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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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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, 2019, as filed with the Securities and Exchange Commission on March 19, 2020. 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 a radiofrequency generator, 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 51 countries throughout the world under the following indications for use:
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Indication for Use:
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No. of Countries:
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General surgical procedures for electrocoagulation and hemostasis
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4
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(including the U.S.)
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General surgical procedures for electrocoagulation and hemostasis of vaginal tissue and the treatment of vaginal laxity
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30
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For treatment of vaginal laxity
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5
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For treatment of the vaginal introitus, after vaginal childbirth, to improve sexual function
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9
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General surgical procedures for electrocoagulation and hemostasis as well as for the treatment of vaginal laxity
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1
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For vaginal rejuvenation
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1
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For treatment of vaginal laxity and to improve mild urinary incontinence and sexual function
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1
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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, 2020, we have a global installed base of 865 Viveve Systems and we have sold approximately 47,100 single-use treatment tips worldwide.
Because the revenues we have earned to date have not been sufficient to support our operations, we have relied on sales of our securities, bank term loans and loans from related parties to fund our operations.
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. As noted above, our operations to date 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 revenues 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
Spending Reductions and Organizational Realignment
In response to COVID-19, the Company implemented a range of operational changes designed to support the safety and health of our employees, customers, distribution partners and other contacts as necessary. In addition, a series of significant cost-cutting actions, undertaken in April 2020, included the furlough of 31 full-time employees across the entire organization to reduce expenses and reposition resources to support the Company’s current customers and its pivotal clinical development program for our Cryogen-cooled, Monopolar Radiofrequency (CMRF) technology in the treatment of stress urinary incontinence (“SUI”) These deliberate actions, including an approximate two-thirds reduction of the direct sales organization, have proven effective and will remain in effect as a reduction in force due to the continuing health, market and economic challenges caused by the COVID-19 crisis. As clinical practices re-open, elective procedures increase by current and prospective customers and conditions improve, Viveve is positioned to re-scale its operational and commercial activities as warranted.
Purchase Agreement with Lincoln Park Capital, LLC
On June 8, 2020, the Company entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company has the right to sell to LPC, and LPC has committed to purchase from us, from time to time, up to $10,000,000 of our common stock, subject to certain limitations, during the 30 months term of the Purchase Agreement.
On June 9, 2020, LPC purchased 525,000 shares of common stock at a price per share of $0.65 (the “Initial Purchase Shares”) under the Purchase Agreement. Thereafter, under the Purchase Agreement, on any business day selected by us, the Company may direct LPC to purchase up to 250,000 shares (and in certain circumstances up to 500,000 shares) of our common stock. LPC has no right to require the Company to sell any shares of common stock to LPC, but LPC is obligated to make purchases as the Company directs, subject to certain conditions. The purchase price per share for each such Regular Purchase will be based off of prevailing market prices of our common stock immediately preceding the time of sale without any fixed discount.
Other than as described above, there are no trading volume requirements or restrictions under the Purchase Agreement, and the Company will control the timing and amount of any sales of our common stock to LPC.
Paycheck Protection Program Loan
The Paycheck Protection Program (“PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. On April 24, 2020, Viveve, Inc. (“Viveve”), a wholly-owned subsidiary of the Company, entered into a promissory note evidencing an unsecured loan in the aggregate amount of approximately $1,343,000 made to Viveve under the PPP (the “PPP Loan”). The PPP Loan to Viveve is being made through Western Alliance Bank. The interest rate on the PPP Loan is 1.00% and the term is two years. Beginning seven months from the date of the PPP Loan, Viveve is required to make monthly payments of principal and interest. The promissory note evidencing the PPP Loan contains customary events of default relating to, among other things, payment defaults or breaching the terms of the PPP Loan documents. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from Viveve, or filing suit and obtaining judgment against Viveve. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. No assurance is provided that Viveve will obtain forgiveness of the PPP Loan in whole or in part.
In October 2020, the Company was notified that the terms of its PPP loan with Western Alliance Bank have been modified. The amount of time that the Company has to spend the proceeds of the PPP loan (the “covered period”) has been extended from 8 weeks to 24 weeks. The date to begin repaying unforgiven portions of the PPP loan has also been extended from six months after the funding date to up to 10 months after the end of the covered period (approximately 16 months) depending on when the Company applies for forgiveness. The SBA will also cover interest on the forgiveness portion of the loan during this period. There has been no change to the maturity date of the loan. All PPP loans much be repaid or forgiven within two years after the funding date.
Nasdaq Notices
On April 21, 2020, we received written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying us that we are not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of thirty (30) consecutive business days. Based on the closing bid price of our common stock for the thirty (30) consecutive business days from March 9, 2020 to April 20, 2020, we no longer meet the minimum bid price requirement.
The letter states that under the Nasdaq Listing Rule 5810(c)(3)(A) and the relief granted as a result of the COVID-19 pandemic, we have 180 calendar days from July 1, 2020, or until December 28, 2020, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the bid price of our common stock must have a closing bid price of at least $1.00 per share for a minimum of ten (10) consecutive business days. If we do not regain compliance with Nasdaq Listing Rule 5550(a)(2) by December 28, 2020, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of our intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. We intend to monitor the closing bid price of our common stock and may, if appropriate, consider implementing available options, including, but not limited to, implementing a reverse stock split of our outstanding securities, to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules. At our annual stockholders meeting on July 22, 2020, our stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s common stock at a ratio in the range of one-for-two (1:2) to one-for-ten (1:10), such ratio to be determined in the sole discretion of the board of directors. The Company expects to effect such reverse stock split if needed prior to the Nasdaq compliance deadline.
