Form 10-K for the Fiscal Year Ended December 31, 2007
Item 1. Financial Statements
Note 4. Transactions with Olympus Corporation – Condensed Financial Information for the Joint Venture, page 68
1.
Staff Comment:
We see that you have a 50% interest in the Olympus-Cytori joint venture. Please tell us and revise future filings to disclose the components of equity loss from investment in joint venture. Tell us why the equity loss is not equal to 50% of the net loss of the joint venture.
Company response:
Our equity loss from investment in joint venture in 2005 consisted of Cytori’s 50% share of non-eliminated research and development costs, which were expensed in accordance with SFAS 2. In 2006 and 2007, our equity loss from investment in joint venture consisted primarily of Cytori’s 50% share of non-eliminated quality system services and corporate charges for services such as external auditing and insurance.
Our equity loss from investment in joint venture is not equal to 50% of the net loss of the joint venture due to the elimination of intercompany transactions, in accordance with APB 18. Paragraph 4 of APB 18 states that intercompany items are eliminated to avoid double counting and prematurely recognizing income. Paragraph 19 of APB 18 states that in applying the equity method, intercompany profits or losses should be eliminated as if the joint venture were consolidated. Also, a transaction of an investee of a capital nature that affects the investor’s share of stockholders’ equity of the investee should be accounted for as if the investee were a consolidated subsidiary.
In our future Form 10-K filings we will expand the financial information for the joint venture by presenting a more detailed version of the Statements of Operation that also includes reconciliation from the net loss of the joint venture to Cytori’s equity loss from investment in joint venture, as follows:
Period from January 1, 2007 to December 31, 2007
Period from January 1, 2006 to December 31, 2006
Period from November 4, 2005 (inception) to December 31, 2005
Statements of Operation
(Unaudited)
(Unaudited)
(Unaudited)
Operating expenses:
Research and development expense
$ -
$ 11,000,000
$ 19,343,000
General and administrative expense:
Accounting and other corporate services
40,000
172,000
-
Quality system services
36,000
-
-
Other
10,000
2,000
-
Operating loss
86,000
11,174,000
19,343,000
Other (income) expense:
Interest income
(7,000 )
-
-
Net loss
$ 79,000
$ 11,174,000
$ 19,343,000
Reconciliation to equity loss from investment in joint venture
Net loss
$ 79,000
$ 11,174,000
$ 19,343,000
Intercompany eliminations
(65,000 )
(11,026,000 )
(11,000,000 )
Net loss after intercompany eliminations
14,000
148,000
8,343,000
Cytori’s percentage of interest in joint venture
%
%
%
Cytori’s equity loss from investment in joint venture
$ 7,000
$ 74,000
$ 4,172,000
2.
Staff Comment:
As a related matter, please tell us how you considered whether the joint venture is a significant unconsolidated subsidiary for which you should file separate financial statements under Rule 3-09 of Regulation S-X.
Company response:
Rule 3-09 of Regulation S-X, Separate financial statements of subsidiaries not consolidated and 50 percent or less owned persons, requires that if a registrant or a subsidiary of a registrant holds a 50% or less interest in a subsidiary that is accounted for using the equity method, and if either the first or third condition specified in Rule 1-02, section 210.1-02(w) are met (substituting 20% for 10%), then the registrant shall file separate financial statements.
The two applicable conditions from Rule 1-02, section 210.1-02(w) are summarized, after substituting 20% for 10%, as follows:
1) The registrant’s and its other subsidiaries’ investments in and advances to the subsidiary exceed 20% of the total assets of the registrant and its subsidiaries consolidated as of the end of the most recently completed fiscal year.
2) The registrant’s and its other subsidiaries’ equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the subsidiary exceeds 20% of such income of the registrant and its subsidiaries consolidated for the most recently completed fiscal year.
With respect to the first condition above, Cytori’s total assets were $21,507,000, $24,868,000, and $28,166,000 as of December 31, 2007, 2006, and 2005, respectively. Cytori’s investment in the joint venture as of December 31, 2007, 2006, and 2005 was $369,000, $76,000, and $0, respectively (note that our share of the joint venture’s incurred losses reduced our investment balance in the joint venture to zero as of December 31, 2005, and we advanced an additional $150,000 to the joint venture in early 2006). Investments in (or advances to) the joint venture represented 1.7%, 0.3%, and 0.0% of total assets at December 31, 2007, 2006, and 2005, respectively. As such, this condition is not met.
With respect to the second condition above, Cytori’s losses from continuing operations for the fiscal years ended December 31, 2007, 2006, and 2005 were $28,672,000, $25,447,000, and $26,538,000, respectively. Cytori’s equity losses from investment in the joint venture during the same periods were $7,000, $74,000, and $4,172,000. These equity losses represented 0.0%, 0.3%, and 15.7% of Cytori’s losses from continuing operations for the fiscal years ended December 31, 2007, 2006, and 2005, respectively. As such, this condition is not met.
