You should read the following discussion of our financial condition and results
of operations in conjunction with the condensed consolidated financial
statements and the related notes included elsewhere in this Quarterly Report and
with our audited consolidated financial statements included in our Annual Report
on Form 10-K for the year ended December 31, 2021, as filed with the Securities
and Exchange Commission on March 17, 2022. In addition to historical condensed
consolidated financial information, the following discussion contains
forward-looking statements that reflect our plans, estimates, and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this Quarterly
Report, particularly in Part II, Item 1A. "Risk Factors."
Overview of Our Business
In the discussion below, when we use the terms "we", "us" and "our", we are
referring to Viveve Medical, Inc. and our wholly-owned subsidiaries, Viveve,
Inc. and Viveve BV.
We design, develop, manufacture and market a platform medical technology, which
we refer to as Cryogen-cooled Monopolar Radiofrequency ("CMRF"). Our proprietary
CMRF technology is delivered through RF, handpiece and treatment tip that,
collectively, we refer to as the Viveve® System. The Viveve System is currently
marketed and sold for a number of indications, depending on the relevant
country-specific clearance or approval. Currently, the Viveve System is cleared
for marketing in 48 countries throughout the world under the following
indications for use:
No. of
Indication for Use: Countries:
General surgical procedures for 3
electrocoagulation and (including
hemostasis the U.S.)
General surgical procedures for
electrocoagulation and
hemostasis of vaginal tissue
and for the treatment of
vaginal laxity 29
For treatment of vaginal laxity 5
For treatment of the vaginal
introitus, after vaginal
childbirth, to improve sexual
function 9
General surgical procedures for
electrocoagulation and
hemostasis and for the
treatment of vaginal laxity 1
For treatment of vaginal
laxity, urinary incontinence
and sexual function 1
In the U.S., the Viveve System is indicated for use in general surgical
procedures for electrocoagulation and hemostasis and we market and sell
primarily through a direct sales force. Outside the U.S., we primarily market
and sell through distribution partners. As of September 30, 2022, we have a
global installed base of 915 Viveve Systems and we have sold approximately
69,500 single-use treatment tips worldwide.
We are subject to risks, expenses and uncertainties frequently encountered by
companies in the medical device industry. These risks include, but are not
limited to, intense competition, whether we can be successful in obtaining U.S.
Food and Drug Administration ("FDA") and other governmental clearance or
approval for the sale of our product for all desired indications and whether
there will be a demand for the Viveve System, given that the cost of the
procedure will likely not be reimbursed by the government or private health
insurers. In addition, we will continue to require substantial funds to support
our clinical trials and fund our efforts to expand regulatory clearance or
approval for our products, including in the U.S. We cannot be certain that any
additional required financing will be available when needed or on terms which
are favorable to us. Because the revenue we have earned to date has not been
sufficient to support our operations, we have been primarily funded through the
sales of our securities, bank term loans and loans from related parties. Various
factors, including our limited operating history with limited revenue to date
and our limited ability to market and sell our products have resulted in limited
working capital available to fund our operations. There are no assurances that
we will be successful in securing additional financing in the future to fund our
operations going forward. Failure to generate sufficient cash flows from
operations, raise additional capital or reduce certain discretionary spending
could have a material adverse effect on our ability to achieve our intended
business objectives.
Recent Events
Effective Shelf Registration Statement
On July 2, 2021, we filed a universal shelf registration statement with the
Securities and Exchange Commission (the "SEC") on Form S-3, as amended on
September 23, 2022, for the proposed offering from time to time of up to
$75,000,000 of our securities, including common stock, preferred stock, and/or
warrants. This registration statement currently has a capacity of $75,000,000.
However, as a result of the limitations of General Instruction I.B.6. of Form
S-3, or the so-called "baby shelf rules," the amount of shares of our common
stock available for sale under a registration statement on Form S-3 is limited
to one-third of the aggregate market value of our common equity held by
non-affiliates of the Company over any rolling 12-month period. As of September
30, 2022, we have not issued any shares or received any proceeds pursuant to the
universal shelf registration statement.