On May 4, 2020, Karen Zaderej resigned from the Company’s board of directors and its committees, and the Company notified Nasdaq of such resignation. On May 6, 2020, the Company received a notice from Nasdaq about non-compliance with its majority independent board and audit committee requirements. To regain compliance, Nasdaq provided the Company time until November 2, 2020 in accordance with Nasdaq Listing Rules 5605(b)(1)(A) and 5605(c)(4). On October 28, 2020, the Company appointed Sharon Collins Presnell, Ph.D. to serve on the Company’s board of directors and its audit committee. On October 29, 2020, the Company received a letter from Nasdaq noting that, as a result of the appointment of Dr. Presnell, the Company evidenced compliance with the majority independent board and audit committee requirements of the Nasdaq Listing Rules.
In the event that our common stock is not eligible for continued listing on Nasdaq or another national securities exchange, trading of our common stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by security analysts and the news media, which could cause the price of our common stock to decline further. Also, it may be difficult for us to raise additional capital if we are not listed on a major exchange.
2020 Warrant Offering
On April 15, 2020, the Company reduced the exercise price of the outstanding Series A warrants and Series B warrants from $1.55 per share to $0.61 per share. On April 16, 2020, the Company entered into inducement letter agreements with certain institutional and accredited holders of Series A warrants and Series B warrants pursuant to which such holders agreed to exercise Series A warrants to purchase 4,820,584 shares of common stock and Series B warrants to purchase 242,790 shares of common stock for aggregate exercise proceeds to the Company of approximately $3.1 million. In conjunction, the Company also agreed to issue new Series A-2 warrants to purchase up to 4,820,584 shares of common stock as an inducement for the exercise of Series A warrants, and new Series B-2 warrants to purchase up to 242,790 shares of common stock as an inducement for the exercise of Series B warrants, in each case at an exercise price of $0.6371 per share and for a term of five years. The transaction closed on April 20, 2020. Transaction costs in connection with the 2020 Warrant Offering totaled approximately $333,000.
As of September 30, 2020, there were Series A-2 warrants to purchase a total of 3,928,284 shares of common stock and Series B-2 warrants to purchase a total of 203,800 shares of common stock still remaining and outstanding.
2019 Public Offering and Debt Conversion
In November 2019, the Company closed an underwritten public offering of units (the “November 2019 Offering”) for gross proceeds of approximately $11,500,000, which included the full exercise of the underwriter's overallotment option to purchase additional shares and warrants. The net proceeds to the Company, after deducting underwriting discounts and commissions and other offering expenses and payable by the Company, were approximately $9,922,000.
The offering comprised of: (1) Class A Units, priced at a public offering price of $1.55 per unit, with each unit consisting of one share of common stock, a Series A warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the first anniversary of the date of issuance and a Series B warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the fifth anniversary of the issuance; and (2) Class B Units, priced at a public offering price of $1.55 per unit, with each unit consisting of one share of Series A convertible preferred stock, convertible into one share of common stock, a Series A warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the first anniversary of the date of issuance and a Series B warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the fifth anniversary of the issuance.
The securities comprising the units were immediately separable and were issued separately.
A total of 1,945,943 shares of common stock, 5,473,410 shares of Series A convertible preferred stock, Series A warrants to purchase up to 7,419,353 shares of common stock, and Series B warrants to purchase up to 7,419,353 shares of common stock were issued in the offering, including the full exercise of the over-allotment option.
As of September 30, 2020, all Series A convertible preferred stock had been converted into common stock and there were no remaining shares of Series A preferred stock outstanding.
As of September 30, 2020, there were Series A warrants to purchase a total of 423,809 shares of common stock and Series B warrants to purchase a total of 3,256,286 shares of common stock still remaining and outstanding.
In connection with the closing of the November 2019 Offering, the Company’s secured lender, affiliates of CRG LP (“CRG”), converted approximately $28,981,000 of the outstanding principal amount under its 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 convertible into 20,457,516 shares of common stock following an increase in the Company’s authorized stock. CRG was also issued and warrants to purchase up to 9,893,776 shares of common stock exercisable following an increase in the Company’s authorized stock at an exercise price of $1.836 per share. CRG entered into a one year lock up agreement on all securities that it holds.
As of September 30, 2020, there were 34,735 shares of Series B convertible preferred stock outstanding and warrants to purchase 9,893,776 shares of common stock.
Effective Shelf Registration Statements
In November 2017, we filed a universal shelf registration statement with the SEC on Form S-3 for the proposed offering from time to time of up to $50,000,000 of our securities, including common stock, preferred stock, and/or warrants (the “2017 Shelf Registration Statement”). The 2017 Shelf Registration Statement currently has a balance of $35,016,000 available for future issuance. However, pursuant to General Instruction I.A.3 of Form S-3, the Company is not eligible to use its 2017 Shelf Registration Statement owing to the late filing of management’s annual report on internal control over financial reporting in its Form 10-K/A filed on June 29, 2020.
Clinical Advisory Board in Urinary Incontinence
In October 2020, the Company announced that it had formed a clinical advisory board of preeminent medical specialists in the field of urinary incontinence. The clinical advisory board will help guide the Company as it advances its SUI clinical development program and pivotal PURSUIT trial. The inaugural Clinical Advisory Board is comprised of six physician researchers and clinicians in urology and urogynecology specialties. Each member is a seasoned practitioner and key opinion leader in urinary incontinence treatments, experienced with novel technologies and their transition into medical practice.
