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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
    development of the SYNERGY System, including the next generation endovascular system;

 

    regulatory and other compliance functions, including activities to enhance our quality systems in response to the warning letter we received from the FDA in June 2014;

 

    expand work in process and finished goods inventory to support ongoing operations;

 

    planned investments in infrastructure to support our growth;

 

    transaction and integrations costs related to proposed acquisition of Valtech;

 

    acquisition of and investment in third party technologies; and

 

    general working capital.

Interest on our convertible notes is payable semi-annually in arrears on June 15 and December 15 of each year. To date, all interest payments have been paid on a timely basis. Based on the outstanding principal amount of our convertible notes at September 30, 2015, the semi-annual interest payment due on December 15, 2015 will be approximately $2.8 million. This amount is expected to be paid from cash on hand.

We believe cash on hand and investment balances as of September 30, 2015 are sufficient to support our planned operations for at least the next twelve months, including the acquisition of Valtech. At September 30, 2015, approximately $9.9 million of our cash on hand was held in foreign locations, including Australia, Germany and the United Kingdom. To date, the Company has not had unremitted foreign earnings and has not incurred U.S. federal and state income taxes related to repatriated earnings. As our operations in our foreign subsidiaries grow, we may generate foreign earnings. Any repatriation of those earnings to the United States would likely result in us incurring federal and state income taxes. We currently plan to permanently reinvest any earnings of our foreign subsidiaries.

Because of the numerous risks and uncertainties associated with the development of medical devices, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to maintain regulatory approvals, fund commercial expansion, and develop and obtain regulatory approvals for new products. Our future capital requirements will depend on many factors, including but not limited to the following:

 

    implementation of systemic improvements necessary to satisfactorily address the observations cited in the June 2, 2014 warning letter we received from the FDA;

 

    closing of the Valtech acquisition

 

    commercial acceptance of our products;

 

    reimbursement of our products by governmental agencies and third-party payers;

 

    costs to manufacture and ensure regulatory compliance of our products;

 

    expenses required to operate multiple clinical trials;

 

    further product research and development for next generation products and expanding indications for our products as well as efforts to sustain and implement incremental improvements to existing products;

 

    expanding our sales and marketing capabilities on a global basis;

 

    broadening our infrastructure in order to meet the needs of our growing operations, including regulatory compliance;

 

    expenses related to funding and integrating strategic investments, acquisitions and collaborative arrangements;

 

    payment of the 2.3% excise tax on gross revenue from the sale of our medical devices in the United States imposed by the Patient Protection and Affordable Care Act;

 

    payment of our convertible notes on maturity if not converted or repurchased; and

 

    complying with the requirements related to being a public company in the United States.

Contractual Obligations

        On September 1, 2015 we entered into a BCA with Valtech, an early-stage, privately-held company headquartered in Or Yehuda, Israel specializing in the development of devices for mitral and tricuspid valve repair and replacement, pursuant to which HeartWare and Valtech will both become subsidiaries of a new holding company, HW Global, Inc, (“Holdco”). HeartWare stockholders would receive one share of Holdco common stock for each share of HeartWare common stock and Valtech shareholders would receive 5.2 million shares of Holdco common stock, 700,000 shares of Holdco common stock upon achievement of certain milestones, warrants to purchase 850,000 shares of Holdco common stock which are exercisable upon attainment of $75 million of net sales (trailing 12 months) of Valtech products and an earn-out payment of $375 million (payable in cash or stock at the discretion of Holdco), upon attainment of $450 million of net sales (trailing 12 months) of Valtech products. The respective boards of HeartWare and Valtech have approved the agreement. Completion of the transaction is subject to customary closing conditions, including approval of HeartWare and Valtech stockholders and regulatory approvals. The closing of the transaction is expected in late 2015 or early 2016.

 

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