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PURSUIT - U.S. Pivotal SUI Trial
The Company received FDA approval of its investigational device exemption (IDE)
application to conduct its U.S. pivotal, multicenter PURSUIT trial for
improvement of Stress Urinary Incontinence (SUI) in women in July 2020, as well
as FDA approval of requested amendments to the IDE protocol in December 2020.
Initiation of the PURSUIT trial was announced by the Company on January 21, 2021
and completion of subject enrollment was reported on December 14, 2021. We
remain on track to complete patient follow-up visits from our pivotal U.S.
PURSUIT clinical trial by the end of the year 2022 and we expect to report
topline results shortly thereafter.
PURSUIT is a randomized, double-blinded, sham-controlled trial with an
enrollment of 415 subjects with moderate SUI (? 10ml - 50ml urine leakage on the
1-hour Pad Weight Test) at approximately 30 study sites in the U.S. Randomized
in a 2:1 ratio for active and sham treatments, subjects in the active treatment
arm received a CMRF treatment (90J/cm2 RF and cryogen-cooling), while subjects
in the control arm received an inert sham treatment.
The primary efficacy endpoint of the PURSUIT trial is a comparison of the
proportion of patients who experience greater than 50% reduction in urine
leakage compared to baseline on the standardized 1-hour Pad Weight Test at 12
months post-treatment versus an inert sham procedure. The study also includes
several secondary endpoints, including: proportion of patients who experience
greater than 50% reduction in urine leakage on the standardized 1-hour Pad
Weight Test at three and six months post-treatment, percentage change from
baseline in the 1-hour Pad Weight Test at three, six and 12 months, percent of
subjects with no incontinence episodes at three, six and 12 months post
treatment as assessed with the three-day bladder voiding diary, and change from
baseline in the MESA Questionnaire (Medical, Epidemiologic and Social Aspects of
Aging), Incontinence Quality of Life (I-QOL), Patient Global Impression of
Improvement (PGI-1) Questionnaire, and International Consultation on
Incontinence Modular Questionnaire-Urinary Incontinence Short Form (ICIQ-UI-SF)
at three, six, nine and 12 months post-treatment. Subject safety will be
monitored throughout the study.
New Category III CPT Code for SUI Procedure
In July 2021, the American Medical Association ("AMA") issued a new Category III
Current Procedural Terminology ("CPT"®) code for the Company's dual-energy
procedure effective January 1, 2022. The new code establishes a long-term
pathway for potential reimbursement for Viveve's noninvasive treatment under
evaluation in the PURSUIT trial to improve SUI in women if approved by the FDA
for this indication. The new Category III CPT code for Viveve's SUI procedure is
defined as: endovaginal cryogen-cooled, monopolar radiofrequency remodeling of
the tissue surrounding the female bladder neck and proximal urethra for urinary
incontinence.
Patent Portfolio Expansion
United States
In October 2022, the Company announced receipt of Notice of Allowance for a
second U.S. Method Patent for treating female SUI from the United States Patent
and Trademark Office (USPTO) for U.S. Patent Application 16/454,578. The pending
issuance of the new patent covering Viveve's dual-energy, endovaginal SUI
treatment further strengthens the Company's intellectual property portfolio.
Taiwan
In July 2022, the Taiwan Intellectual Property Office (TIPO) issued Taiwan
Patent No. I766557 for Viveve's dual-energy technology. The awarded patent
further expands and strengthens Viveve's intellectual property portfolio in one
of Asia's key markets.
Impact of the Coronavirus
As of the filing of this Quarterly Report, the United States and many other
countries continue to face outbreaks or resurgences of the highly transmissible
pathogenic coronavirus and its variants, which has resulted in a widespread
global health crisis, adversely affected general commercial activity and the
economies and financial markets of many countries and may continue to adversely
affect our business, financial condition and results of operations. The extent
to which the coronavirus impacts us will depend on future developments, which
are highly uncertain and cannot be accurately predicted, including new
information which may emerge concerning the severity of the coronavirus and the
actions to contain the coronavirus or treat its impact, among others.
Plan of Operation
We intend to increase our sales both internationally and in the U.S. market by
seeking additional regulatory clearances or approvals for the sale and
distribution of our products, identifying and training qualified distributors,
and expanding the scope of physicians who offer the Viveve System.