Issuance of Novel U.S. Methods Patent for Stress Urinary Incontinence
In September 2020, the Company announced that the United States Patent and Trademark Office had issued U.S. Patent No. 10,779,874 covering Viveve’s unique method of treatment to address SUI in women. Viveve’s dual-energy technology has demonstrated its ability to activate fibroblasts and initiate collagen formation in underlying vaginal tissue in a non-invasive, painless, and comfortable procedure. When applied in the area of the urethra and tissue surrounding the bladder neck, the technology’s unique mechanism of action may strengthen and improve the function of connective tissues, improve vaginal structural integrity and reduce urethral hypermobility, a leading cause of SUI in women. The newly granted patent strengthens the Company’s intellectual property portfolio in advance of the launch of its U.S. pivotal PURSUIT clinical trial for SUI in women.
PURSUIT - U.S. SUI Trial
In April 2020, the Company resubmitted its IDE to the FDA for approval to initiate its pivotal multicenter SUI trial PURSUIT – Prospective U.S. Radiofrequency SUI Trial. Following multiple rounds of discussions with the Agency, the resubmitted IDE addressed specific protocol requests during the FDA initial review and provided positive results from additional in vivo animal safety testing requested by the FDA. In May 2020, the FDA outlined several study considerations that were successfully addressed in an IDE Supplement that Viveve submitted to the FDA on June 1, 2020. The Company received FDA approval of its IDE to conduct the PURSUIT trial as announced on July 7, 2020.
The trial is designed to evaluation the safety and efficacy of Viveve’s CMRF treatment versus an inert sham treatment for the improvement of SUI in women. Importantly, the PURSUIT protocol will compare CMRF treatment (90J/cm2 RF and cryogen-cooling) in the Active group to a clinically inert sham treatment (<1J/cm2 RF and <2 degrees tissue cooling cryogen delivery) in the control group.
In-vivo Preclinical Study and Results for New Sham Treatment Tip
In response to the inconclusive results from the Company’s LIBERATE International SUI trial, reported in July of 2019, Viveve conducted an in-vivo preclinical temperature and immunohistochemistry study to evaluate a new inert sham treatment tip. The Good Laboratory Practices study was initiated in June of this year following several months of engineering, validation, and development work. The study assessed both in-vivo tissue temperature changes during treatment, and histopathology at 30 days post-treatment compared to baseline, in three parous ewes using Viveve’s CMRF treatment tip (Active), cryogen-cooling only tip (“Old” sham treatment used in previous SUI study), and a new inert sham treatment tip. Histopathology of vaginal biopsies were performed and included use of a-smooth muscle actin (“a-SMA”) staining for fibroblast activation and formation. All tissue samples were evaluated by an independent and blinded pathologist.
The positive preclinical findings demonstrated, as reported on August 25, 2020, that both temperature and immunohistochemistry results support the validity of the new inert sham tip to provide a true inert or placebo treatment. Only minor tissue temperature change (less than 2 degrees centigrade) was generated by the new inert sham tip and no fibroblast activation was shown through elevated a-SMA staining. In contrast, both the Active and cryogen-cooling sham tips demonstrated significant tissue temperature changes during treatment and increased fibroblast activation 30 days post-treatment. The positive in-vivo preclinical study validates Viveve’s new inert sham tip for use in the upcoming U.S. pivotal PURSUIT trial.
Three-Arm SUI Feasibility Study
In December 2019, the Company received approval of an Investigational Testing Application (ITA) from the Canadian Ministry of Health and in January 2020 initiated a three-arm, three-month feasibility study to compare Viveve’s cryogen-cooled monopolar radiofrequency (“CMRF”) treatment and a cryogen-only sham to an inert sham treatment for the improvement of SUI in women. Completion of subject enrollment in the study was reported in March 2020. Study subjects were randomized in a 1:1:1 ratio to the three arms and were assessed using the 1-hour Pad Weight Test, 3-day Voiding Diary, the 24-hour Pad Weight Test and I-QOL at five months post treatment. Due to patient, provider and medical facility health and safety concerns caused by the COVID-19 pandemic, the final subject follow-up visit was changed to 5 months versus 3 months.
Final results were reported on August 25, 2020, indicating the primary efficacy endpoint, change from baseline in the standardized 1-hour Pad Weight Test at five months post treatment, was positively achieved. The median change from baseline in the active CMRF treatment group (N=13) and the cryogen-only sham treatment group (N=12) was -9.5 grams and -6.8 grams respectively, as compared to -4.4 grams in the inert sham treatment group (N=11). The study also assessed several secondary endpoints but showed no differentiation between groups. No device-related safety issues were reported. The meaningful separation demonstrated between the CMRF treatment arm and the inert sham arm in the feasibility study is believed to provide confidence in the potential to achieve positive separation between the two treatment arms in the upcoming U.S. pivotal PURSUIT trial.
VIVEVE II - U.S. Sexual Function Trial
In April 2020, topline results for the VIVEVE II (VIveve treatment of the Vaginal Introitus to EValuate Effectiveness) clinical study were reported by the Company. VIVEVE II was a multicenter, randomized, double-blinded, sham-controlled study to evaluate the safety and efficacy of the company’s cryogen-cooled monopolar radiofrequency (CMRF) technology for the improvement of sexual function in women following vaginal childbirth. Topline results indicated that the study did not meet its primary endpoint of demonstrating a statistically significant improvement in the mean change from baseline in total Female Sexual Function Index (FSFI) at 12 months. Although there was substantial improvement in the total FSFI score from baseline to the final 12-month follow-up in the active group indicating a significant treatment effect, there was not sufficient separation from the sham treatment group to achieve statistical significance.
