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SEC Filings

10-Q
HEARTWARE INTERNATIONAL, INC. filed this Form 10-Q on 11/02/2015
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Table of Contents

$6.4 million of amortization of the discount on our convertible notes, $6.7 million for the increase in the fair value of contingent consideration related to the CircuLite acquisition and $1.1 million for the impairment of fixed assets. The increase in cash from changes in working capital included $8.9 million for the decrease in accrued liabilities, $4.5 million for the decrease in inventory, $1.9 million for the decrease in accounts receivable and $1.6 million for the decrease in accrued interest on convertible notes. These amounts were partially offset by increases in accounts payable and prepaid expenses totaling $1.6 million.

For the nine months ended September 30, 2014, cash used in operating activities consisted of net loss of $18.5 million, adjustments for non-cash items of $17.7 million and cash used in working capital of $14.3 million. Adjustments for non-cash items primarily consisted of $17.3 million of share-based compensation, $6.2 million of depreciation and amortization of long-lived assets, $5.7 million for the amortization of the discount on our convertible notes, $1.0 million loss on an equity investment and $0.6 million for the impairment of fixed assets, which were partially offset by an adjustment of $14.2 million from the decrease in fair value of contingent consideration. The decrease in cash from changes in working capital included $10.4 million in increased trade accounts receivable, $13.1 million for the purchase and manufacture of inventories and $2.3 million for the payment of trade accounts payable. These amounts were partially offset by a decrease in prepaid expenses and other assets of $2.4 million and an increase in accrued liabilities of $7.1 million.

Cash Provided By (Used in) Investing Activities

In the nine months ended September 30, 2015, net cash provided by investing activities included maturities of available-for-sale securities (net of purchases) aggregating $11.5 million. This amount was partially offset by cash usages of $2.1 million to acquire property, plant and equipment, $1.7 million for intellectual property as well as a $5 million investment in Valtech in the form of a convertible promissory note (the “2015 Note”). Pursuant to the terms of the 2015 Note, principal and interest at a rate equal to 6% per annum is due and payable at maturity. Maturity occurs at the earlier of two years or the occurrence of certain events defined in the 2015 Note, including an event of default or a change in control. Principal and interest on the 2015 Note are repayable, at the option of the issuer, in cash or shares of the most recently issued series of preferred stock or a comparable newly issued series of preferred stock.

In the nine months ended September 30, 2014, net cash used in investing activities included $29.7 million for the purchase (net of maturities) of available-for-sale securities, $6.0 million to acquire property, plant and equipment and $1.2 million for intellectual property.

Cash Provided by Financing Activities

In the nine months ended September 30, 2015, cash provided by financing activities was primarily the result of the net cash proceeds from the issuance of our 1.75%, 2021 Notes. In May 2015, we issued our 1.75%, 2021 Notes with an aggregate principal amount of $202.4 million in exchange for a portion of our outstanding 3.5%, 2017 Notes with an aggregate principal amount $101.3 million and net cash proceeds of approximately $75.5 million, after paying offering costs. Interest on the 2021 Notes is payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2015. The 2021 Notes will mature on December 15, 2021, unless earlier repurchased by the Company or converted.

The exercise of stock options in the nine months ended September 30, 2015 and 2014 resulted in cash proceeds of approximately $0.1 million and $0.8 million, respectively.

Operating Capital and Capital Expenditure Requirements

We have incurred operating losses to date and anticipate that we will continue to consume cash and incur substantial net losses as we expand our sales and marketing capabilities, develop new products and seek regulatory approvals for expanded indications of the HVAD System in the United States. For the remainder of 2015, cash on hand is expected to be used primarily to fund our ongoing operations, including:

 

    expanding our sales and marketing capabilities on a global basis;

 

    growing market penetration particularly in the United States;

 

    continued product development, including refinement of the MVAD pump and Pal controller;

 

    preclinical and clinical costs relating to the MVAD pump, and clinical trials related to expanded indications of the HVAD System;

 

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