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In June 2019, in addition to a capital sales model, we began a new recurring
revenue rental model for the U.S. sales of the Viveve System. Sale of Viveve
products outside of the U.S. will continue to be supported by our international
distributors.
In addition, we intend to use the strategic relationships that we have developed
with outside contractors and medical experts to improve our products by focusing
our research and development efforts on various areas including, but not limited
to:
? designing new treatment tips optimized for both ease-of-use and to reduce
procedure times for patients and physicians; and
? developing new RF consoles.
The net proceeds received from sales of our securities and the term loans have
been used to support commercialization of our product in existing and new
markets, for our research and development efforts and for protection of our
intellectual property, as well as for working capital and other general
corporate purposes. We expect that our cash will be sufficient to fund our
current operations through February 2023; however, we will continue to require
funds to fully implement our plan of operation. Our operating costs include
employee salaries and benefits, compensation paid to consultants, professional
fees and expenses, costs associated with our clinical trials, capital costs for
research and other equipment, costs associated with research and development
activities including travel and administration, legal expenses, sales and
marketing costs, general and administrative expenses, and other costs associated
with an early stage public company subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). We also expect
to incur expenses related to obtaining regulatory clearance and approvals in the
U.S. and internationally as well as legal and related expenses to protect our
intellectual property. We expect capital expenditures, for the foreseeable
future, to be less than $500,000 annually.
We intend to continue to meet our operating cash flow requirements through the
sales of our products and by raising additional capital from the sale of equity
or debt securities. If we sell our equity securities, or securities convertible
into equity, to raise capital, our current stockholders will likely be
substantially diluted. We may also consider the sale of certain assets, or
entering into a strategic transaction, such as a merger, with a business
complimentary to ours although we do not currently have plans for any such
transaction. While we have been successful in raising capital to fund our
operations since inception, other than as discussed in this Quarterly Report, we
do not have any committed sources of financing and there are no assurances that
we will be able to secure additional funding, or if we do secure additional
financing that it will be on terms that are favorable to us. If we cannot obtain
financing, then we may be forced to curtail our operations or consider other
strategic alternatives.
Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
Revenue
Three Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Revenue $ 1,684 $ 1,616 $ 68 4 %
We recorded revenue of $1,684,000 for the three months ended September 30,
2022, compared to revenue of $1,616,000 for the three months ended September 30,
2021, an increase of $68,000, or approximately 4%. The increase in revenue was
primarily due to higher sales volume of treatment tips sold globally, partially
offset by a decrease in Viveve Systems sold during the period. Sales in the
third quarter of 2022 included 11 Viveve Systems sold and approximately 3,100
disposable treatment tips sold globally. Sales in the third quarter of 2021
included 16 Viveve Systems sold and approximately 2,300 disposable treatment
tips sold globally.
Under the recurring revenue rental program, we placed three Viveve Systems in
the U.S. market in the third quarter of 2022; however, these new placements were
offset by the non-renewal of subscriptions for three Viveve Systems during the
period. In the third quarter of 2021, we placed eight Viveve Systems in the U.S.
market; however, these new placements were offset by the negative impact of the
COVID-19 crisis on our sales activity in the period which resulted in the return
of nine Viveve Systems during the period. Rental revenue on these leases is
recognized on a straight-line basis over the term of the lease. For the three
months ended September 30, 2022 and 2021, rental revenue recognized during the
period was $265,000 and $261,000, respectively.
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Gross profit
Three Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Gross profit $ 546 $ 114 $ 432 379 %
Gross profit was $546,000, or 32% of revenue, for the three months ended
September 30, 2022, compared to a gross profit of $114,000, or 7% of revenue,
for the three months ended September 30, 2021, an increase of $432,000, or
approximately 379%. The increase in gross profit was primarily due to lower
inventory related costs during the period as well as higher average selling
prices of treatment tips sold globally.