The study included 220 subjects that successfully completed 12-month follow-up. Subjects were randomized in a 1:1 ratio for the active (N=114) and the sham (N=106) treatments at 17 clinical sites in the United States. Adjusted mean change in total FSFI score at 12 months for the active group was 9.8 and the adjusted mean change for the sham group was 9.0, a difference of 0.8 (p=0.3942). There were no serious device-related adverse events reported. The treatment groups were well balanced, and the number of subjects lost to follow-up was as expected.
The Company is analyzing the complete data set, including all secondary and exploratory endpoints and will include the results in the final VIVEVE II clinical study report that is expected to be submitted to the FDA in the fourth quarter of 2020.
LIBERATE-International SUI Trial
In July 2019, topline results for the LIBERATE-International study in SUI conducted under an investigational testing application approved by the Canadian Ministry of Health were reported by the Company. In August 2019, Viveve reported additional clinical outcomes data from the study. While the study did not achieve statistical significance on the primary endpoint of mean change from baseline on the 1-hour Pad Weight Test at six months post-treatment compared to the control group, the full clinical data demonstrated a consistency of benefit at six months post-treatment across all endpoints in the majority of patients within both groups. The median change from baseline at six months post-treatment was -8.0g in the active group of 66 subjects (baseline median 12.8g) and -8.0g in the sham-control group of 33 subjects (baseline median 12.9g).
LIBERATE International was a randomized, double-blind, sham-controlled study conducted at 9 sites in Canada and included enrollment of 99 patients suffering from mild-to-moderate SUI. Patients were randomized in a 2:1 ratio to either Active treatment (90J/cm2 RF with cryogen-cooling) or Sham treatment (sub-treatment dose of ≤1 J/cm2 cryogen-cooling). Patients were followed for six months post-treatment to assess the primary efficacy and safety of the treatment with data being collected at one, three and six months. Eighty-five subjects successfully completed the six-month study and no serious device-related events were reported.
The primary efficacy endpoint was the 6-month change from baseline in the one-hour pad weight test. Secondary endpoints, included: 24-hour pad weight test, daily incontinence episodes(3-day diary), as well as composite scores from the validated UDI-6 (Urogenital Distress Inventory-Short Form), IIQ-7 (Incontinence Impact Questionnaire), ICIQ-UI-SF (International Consultation on Incontinence Questionnaire-Urinary Incontinence-Short Form), and FSFI (Female Sexual Function Index) outcome questionnaires.
Across all endpoints, the efficacy of both the Active and Sham treatments were highly clinically relevant. For the primary endpoint, median percentage decrease from baseline (CFB) to 6 months post-treatment in 1-hr pad weight for the Active group was 77.2% and 81.0% for the Sham group. However, the differences were not significant between the Active and Sham groups.
Launch of Next Generation 2.0 Platform
Thailand: In July 2020, Viveve received regulatory clearance from the Thai Food and Drug Administration for its next generation Viveve 2.0 CMRF system and consumable treatment tips. Thailand is one of the leading women’s health and aesthetic medicine markets in Southeast Asia and an important addition to Viveve’s global commercial distribution network. The Viveve 2.0 system and consumable treatment trips are now available throughout the Asia Pacific region.
Canada: In April 2020, Viveve received regulatory clearance from the Canadian Ministry of Health for its next generation Viveve 2.0 CMRF system and consumable treatment tips for improvement of sexual function in women following vaginal childbirth. The clearance in Canada brings additional momentum to the company’s rapidly expanding Viveve 2.0 platform throughout the world with its availability now throughout North America, Asia and over 30 European countries.
Taiwan: In March 2020, Viveve announced registration clearance from the Taiwanese Food and Drug Administration for the Viveve 2.0 CMRF system and consumable treatment tips for use in general surgical procedures for electrocoagulation and hemostasis. Taiwan represents one of the largest markets in Asia for advanced medical procedures. Viveve continues its support of Dynamic Medical Technologies, Inc., their exclusive distribution partner in Taiwan, and their efforts to advance clinician adoption and utilization of the company’s innovative CMRF technology platform for the treatment of women’s intimate health conditions.
South Korea: In December 2019, Viveve received registration clearance by the Korean Ministry of Food and Drug Safety for its next generation Viveve 2.0 CMRF system for use in general surgical procedures for electrocoagulation and hemostasis as well as for the treatment of vaginal laxity. Clearance of the Viveve 2.0 System in South Korea represents an important milestone in the Company’s ongoing regulatory strategy to expand the global commercial footprint of its next generation CMRF technology platform and consumable treatment tips that are currently available in the U.S., European Union, China, and South Korea.
China: In December 2019, Viveve reported the launch of its next generation 2.0 System and consumable treatment tips in mainland China, Hong Kong and Macau with Paragon Meditech, the Company’s exclusive distribution partner in the region. The Paragon hosted launch event included more than 70 key opinion leader customers in Dalian, China. The comprehensive event was enthusiastically received by participating women’s health and aesthetic practitioners from Mainland China and other Asian markets across Paragon’s territories.
United States: In June 2019, the Company received 510(k) clearance by the U.S. Food and Drug Administration of its next generation Viveve 2.0 System and consumable treatment tips for use in general surgical procedures for electrocoagulation and hemostasis. The regulatory agency clearance is believed to represent another important confirmation of the safety profile of Viveve’s CMRF technology platform.