Because the 20% threshold in either condition was not met in any periods reported, we concluded that separate financial statements for the joint venture were not required in accordance with Rule 3-09 of Regulation S-X.
Note 5. Gain on Sale of Assets, page 68
3.
Staff Comment:
We see that in May 2007 you sold your intellectual property rights and tangible assets related to the spine and orthopedic bioresorbable implant product line. Please tell us how you considered whether you should record the disposition as discontinued operations, in accordance with SFAS 144. Please reference paragraphs 41-43 of the SFAS.
Company response:
Paragraph 42 of SFAS 144 states that, “the results of operations of a component of an entity that either has been disposed of or is classified as held for sale shall be reported in discontinued operations in accordance with paragraph 43 if both of the following conditions are met: (a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction and (b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.”
Paragraph 41 of SFAS 144 states that a component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. Although we were able to distinguish the revenues from the four individual product lines of our MacroPore Biosurgery segment (Craniomaxillofacial – sold in 2002, Thin Film except for Japan interests – sold in 2004, Spine and Orthopedic – sold in 2007, and the Japanese Thin Film rights), the largest component of cost of sales and operating expense, salaries and wages, was not tracked by specific product, as the labor skill sets used in the manufacturing processes were similar and to some degree interchangeable between the product lines, including aspects of milling, molding, labeling, sterilization, packaging and inspection. Further, our bioresorbable products were made from the same copolymer material, and due to the commonality of the materials and processes, it was not possible to clearly distinguish cash outflows between the product lines. As such, we considered the entire segment to be the lowest level component that could be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.
Our remaining Thin Film interests in Japan are a small portion of current or prior operations, as they represent our rights with respect to future manufacturing and sales. However, our Thin Film activities may become material in the near future; see EITF 03-13 discussion below.
SFAS 144 paragraph 42, criteria (a): The operations and cash flows of the component have been (or will be) eliminated
According to EITF 03-13, if after sale, we are still receiving or expecting to receive cash flows related to the operations of the disposed component and they are direct cash flows, we should not classify this component as a discontinued operation. Such activities or cash flows are considered to be direct cash flows if (a) significant cash outflows are expected to be recognized by the ongoing entity as a result of a migration of costs from the disposed component after the disposal transaction; or (b) significant cash outflows are expected to be recognized by the ongoing entity as a result of the continuation of activities between the ongoing entity and the disposed component after the disposal transaction.
EITF 03-13 states that migration means “the ongoing entity expects to continue to generate revenues and (or) incur expenses from the sale of similar products or services to specific customers of the disposed component.” Also, the term ‘continuation of activities’ means the continuation of any revenue-producing or cost-generating activity through active involvement with the disposed component.
We do expect to sell Thin Film products through our Japan distribution partner, Senko. Although the products will be sold in Japan rather than the U.S., there is a similar core technology shared with the business line we sold in May.
Our balance sheet currently has two deferred amounts that relate to the Japan Thin Film. The first is a $1.5M license fee that was paid to us in 2004 by Senko in exchange for the right to sell and distribute certain Thin Film products in Japan. We also received a $1.25M milestone payment. The details of when and how much revenue we can recognize from these deferred balances is disclosed in our quarterly and annual reports. We believe that regulatory approval from Japan for the Thin Film products will be granted in the near future, and this approval will trigger revenue recognition for a portion of these deferred amounts. Further, we currently have a standing order to produce roughly $1.2M in product for Senko upon receiving the regulatory approval as well as another probable order after the first one is filled. All of these factors indicate we may be able to generate significant revenue and production activity related to this product line in the future.
SFAS 144 paragraph 42, criteria (b): The entity will not have any significant continuing involvement after disposal
According to EITF 03-13, continuing involvement in the operations of the disposed component provides the ongoing entity with the ability to influence the operating and (or) financial policies of the disposed compon
Show Raw Text
CORRESP
1
filename1.htm
companyresponse1208.htm
December
17, 2008
Via
EDGAR and Facsimile
Securities
and Exchange Commission
Division
of Corporation Finance
100 F
Street, NE
Mail Stop
3030
Washington,
D.C. 20549
Attn: Brian
R. Cascio, Accounting Branch Chief
RE: Cytori Therapeutics,
Inc.
Form 10-K for the Fiscal Year Ended
December 31, 2007 Filed March 14, 2008
Form 10-Qs for the Quarterly Periods
Ended March 31, June 30, and September 30, 2008
File No. 000-32501
Dear Mr.
Cascio:
This
letter responds to the comments contained in your letter to Cytori Therapeutics,
Inc. (the “Company”) dated November 26, 2008. For ease of reference,
we have set forth below each of your comments in bold/italic
font and our response thereto immediately after each comment.