Research and development expenses
Three Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Research and development $ 1,800 $ 2,695 $ (895 ) (33 )%
Research and development expenses totaled $1,800,000 for the three months ended
September 30, 2022, compared to research and development expense of $2,695,000
for the three months ended September 30,2021, a decrease of $895,000, or
approximately 33%. Spending on research and development decreased primarily due
to reduced clinical study costs, partially offset by higher personnel costs and
increased engineering and development work related to our next generation
products. Research and development expense in the third quarter of 2021 had
higher clinical study costs primarily related to the enrollment of subjects for
the pivotal U.S. PURSUIT clinical trial for the treatment of SUI in the period;
such costs were no longer present in the third quarter of 2022 due to the
completion of subject enrollment in the fourth quarter of 2021.
Selling, general and administrative expenses
Three Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Selling, general and administrative $ 3,408 $ 2,911 $ 497 17 %
Selling, general and administrative expenses totaled $3,408,000 for the three
months ended September 30, 2022, compared to $2,911,000 for the three months
ended September 30, 2021, an increase of $497,000, or approximately 17%. The
increase in selling, general and administrative expenses was primarily due to
higher personnel costs and higher professional fees related to our strategic
planning in anticipation of the completion of our PURSUIT clinical trial and
potential SUI commercialization.
Interest expense, net
Three Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Interest expense, net $ 292 $ 255 $ 37 15 %
During the three months ended September 30, 2022, we had interest expense, net
of $292,000 compared to interest expense, net of $255,000 for the three months
ended September 30, 2021, a change of $37,000, or approximately 15%. The
increase resulted primarily from a higher term loan balance compared to the
third quarter of 2021 due to the interest in-kind which was added to the total
outstanding principal loan amount.
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Other expense, net
Three Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Other expense, net $ 22 $ 78 $ (56 ) (72 )%
During the three months ended September 30, 2022, we had other expense, net of
$22,000 compared to $78,000 for the three months ended September 30, 2021.
Loss from investment in unconsolidated limited liability company
Three Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Loss from investment in
unconsolidated limited
liability company $ - $ 33 $ (33 ) (100 )%
The Company uses the equity method to account for its investment in InControl
Medical, LLC ("ICM"). Due to the write down on its investment in ICM to a $0
balance in the second quarter of 2022, the Company did not allocate any net loss
from ICM's operations for the three months ended September 30, 2022.
Comparison of the Nine Months Ended September 30, 2022 and 2021
Revenue
Nine Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Revenue $ 5,120 $ 4,720 $ 400 8 %
We recorded revenue of $5,120,00 for the nine months ended September 30, 2022,
compared to revenue of $4,720,000 for the nine months ended September 30,
2021, an increase of $400,000, or approximately 8%. The increase in revenue was
primarily due to higher sales volume of Viveve Systems and treatment tips sold
globally as well as higher average selling prices of treatment tips sold during
the period, partially offset by a decrease in rental revenue from a lower rental
installed base. Sales in 2022 included sales of 33 Viveve Systems and
approximately 8,700 disposable treatment tips sold globally. Sales in 2021
included sales of 31 Viveve System and approximately 8,200 disposable treatment
tips sold globally.
Under the subscription offering program, we placed 15 Viveve Systems in the U.S.
market in 2022; however, these new placements were offset by the non-renewal of
subscriptions for 14 Viveve Systems during the period. In 2021, we placed 18
Viveve Systems under the subscription offering program in the U.S. market; but
these new placements were offset by the negative impact of the COVID-19 crisis
on our sales activity in the period which resulted in the non-renewal of
subscriptions for 29 Viveve Systems during the period. Rental revenue on these
leases is recognized on a straight-line basis over the term of the lease. For
the nine months ended September 30, 2022 and 2021, rental revenue recognized
during the period was $799,000 and $950,000, respectively.
Gross profit
Nine Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Gross profit $ 1,160 $ 661 $ 499 75 %
Gross profit was $1,160,000, or 23% of revenue for the nine months ended
September 30, 2022, compared to gross profit of $661,000, or 14% of revenue, for
the nine months ended September 30, 2021, an increase of $499,000, or
approximately 75 %. The increase in gross profit was primarily due to the higher
sales volume of Viveve Systems and treatment tips sold globally as well as
higher average selling prices of treatment tips sold during the period.