European Union: In April 2019, the Company received CE Mark clearance for its next generation Viveve 2.0 CMRF system and treatment tips in European Union and European Economic Area countries. As part of our ongoing regulatory strategy to expand the commercial launch of our Viveve 2.0 CMRF system globally, the Company’s next generation system and its consumable treatment tips are now available in over 30 countries in Europe. The Company’s Viveve 2.0 CMRF system significantly reduced manufacturing costs for both the next generation system and for the consumable tips since becoming available in the U.S. and it is projected to have a positive impact on our overall gross margins going forward.
U.S. Commercial Sales Transition to Recurring Revenue Rental Model
In June 2019, U.S. sales of the Viveve System transitioned from a capital equipment sales model to a recurring revenue rental model. The new U.S. commercial sales model is intended to lower up-front costs for customers and thus lower hurdles to adoption, increase placement rates, and improve profitability by significantly reducing selling time per unit. The new commercial sales model successfully increased physician adoption rates in the months following its implementation and continued to gain traction in the U.S. market well into the first quarter of 2020. In December 2019, Viveve Systems placed with new customers represented higher monthly productivity rates and lower costs per system placed per sales representative. Sale of Viveve products outside of the U.S. continue to be supported by the Company’s current distributors without significant change to the international business model.
Late in the first quarter of 2020, the negative impact of the COVID-19 pandemic on medical facilities and practitioners was in full effect in the United States. Federal, regional, and local government and public health agencies issued directives halting performance of non-essential medical treatments and elective procedures in an effort to combat the spread of the coronavirus and protect public health and safety. As a result, an estimated 70-80% of Viveve’s U.S. customers either temporarily closed their medical practices or dramatically reduced services and staff. The consequence has been both a public health and economic crisis that is continuing for existing and prospective Viveve customers. In a supportive partnership response, Viveve contacted all of its subscription customers and provided them with a three-month deferral of the rental payment. Although clinics in various regions are have re-opened and provide limited services, we anticipate that until the COVID-19 pandemic abates, more practices re-open and elective patient’s safety concerns are reduced that we will continue to experience reduced revenue from existing subscription customers, as well as a greatly reduced number of new and prospective customers.
Under the recurring revenue rental model, customers may lease the Viveve System for a set initial term. After the initial term, the customer may purchase the Viveve System, continue to pay a monthly rental amount or terminate the contract.
The rental program is accounted for under the Financial Standards Board’s (‘FASB”) Accounting Standards Codification (“ASC”) No. 2016-02, Leases (Topic 842) and meets the classification criteria for an operating lease. Revenue from the rental program is included in total revenue. For the three months ended September 30, 2020 and 2019, rental revenue recognized during the period was $471,000 and $177,000, respectively. For the nine months ended September 30, 2020 and 2019, rental revenue recognized during the period was $829,000 and $177,000, respectively. The Viveve Systems that are being leased are included in property and equipment, net and depreciated over their expected useful lives of five years. When other products (“non-lease components”), such as single-use treatment tips or ancillary consumables, are included in the offering, the Company follows the relevant guidance in ASC Topic 606, Revenue from Contracts with Customers, to determine how to allocate contractual consideration between the lease and non-lease components.
Impact of the Novel Coronavirus
As of the filing of this Quarterly Report on Form 10-Q, the United States, United Kingdom, Germany and most other countries continue to face outbreaks or resurgences of the novel highly transmissible and pathogenic coronavirus, which has resulted in an increasingly widespread global health crisis, adversely affected general commercial activity and the economies and financial markets of many countries, and is likely to continue to adversely affect our business, financial condition and results of operations. The extent to which the novel 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 to include plastic surgeons, general surgeons, urologists and urogynecologists.
In June 2019, we transitioned from a capital equipment sales model to a recurring revenue rental model in the U.S. market. The new U.S. commercial sales model is intended to lower up-front costs for customers and thus lower hurdles to adoption, increase placement rates, and improve profitability by significantly reducing selling time per unit. 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 amd the committed equity financing from LPC will be sufficient to fund our activities for at least the next 12 months; however, we may require additional capital from the sale of equity or debt securities 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 on Form 10-Q, 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, 2020 and 2019
Revenue
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,524
|
|
|
$
|
1,052
|
|
|
$
|
472
|
|
|
|
45
|
%
|
We recorded revenue of $1,524,000 for the three months ended September 30, 2020, compared to revenue of $1,052,000 for the three months ended September 30, 2019, an increase of $472,000, or approximately 45%. The increase in revenue was primarily due to higher sales volume of Viveve Systems and treatment tips sold during the period. Sales in the third quarter of 2020 included 12 Viveve Systems sold and approximately 2,100 disposable treatment tips sold globally. Sales in the third quarter of 2019 included six Viveve Systems (which included four Viveve Systems sold through our international distribution partner and two Viveve Systems sold in the U.S. market through our direct sales) and approximately 1,300 disposable treatment tips sold globally.
Under the subscription offering program, we placed seven Viveve Systems in the U.S. market in the third quarter of 2020; 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. Under the subscription offering program, which was launched in June 2019, we placed 25 Viveve Systems in the U.S. market in the third quarter of 2019. 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, 2020 and 2019, rental revenue recognized during the period was $471,000 and $177,000, respectively.