Form 10-K for the Fiscal
Year Ended December 31, 2007
Item 1. Financial
Statements
Note
4. Transactions with Olympus Corporation – Condensed Financial
Information for the Joint Venture, page 68
1.
Staff
Comment:
We
see that you have a 50% interest in the Olympus-Cytori joint
venture. Please tell us and revise future filings to disclose the
components of equity loss from investment in joint venture. Tell us
why the equity loss is not equal to 50% of the net loss of the joint
venture.
Company
response:
Our
equity loss from investment in joint venture in 2005 consisted of Cytori’s 50%
share of non-eliminated research and development costs, which were expensed in
accordance with SFAS 2. In 2006 and 2007, our equity loss from
investment in joint venture consisted primarily of Cytori’s 50% share of
non-eliminated quality system services and corporate charges for services such
as external auditing and insurance.
Our
equity loss from investment in joint venture is not equal to 50% of the net loss
of the joint venture due to the elimination of intercompany transactions, in
accordance with APB 18. Paragraph 4 of APB 18 states that
intercompany items are eliminated to avoid double counting and prematurely
recognizing income. Paragraph 19 of APB 18 states that in applying
the equity method, intercompany profits or losses should be eliminated as if the
joint venture were consolidated. Also, a transaction of an investee
of a capital nature that affects the investor’s share of stockholders’ equity of
the investee should be accounted for as if the investee were a consolidated
subsidiary.
In our
future Form 10-K filings we will expand the financial information for the joint
venture by presenting a more detailed version of the Statements of Operation
that also includes reconciliation from the net loss of the joint venture to
Cytori’s equity loss from investment in joint venture, as follows:
1
Period
from January 1, 2007 to December 31, 2007
Period
from January 1, 2006 to December 31, 2006
Period
from November 4, 2005 (inception) to December 31, 2005
Statements
of Operation
(Unaudited)
(Unaudited)
(Unaudited)
Operating
expenses:
Research
and development expense
$
-
$
11,000,000
$
19,343,000
General
and administrative expense:
Accounting
and other corporate services
40,000
172,000
-
Quality
system services
36,000
-
-
Other
10,000
2,000
-
Operating
loss
86,000
11,174,000
19,343,000
Other
(income) expense:
Interest
income
(7,000
)
-
-
Net
loss
$
79,000
$
11,174,000
$
19,343,000
Reconciliation
to equity loss from investment in joint venture
Net
loss
$
79,000
$
11,174,000
$
19,343,000
Intercompany
eliminations
(65,000
)
(11,026,000
)
(11,000,000
)
Net
loss after intercompany eliminations
14,000
148,000
8,343,000
Cytori’s
percentage of interest in joint venture
50
%
50
%
50
%
Cytori’s
equity loss from investment in joint venture
$
7,000
$
74,000
$
4,172,000
2.
Staff
Comment:
As
a related matter, please tell us how you considered whether the joint venture is
a significant unconsolidated subsidiary for which you should file separate
financial statements under Rule 3-09 of Regulation S-X.
Company
response:
Rule 3-09
of Regulation S-X, Separate
financial statements of subsidiaries not consolidated and 50 percent or less
owned persons, requires that if a registrant or a subsidiary of a
registrant holds a 50% or less interest in a subsidiary that is accounted for
using the equity method, and if either the first or third condition specified in
Rule 1-02, section 210.1-02(w) are met (substituting 20% for 10%), then the
registrant shall file separate financial statements.
The two
applicable conditions from Rule 1-02, section 210.1-02(w) are summarized, after
substituting 20% for 10%, as follows:
1) The
registrant’s and its other subsidiaries’ investments in and advances to the
subsidiary exceed 20% of the total assets of the registrant and its subsidiaries
consolidated as of the end of the most recently completed fiscal
year.
2) The
registrant’s and its other subsidiaries’ equity in the income from continuing
operations before income taxes, extraordinary items and cumulative effect of a
change in accounting principle of the subsidiary exceeds 20% of such income of
the registrant and its subsidiaries consolidated for the most recently completed
fiscal year.
With
respect to the first condition above, Cytori’s total assets were $21,507,000,
$24,868,000, and $28,166,000 as of December 31, 2007, 2006, and 2005,
respectively. Cytori’s investment in the joint venture as of December
31, 2007, 2006, and 2005 was $369,000, $76,000, and $0, respectively (note that
our share of the joint venture’s incurred losses reduced our investment balance
in the joint venture to zero as of December 31, 2005, and we advanced an
additional $150,000 to the joint venture in early 2006). Investments
in (or advances to) the joint venture represented 1.7%, 0.3%, and 0.0% of total
assets at December 31, 2007, 2006, and 2005, respectively. As such,
this condition is not met.