34
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Research and development expenses
Nine Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Research and development $ 5,861 $ 6,804 $ (943 ) (14 )%
Research and development expenses totaled $5,861,000 for the nine months ended
September 30, 2022 compared to research and development expense of $6,804,000
for the nine months ended September 30, 2021, a decrease of $943,000 or
approximately 14%. Spending on research and development decreased primarily due
to reduced clinical study costs, partially offset by higher personnel costs and
increased engineering and development work related to our next generation
products. Research and development expense in 2021 had higher clinical study
costs primarily due to the initiation of the pivotal U.S. PURSUIT clinical trial
for the treatment of SUI with subject enrollment underway. 2021 also included
additional spending on advertising and marketing services related to the
enrollment of subjects for the PURSUIT trial; such spending was no longer needed
in 2022 due to completion of subject enrollment in the fourth quarter of 2021.
Selling, general and administrative expenses
Nine Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Selling, general and administrative $ 10,454 $ 9,423 $ 1,031 11 %
Selling, general and administrative expenses totaled $10,454,000 for the nine
months ended September 30, 2022, compared to $9,423,000 for the nine months
ended September 30, 2021, an increase of $1,031,000 or approximately 11%. The
increase in selling, general and administrative expenses was primarily due to
higher personnel costs and higher professional fees related to our strategic
planning in anticipation of the completion of our PURSUIT clinical trial and
potential SUI commercialization, partially offset by reduced spending for sales
and marketing efforts during the period.
Gain on forgiveness of Paycheck Protection Program loan
Nine Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Gain on forgiveness of
Paycheck Protection Program
loan $ - $ 1,358 $ (1,358 ) (100 )%
In May 2021, the Company's request for forgiveness of the PPP Loan was approved
in full. The total principal amount and the accrued interest through the
forgiveness payment date was forgiven. The Company recognized a gain on the
extinguishment of debt in the amount of $1,358,000.
Modification of Warrants
Nine Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Modification of warrants $ - $ 373 $ (373 ) (100 )%
In January 2021, the Company reduced the exercise price of the outstanding
Series B, A-2 and B-2 warrants pursuant to the terms of the warrants. The
exercise price for Series B warrants was reduced from $6.10 per share to $3.40
per share. The exercise price for Series A-2 and B-2 warrants was reduced from
$6.371 per share to $3.40 per share. The Series B, A-2 and B-2 warrant exercise
price reduction resulted in the recognition of a modification expense of
$287,000.
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In May 2021, the Company reduced the exercise price of the outstanding Series B,
A-2 and B-2 warrants from $3.40 per share to $2.817 per share pursuant to the
terms of the warrants. The Series B, A-2 and B-2 warrant exercise price
reduction resulted in the recognition of a modification expense of $86,000.
Interest expense, net
Nine Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Interest expense, net $ 846 $ 734 $ 112 15 %
During the nine months ended September 30, 2022, we had interest expense, net,
of $846,000, compared to interest expense, net, of $734,000 for the nine months
ended September 30, 2021, a change of $112,000, or approximately 15%. The
increase resulted primarily from a higher term loan balance compared to the 2021
due to the interest in-kind which was added to the total outstanding principal
loan amount.
Other expense, net
Nine Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Other expense, net $ 83 $ 196 $ (113 ) (58 )%
During the nine months ended September 30, 2022, we had other expense, net, of
$83,000, compared to $196,000 for the nine months ended September 30, 2021.
Impairment loss on investment in unconsolidated limited liability company
Nine Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Impairment loss on
investment in
unconsolidated limited
liability company $ 455 $ - $ 455 NM
During the nine months ended September 30, 2022, the Company recognized an
impairment loss of $455,000 on its investment in ICM due to the distressed
financial condition of ICM.
Loss from minority interest in unconsolidated limited liability company
Nine Months Ended
September 30, Change
2022 2021 $ %
(in thousands, except percentages)
Loss from minority interest
in unconsolidated limited
liability company $ 122 $ 188 $ (66 ) (35 )%
The Company uses the equity method to account for its investment in ICM. For the
nine months ended September 30, 2022, the allocated net loss from ICM's
operations was $122,000, compared to $188,000 for the nine months ended
September 30, 2021. Due to the write down on its investment in ICM to a $0
balance in the second quarter of 2022, the Company did not allocate any net loss
from ICM's operations for the second and third quarters of 2022.