Additionally, late in the first quarter of 2020 and through the third quarter of 2020, the negative impact of the COVID-19 pandemic was in full effect in the United States and most other countries. Government and public health agencies issued directives halting performance of non-essential medical treatments and elective procedures in an effort to combat the spread of the coronavirus and protect public health and safety. As a result, Viveve’s customers either temporarily closed their medical practices or dramatically reduced services and staff. The consequence has been both a public health and economic crisis that continues for existing and prospective Viveve customers. In a supportive partnership response, Viveve contacted all of its subscription customers and provided them with a three-month deferral of the rental payment. Although clinics in various regions are beginning to re-open and provide limited services, we anticipate that until the COVID-19 pandemic abates, more practices begin to re-open and elective patient’s safety concerns are reduced that we will continue to experience reduced revenue from existing subscription customers, as well as a greatly reduced number of new and prospective customers.
Gross profit
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
$
|
241
|
|
|
$
|
(47
|
)
|
|
$
|
288
|
|
|
|
NM
|
|
Gross profit was $241,000, or 16% of revenue, for the three months ended September 30, 2020, compared to a gross loss of $47,000, or 4% of revenue, for the three months ended September 30, 2019, an increase of $288,000. The increase in gross profit was primarily due to the higher sales volume of Viveve Systems and treatment tips sold during the period. Additionally, fixed manufacturing costs in the third quarter of 2019 were spread over a lower sales volume thereby lowering gross margins.
Research and development expenses
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
884
|
|
|
$
|
1,449
|
|
|
$
|
(565
|
)
|
|
|
(39
|
)%
|
Research and development expenses totaled $884,000 for the three months ended September 30, 2020, compared to research and development expense of $1,449,000 for the three months ended September 30, 2019, a decrease of $565,000, or approximately 39%. Spending on research and development decreased primarily due to reduced engineering and development work related to our products as a result of our overall strategic organizational realignment in 2019 and current economic conditions associated with COVID-19. Research and development expenses during the third quarter of 2020 also included lower clinical study costs primarily due to the completion and readout of our LIBERATE-International SUI clinical trial in July 2019 and VIVEVE II – U.S. Sexual Function Trial in April 2020.
Additionally, in response to the COVID-19 crisis, the Company implemented a series of significant cost-cutting actions, including the furlough of 31 full-time employees throughout the entire organization, designed to reduce expenses and reposition resources to support the Company’s current customers and its pivotal clinical development program for our CMRF technology in the treatment of SUI.
Selling, general and administrative expenses
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
2,761
|
|
|
$
|
5,032
|
|
|
$
|
(2,271
|
)
|
|
|
(45
|
)%
|
Selling, general and administrative expenses totaled $2,761,000 for the three months ended September 30, 2020, compared to $5,032,000 for the three months ended September 30, 2019, a decrease of $2,271,000, or approximately 45%. The decrease in selling, general and administrative expenses was primarily due to reduced spending as a result of our overall strategic organizational realignment in 2019 and current economic conditions related to COVID-19.
Additionally, in response to the COVID-19 crisis, the Company implemented a series of significant cost-cutting actions, including the furlough of 31 full-time employees throughout the entire organization, designed to reduce expenses and reposition resources to support the Company’s current customers and its pivotal clinical development program for our CMRF technology in the treatment of SUI. These corporate actions included an approximate two-thirds reduction of the direct sales organization.
Interest expense, net
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
235
|
|
|
$
|
1,209
|
|
|
$
|
(974
|
)
|
|
|
(81
|
)%
|
During the three months ended September 30, 2020, we had interest expense, net of $235,000 compared to $1,209,000 for the three months ended September 30, 2019, a decrease of $974,000, or approximately 81%. The decrease in interest expense was primarily due to CRG’s conversion of approximately $28,981,000 in outstanding principal into Series B convertible preferred stock in connection with our November 2019 Offering.
Other expense, net
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
$
|
41
|
|
|
$
|
51
|
|
|
$
|
(10
|
)
|
|
|
(20
|
)%
|
During the three months ended September 30, 2020, we had other expense, net, $41,000 compared to $51,000 for the three months ended September 30, 2019.
Loss from minority interest in limited liability company
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
Loss from minority interest in limited liability company
|
|
$
|
55
|
|
|
$
|
168
|
|
|
$
|
(113
|
)
|
|
|
(67
|
)%
|
The Company uses the equity method to account for its investment in InControl Medical, LLC (“ICM”). For the three months ended September 30, 2020, the allocated net loss from ICM’s operations was $55,000 compared to $168,000 for the three months ended September 30, 2019.
Comparison of the Nine Months Ended September 30, 2020 and 2019
Revenue
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,532
|
|
|
$
|
5,116
|
|
|
$
|
(1,584
|
)
|
|
|
(31
|
)%
|
We recorded revenue of $3,532,000 for the nine months ended September 30, 2020, compared to revenue of $5,116,000 for the nine months ended September 30, 2019, a decrease of $1,584,000, or approximately 31%. The decrease in revenue was primarily due to lower sales volume of Viveve Systems sold as the Company transitioned its U.S. commercial sales model to a recurring revenue rental model versus selling systems under a capital equipment sales model as well as the negative impact of the COVID-19 crisis on our sales activity in the period. Revenue for the nine months ended September 30, 2020 included sales of 16 Viveve Systems and approximately 5,900 disposable treatment tips sold globally. Under the subscription offering program, the Company also placed 9 Viveve Systems in the U.S. market in the nine months ended September 30, 2020. Rental revenue on these leases is recognized on a straight-line basis over the term of the lease. Revenue for the nine months ended September 30, 2019 included sales of 53 Viveve Systems and approximately 5,850 disposable treatment tips sold globally. Under the subscription offering program, which was launched in June 2019, the Company placed 49 Viveve Systems in the U.S. market in the nine months ended September 30, 2019. For the nine months ended September 30, 2020 and 2019, rental revenue recognized during the period was $829,000 and $177,000, respectively.