2
With
respect to the second condition above, Cytori’s losses from continuing
operations for the fiscal years ended December 31, 2007, 2006, and 2005 were
$28,672,000, $25,447,000, and $26,538,000, respectively. Cytori’s
equity losses from investment in the joint venture during the same periods were
$7,000, $74,000, and $4,172,000. These equity losses represented
0.0%, 0.3%, and 15.7% of Cytori’s losses from continuing operations for the
fiscal years ended December 31, 2007, 2006, and 2005,
respectively. As such, this condition is not met.
Because
the 20% threshold in either condition was not met in any periods reported, we
concluded that separate financial statements for the joint venture were not
required in accordance with Rule 3-09 of Regulation S-X.
Note 5. Gain on
Sale of Assets, page 68
3.
Staff
Comment:
We
see that in May 2007 you sold your intellectual property rights and tangible
assets related to the spine and orthopedic bioresorbable implant product
line. Please tell us how you considered whether you should record the
disposition as discontinued operations, in accordance with SFAS
144. Please reference paragraphs 41-43 of the SFAS.
Company
response:
Paragraph
42 of SFAS 144 states that, “the results of operations of a component of an
entity that either has been disposed of or is classified as held for sale shall
be reported in discontinued operations in accordance with paragraph 43 if both
of the following conditions are met: (a) the operations and cash flows of the
component have been (or will be) eliminated from the ongoing operations of the
entity as a result of the disposal transaction and (b) the entity will not have
any significant continuing involvement in the operations of the component after
the disposal transaction.”
Paragraph
41 of SFAS 144 states that a component of an entity comprises operations and
cash flows that can be clearly distinguished, operationally and for financial
reporting purposes, from the rest of the entity. Although we were
able to distinguish the revenues from the four individual product lines of our
MacroPore Biosurgery segment (Craniomaxillofacial – sold in 2002, Thin Film
except for Japan interests – sold in 2004, Spine and Orthopedic – sold in 2007,
and the Japanese Thin Film rights), the largest component of cost of sales and
operating expense, salaries and wages, was not tracked by specific product, as
the labor skill sets used in the manufacturing processes were similar and to
some degree interchangeable between the product lines, including aspects of
milling, molding, labeling, sterilization, packaging and inspection. Further,
our bioresorbable products were made from the same copolymer material, and due
to the commonality of the materials and processes, it was not possible to
clearly distinguish cash outflows between the product lines. As such, we
considered the entire segment to be the lowest level component that could be
clearly distinguished, operationally and for financial reporting purposes, from
the rest of the entity.
Our
remaining Thin Film interests in Japan are a small portion of current or prior
operations, as they represent our rights with respect to future manufacturing
and sales. However, our Thin Film activities may become material in the
near future; see EITF 03-13 discussion below.
SFAS 144 paragraph 42,
criteria (a): The operations and cash flows of the component have been (or will
be) eliminated
According
to EITF 03-13, if after sale, we are still receiving or expecting to receive
cash flows related to the operations of the disposed component and they are
direct cash flows, we should not classify this component as a discontinued
operation. Such activities or cash flows are considered to be direct
cash flows if (a) significant cash outflows are expected to be recognized by the
ongoing entity as a result of a migration of costs from the disposed component
after the disposal transaction; or (b) significant cash outflows are expected to
be recognized by the ongoing entity as a result of the continuation of
activities between the ongoing entity and the disposed component after the
disposal transaction.
3
EITF
03-13 states that migration means “the ongoing entity expects to continue to
generate revenues and (or) incur expenses from the sale of similar products or
services to specific customers of the disposed component.” Also, the
term ‘continuation of activities’ means the continuation of any
revenue-producing or cost-generating activity through active involvement with
the disposed component.
We do
expect to sell Thin Film products through our Japan distribution partner,
Senko. Although the products will be sold in Japan rather than the
U.S., there is a similar core technology shared with the business line we sold
in May.
Our
balance sheet currently has two deferred amounts that relate to the Japan Thin
Film. The first is a $1.5M license fee that was paid to us in 2004 by
Senko in exchange for the right to sell and distribute certain Thin Film
products in Japan. We also received a $1.25M milestone
payment. The details of when and how much revenue we can recognize
from these deferred balances is disclosed in our quarterly and annual
reports. We believe that regulatory approval from Japan for the Thin
Film products will be granted in the near future, and this approval will trigger
revenue recognition for a portion of these deferred amounts. Further,
we currently have a standing order to produce roughly $1.2M in product for Senko
upon receiving the regulatory approval as well as another probable order after
the first one is filled. All of these factors indicate we may be able
to generate significant revenue and production activity related to this product
line in the future.
SFAS 144 paragraph 42,
criteria (b): The entity will not have any significant continuing involvement
after disposal
According
to EITF 03-13, continuing involvement in the operations of the disposed
component provides the ongoing entity with the ability to influence the
operating and (or) financial policies of the disposed compon