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Liquidity and Capital Resources
Comparison of the Nine Months Ended September 30, 2022 and 2021
Since inception, the Company has sustained significant operating losses and such
losses are expected to continue for the foreseeable future. As of September 30,
2022, we had an accumulated deficit of $258,514,000, cash and cash equivalents
of $5,907,000 and working capital deficit of $1,233,000. We used cash of
$13,005,000 for operations during the nine months ended September 30, 2022. We
expect that our cash will be sufficient to fund our current operations through
February 2023. As of the date our condensed consolidated financial statements
for the nine months ended September 30, 2022 were issued, we did not have
sufficient cash to fund our operations through November 30, 2023, without
additional financing and, therefore, we concluded there was substantial doubt
about our ability to continue as a going concern within one year after the date
the condensed consolidated financial statements were issued.
Management currently believes that it will be necessary for us to raise
additional funding. We may obtain additional funding in the future through the
issuance of our common stock, or through other equity or debt financing, which
will likely be highly dilutive to our stockholders, especially given recent
volatility in capital markets and lower market prices for our securities. The
failure to raise additional funding when needed could have a material adverse
effect on our business and financial condition. We may not be able to obtain
additional financing as needed on acceptable terms, or at all, which may require
us to reduce our operating costs and other expenditures, including reductions of
personnel, salaries and capital expenditures. Alternatively, or in addition to
such potential measures, we may elect to implement additional cost reduction
actions as we may determine are necessary and in our best interests. Any such
actions undertaken might limit the Company's ability to achieve its strategic
objectives.
The following table summarizes the primary sources and uses of cash for the
periods presented below (in thousands):
Nine Months Ended
September 30,
2022 2021
Net cash used in operating activities $ (13,005 ) $ (9,651 )
Net cash used in investing activities (301 ) (162 )
Net cash provided by financing activities 51 25,955
Net increase (decrease) in cash and cash equivalents $ (13,255 ) $ 16,142
Operating Activities
We have incurred, and expect to continue to incur, significant expenses in the
areas of research and development, regulatory and clinical study costs,
associated with the Viveve System.
Operating activities used $13,005,000 for the nine months ended September 30,
2022 compared to $9,651,000 used for the nine months ended September 30, 2021.
The primary use of our cash was to fund selling, general and administrative
expenses and research and development expenses associated with the Viveve
System. Net cash used during the nine months ended September 30, 2022 consisted
of a net loss of $16,661,000 adjusted for non-cash expenses including provision
for doubtful accounts of $10,000, depreciation and amortization of $568,000,
stock-based compensation of $2,737,000, non-cash interest expense of $504,000,
amortization of operating lease right-of-use assets and accretion of operating
lease liabilities of $(2,000), impairment loss on investment in unconsolidated
limited liability company of $455,000, a loss from investment in unconsolidated
limited liability company of $122,000, a loss on disposal of property and
equipment of $20,000, and cash outflows from changes in operating assets and
liabilities of $758,000. The change in operating assets and liabilities was
primarily due to increase in accounts receivable of $321,000, a decrease in
inventory of $115,000, an increase in prepaid expenses and other current assets
of $167,000, an increase in other assets of $161,000, a decrease in accounts
payable of $372,000, an increase in accrued liabilities of $1,011,000 and a
decrease of other noncurrent liabilities of $863,000.
Net cash used during the nine months ended September 30, 2021 consisted of a net
loss of $15,699,000 adjusted for non-cash expenses including provision for
doubtful accounts of $104,000, depreciation and amortization of $884,000,
stock-based compensation of $2,765,000, non-cash interest expense of $446,000,
amortization of operating lease right-of-use assets and accretion of operating
lease liabilities of $15,000, a loss from minority interest in limited liability
company of $188,000, a loss on disposal of property and equipment of $40,000, a
noncash charge for the modification of warrants of $373,000, a gain on the
extinguishment of debt of $1,358,000 related to forgiveness of the PPP Loan
partially offset by cash inflows from changes in operating assets and
liabilities of $2,591,000. The change in operating assets and liabilities was
primarily due to decrease in accounts receivable of $152,000, a decrease in
inventory of $1,423,000, a decrease in prepaid expenses and other current assets
of $213,000, an increase in other noncurrent assets of $3,000, an increase in
accounts payable $411,000, an increase in accrued and other liabilities of
$71,000, and an increase of other noncurrent liabilities of $324,000.