Additionally, late in the first quarter of 2020 and through the third quarter of 2020, the negative impact of the COVID-19 pandemic was in full effect in the United States and most other countries. Government and public health agencies issued directives halting performance of non-essential medical treatments and elective procedures in an effort to combat the spread of the coronavirus and protect public health and safety. As a result, Viveve’s customers either temporarily closed their medical practices or dramatically reduced services and staff. The consequence has been both a public health and economic crisis that continues for existing and prospective Viveve customers. In a supportive partnership response, Viveve contacted all of its subscription customers and provided them with a three-month deferral of the rental payment. Although clinics in various regions are beginning to re-open and provide limited services, we anticipate that until the COVID-19 pandemic abates, more practices begin to re-open and elective patient’s safety concerns are reduced that we will continue to experience reduced revenue from existing subscription customers, as well as a greatly reduced number of new and prospective customers.
Gross profit
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
49
|
|
|
$
|
1,135
|
|
|
$
|
(1,086
|
)
|
|
|
(96
|
)%
|
Gross profit was $49,000 or 1% of revenue for the nine months ended September 30, 2020, compared to gross profit of $1,135,000, or 22% of revenue, for the nine months ended September 30, 2019, a decrease of $1,086,000, or approximately 96%. The decrease in gross profit was primarily due to the lower sales volume of Viveve Systems sold as the Company transitioned its U.S. business model to a recurring revenue rental model versus selling systems under a capital equipment sales model that was launched in June of 2019 as well as the negative impact of the COVID-19 crisis on our sales activity in the period. Additionally, fixed manufacturing costs in the nine months ended September 30, 2020 were spread over a lower sales volume thus lowering gross margins.
Research and development expenses
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
3,745
|
|
|
$
|
6,831
|
|
|
$
|
(3,086
|
)
|
|
|
(45
|
)%
|
Research and development expenses totaled $3,746,000 for the nine months ended September 30, 2020 compared to research and development expense of $6,831,000 for the nine months ended September 30, 2019, a decrease of $3,085,000 or approximately 45%. Spending on research and development decreased in the nine months ended September 30, 2020 primarily due to reduced engineering and development work related to our products in the period as a result of our overall strategic organizational realignment in 2019 and current economic conditions associated with COVID-19. Research and development expenses during the nine months ended September 30, 2020 also included lower clinical study costs primarily due to the completion and readout of our LIBERATE-International SUI clinical trial in July 2019 and VIVEVE II – U.S. Sexual Function Trial in April 2020.
Additionally, in response to the COVID-19 crisis, the Company implemented a series of significant cost-cutting actions, including the furlough of 31 full-time employees throughout the entire organization, designed to reduce expenses and reposition resources to support the Company’s current customers and its pivotal clinical development program for our CMRF technology in the treatment of SUI.
Selling, general and administrative expenses
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
10,476
|
|
|
$
|
17,188
|
|
|
$
|
(6,712
|
)
|
|
|
(39
|
)%
|
Selling, general and administrative expenses totaled $10,476,000 for the nine months ended September 30, 2020, compared to $17,188,000 for the nine months ended September 30, 2019, a decrease of $6,712,000 or approximately 39%. The decrease in selling, general and administrative expenses in the nine months ended September 30, 2020 was primarily due to reduced spending as a result of our overall strategic organizational realignment in 2019 and current economic conditions related to COVID-19.
Additionally, in response to the COVID-19 crisis, the Company implemented a series of significant cost-cutting actions, including the furlough of 31 full-time employees throughout the entire organization, designed to reduce expenses and reposition resources to support the Company’s current customers and its pivotal clinical development program for our CMRF technology in the treatment of SUI. These corporate actions included an approximate two-thirds reduction of the direct sales organization.
Restructuring costs
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
$
|
-
|
|
|
$
|
742
|
|
|
$
|
(742
|
)
|
|
|
NM
|
|
In January 2019, the Company implemented the Strategic Organizational Realignment to reduce operating expenses and prepare the Company for expanded indications for its CMRF technology platform for improved sexual function and stress urinary incontinence in women. The restructuring included a reduction in headcount of approximately 40 full-time employees. The total restructuring costs recorded for the nine months ended September 30, 2019 were approximately $742,000. This restructuring contributed to a reduction in total operating expenses in the second quarter of 2019 as planned and resulted in additional operating cost savings throughout the remainder of the year.
Modification of Series A and B Warrants
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modification of Series A and B warrants
|
|
$
|
1,838
|
|
|
$
|
-
|
|
|
$
|
1,838
|
|
|
|
NM
|
|
In April 2020, the Company reduced the exercise price of the outstanding Series A warrants and Series B warrants from $1.55 per share to $0.61 per share. The Series A and B warrant exercise price adjustment to $0.61 per share from $1.55 per share resulted in the recognition of a modification expense of $1,838,000.
Interest expense, net
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
668
|
|
|
$
|
3,519
|
|
|
$
|
(2,851
|
)
|
|
|
(81
|
)%
|
During the nine months ended September 30, 2020, we had interest expense, net of $668,000, compared to $3,519,000 for the nine months ended September 30, 2019, a decrease of $2,851,000, or approximately 81%. The decrease in interest expense was primarily due to CRG’s conversion of approximately $28,981,000 in outstanding principal into Series B convertible preferred stock in connection with our November 2019 Offering.