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Investing Activities
Net cash used in investing activities during the nine months ended September 30,
2022 and 2021 was $301,000 and $162,000, respectively. Net cash used in
investing activities during the nine months ended September 30, 2022 and 2021
was used for the purchase of property and equipment. We expect to continue to
purchase property and equipment in the normal course of our business. The amount
and timing of these purchases and the related cash outflows in future periods is
difficult to predict and is dependent on a number of factors including, but not
limited to, any changes to the capital equipment requirements related to our
recurring revenue rental model, development programs and clinical trials and
increase in the number of our employees.
Financing Activities
Net cash provided by financing activities during the nine months ended September
30, 2022 was $51,000, which was the result of proceeds from issuance of common
shares from the employee stock purchase plan.
Net cash provided by financing activities during the nine months ended September
30, 2021 was $25,955,000, which was the result of net proceeds of $25,122,000
from the January 2021 Offering net of issuance costs, $704,000 from purchase of
common shares in connection with the Purchase Agreement with LPC, proceeds of
$179,000 from exercises of common warrants and $21,000 of proceeds from issuance
of common shares from employee stock purchase plan, partially offset by
transaction costs of $71,000 in connection with the Purchase Agreement with LPC.
On July 2, 2021, we filed a universal shelf registration statement with the SEC
on Form S-3, as amended on September 23, 2022, for the proposed offering from
time to time of up to $75,000,000 of our securities, including common stock,
preferred stock, and/or warrants. This registration statement currently has a
capacity of $75,000,000. However, as a result of the limitations of General
Instruction I.B.6. of Form S-3, or the so-called "baby shelf rules," the amount
of shares of our common stock available for sale under a registration statement
on Form S-3 is limited to one-third of the aggregate market value of our common
equity held by non-affiliates of the Company over any rolling 12-month period.
As of September 30, 2022, we have not issued any shares or received any proceeds
pursuant to the universal shelf registration statement.
The Company previously entered into a purchase agreement on June 8, 2020, as
amended on March 31, 2021 (the "Purchase Agreement") with Lincoln Park Capital
Fund, LLC ("LPC"), which provided that the Company had the right, in its sole
discretion, to sell to LPC, and LPC has committed to purchase from us, up to
$10,000,000 of our common stock, subject to certain limitations, from time to
time over a 30-month period pursuant to the terms of the Purchase Agreement. As
of September 30, 2022, the equity facility with LPC has a remaining financing
commitment of approximately $9,000,000. The 2020 equity facility with LPC has a
maturity date of January 9, 2023.
Contractual Payment Obligations
In February 2017, we entered into a sublease for approximately 12,400 square
feet of building space for the relocation of the Company's corporate
headquarters to Englewood, Colorado. The lease term was 36 months and the
monthly base rent for the first, second and third years was $20.50, $21.12 and
$21.75 per rentable square foot, respectively. In connection with the execution
of the sublease, the Company paid a security deposit of approximately $22,000.
The Company was also entitled to an allowance of approximately $88,000 for
certain tenant improvements relating to the engineering, design and construction
of the sublease premises. The lease term commenced in June 2017 and was to
terminate in May 2021. In March 2021, the Company amended the sublease for its
office building space. The lease term was extended for a period of 34 months and
will terminate on March 31, 2024. The monthly gross rent for the first, second
and third years of the lease extension is $21,028, $21,643 and $22,258 per
month, respectively. The Company was also provided a rent abatement for the
month of June 2021. Additionally, the sublandlord agreed to perform certain
construction, repair, maintenance or other tenant improvements to the subleased
premises with estimated costs of approximately $19,000.
In May 2017, the Company entered into the 2017 Loan Agreement with affiliates of
CRG LP ("CRG"). The credit facility consists of $20,000,000 that was drawn at
closing and the ability to access additional funding of up to an aggregate of
$10,000,000 for a total of $30,000,000 under the credit facility. In December
2017, the Company accessed the remaining $10,000,000 available under the CRG
credit facility. The term of the loan is six years with the first four years
being interest only. In November 2019, the Company and CRG amended the 2017 Loan
Agreement concurrent with the conversion of approximately $29,000,000 of the
principal amount under the term loan with CRG (plus accrued interest, the
prepayment premium and the back-end fee applicable thereto), for an aggregate
amount of converted debt obligations of approximately $31,300,000. The amounts
converted into 31,300 shares of the newly authorized Series B convertible
preferred stock and warrants to purchase up to 989,379 shares of common stock
were also issued. The outstanding principal balance under the 2017 Loan
Agreement was $5,628,000 as of September 30, 2022. The term loan has a maturity
date of March 31, 2023.
In October 2020, the Company entered into a 36-month noncancelable operating
lease agreement for office equipment. The lease commenced in December 2020 and
will terminate in December 2023. The monthly payment is approximately $2,000.
38
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Critical Accounting Policies and Estimates
The discussion and analysis of financial condition and results of operations is
based upon our condensed consolidated financial statements, which have been
prepared in conformity with accounting principles generally accepted in the
United States of America Certain accounting policies and estimates are
particularly important to the understanding of our financial position and
results of operations and require the application of significant judgment by our
management or can be materially affected by changes from period to period in
economic factors or conditions that are outside of our control. As a result,
they are subject to an inherent degree of uncertainty. In applying these
policies, management uses their judgment to determine the appropriate
assumptions to be used in the determination of certain estimates. Those
estimates are based on our historical operations, our future business plans and
projected financial results, the terms of existing contracts, observance of
trends in the industry, information provided by our customers and information
available from other outside sources, as appropriate. During the three and nine
months ended September 30, 2022, there were no material changes to our critical
accounting policies or in the methodology used for estimates from those
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in our Annual Report on Form 10-K for the year
ended December 31, 2021, that was filed with the SEC on March 17, 2022.
Recent Accounting Pronouncements
In June 2016, the Financial Standards Board issued Accounting Standards Update
2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, as amended ("ASU 2016-13"), which revises the
measurement of credit losses for most financial instruments measured at
amortized cost, including trade receivables, from an incurred loss methodology
to an expected loss methodology which results in earlier recognition of credit
losses. Under the incurred loss model, a loss is not recognized until it is
probable that the loss-causing event has already occurred. The new standard
introduces a forward-looking expected credit loss model that requires an
estimate of the expected credit losses over the life of the instrument by
considering all relevant information including historical experience, current
conditions, and reasonable and supportable forecasts that affect collectability.
The guidance in ASU 2016-13 is effective for the Company for financial
statements issued for fiscal years beginning after December 15, 2022 and interim
periods within those fiscal years, with early adoption permitted. The Company is
still evaluating the impact of the adoption of this standard.
We have reviewed other recent accounting pronouncements and concluded they are
either not applicable to the business, or no material effect is expected on the
condensed consolidated financial statements as a result of future adoption.
Trends, Events and Uncertainties
Research, development and commercialization of new technologies and products is,
by its nature, unpredictable. Although we will undertake development efforts,
including efforts with commercially reasonable diligence, there can be no
assurance that we will have adequate capital to develop or commercialize our
technology to the extent needed to create future sales to sustain our
operations.
We cannot assure you that our technology will be adopted, that we will ever earn
revenues sufficient to support our operations, or that we will ever be
profitable. Furthermore, since we have no committed source of financing, we
cannot assure you that we will be able to raise money as and when we need it to
continue our operations. If we cannot raise funds as and when we need them, we
may be required to severely curtail, or even to cease, our operations.
Other than as discussed above and elsewhere in this Quarterly Report, we are not
aware of any trends, events or uncertainties that are likely to have a material
effect on our financial condition.
Inflation
Inflation has increased during the periods covered by this Quarterly Report and
is expected to continue to increase for the near future. Inflationary factors,
such as increases in the cost of our products (and components thereof), interest
rates, overhead costs and transportation costs may adversely affect our
operating results. Although we do not believe that inflation has had a material
impact on our financial position or results of operations to date, we may
experience some effect in the near future (especially if inflation rates
continue to rise) due to supply chain constraints, consequences associated with
COVID-19 and increased product pricing due to semiconductor product shortages.
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VIVEVE MEDICAL, INC. 