Other expense, net
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
$
|
159
|
|
|
$
|
133
|
|
|
$
|
26
|
|
|
|
20
|
%
|
During the nine months ended September 30, 2020, we had other expense, net, of $158,000, compared to $133,000 for the nine months ended September 30, 2019.
Loss from minority interest in limited liability company
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
(in thousands, except percentages)
|
|
|
Loss from minority interest in limited liability company
|
|
$
|
323
|
|
|
$
|
431
|
|
|
$
|
(108
|
)
|
|
|
(25
|
)%
|
The Company uses the equity method to account for its investment in ICM. For the nine months ended September 30, 2020, the allocated net loss from ICM’s operations was $323,000, compared to $431,000 for the nine months ended September 30, 2019.
Liquidity and Capital Resources
Comparison of the Nine Months Ended September 30, 2020 and 2019
Since inception, the Company has sustained significant operating losses and such losses are expected to continue for the foreseeable future. As of September 30, 2020, the Company had an accumulated deficit of $215,071,000, cash and cash equivalents of $9,200,000 and working capital of $12,895,000. Additionally, the Company used $12,936,000 in cash for operations in the nine months ended September 30, 2020. Accordingly, management has concluded there is substantial doubt about the Company’s ability to continue as a going concern. However, due to the cost-cutting actions that the Company has taken and the remaining equity financing commitment of $9.7 million from LPC, management believes that this substantial doubt has been alleviated in the current period. Accordingly, we expect to satisfy our estimated liquidity needs for at least 12 months from the date of the issuance of these consolidated financial statements and have mitigated our going concern risk. However, we cannot predict, with certainty, the outcome of our future actions to generate liquidity, including the availability of additional financing.
Management currently believes that it will be necessary for us to raise additional funding in the form of an equity financing of common stock, but there can be no assurance that such funding will be available to us on favorable terms, if at all. The failure to raise capital 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,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(12,936
|
)
|
|
$
|
(25,862
|
)
|
|
Net cash used in investing activities
|
|
|
(403
|
)
|
|
|
(848
|
)
|
|
Net cash provided by (used in) financing activities
|
|
|
9,231
|
|
|
|
6,273
|
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(4,108
|
)
|
|
$
|
(20,437
|
)
|
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 $12,936,000 for the nine months ended September 30, 2020 compared to $25,862,000 used for the nine months ended September 30, 2019. 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, 2020 consisted of a net loss of $17,160,000 adjusted for non-cash expenses including provision for doubtful accounts and write off of accounts receivable of $335,000, depreciation and amortization of $965,000, stock-based compensation of $2,009,000, non-cash interest expense of $394,000, amortization of operating lease right-of-use assets and accretion of operating lease liabilities of $3,000, a loss from minority interest in limited liability company of $323,000, a loss on disposal of property and equipment of $14,000, a noncash charge for the modification of Series A and B warrants of $1,838,000, and cash outflows from changes in operating assets and liabilities of $1,657,000. The change in operating assets and liabilities was primarily due to a decrease in accounts receivable of $549,000, a decrease in inventory of $233,000, a decrease in prepaid expenses and other current assets of $683,000, a decrease in other noncurrent assets of $444,000, a decrease in accounts payable $913,000, a decrease in accrued and other liabilities of $2,918,000, and an increase of other noncurrent liabilities of $265,000.
Net cash used during the nine months ended September 30, 2019 consisted of a net loss of $27,709,000 adjusted for non-cash expenses including provision for doubtful accounts of $260,000, depreciation and amortization of $819,000, stock-based compensation of $1,634,000, non-cash interest expense of $1,266,000, amortization of operating lease right-of-use assets and accretion of operating lease liabilities of $4,000, a loss from minority interest in limited liability company of $431,000, a loss on disposal of property and equipment of $93,000 and cash outflows from changes in operating assets and liabilities of $2,660,000. The change in operating assets and liabilities was primarily due to a decrease in accounts receivable of $2,638,000, an increase in inventory of $236,000, an increase in prepaid expenses and other current assets of $493,000, a decrease in other noncurrent assets of $40,000, a decrease in accounts payable $2,203,000, a decrease in accrued and other liabilities of $2,566,000, and an increase of other noncurrent liabilities of $160,000.
Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2020 and 2019 was $403,000 and $848,000, respectively. Net cash used in investing activities during the nine months ended September 30, 2020 and 2019 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, 2020 was $9,231,000, which was the result of net proceeds of $8,407,000 from exercises of common warrants, proceeds of $1,343,000 from the PPP loan and proceeds of $341,000 from the initial purchase of common shares under the Purchase agreement from LPC, partially offset by transaction costs of $333,000 in connection with the 2020 Warrant Offering, transaction costs of $494,000 in connection with the Purchase Agreement with LPC, and additional transaction costs of $33,000 in connection with our November 2019 Offering.
Net cash provided by financing activities during the nine months ended September 30, 2019 was $6,273,000, which was the result of gross proceeds of $6,760,000 from our August 2019 ATM Facility (partially offset by transaction costs of $438,000) and the proceeds of $56,000 from purchases of common shares under the 2017 ESPP, partially offset by transaction costs of $100,000 in connection with our note payable.
Contractual Payment Obligations
We have obligations under a bank term loan and non-cancelable operating leases. As of September 30, 2020, our contractual obligations were as follows (in thousands):
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
Contractual Obligations (including interest):
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Year
|
|
|
3 -5 Years
|
|
|
5 Years
|
|
|
CRG note payable
|
|
$
|
5,992
|
|
|
$
|
-
|
|
|
$
|
5,992
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Paycheck Protection Program loan
|
|
|
1,364
|
|
|
|
682
|
|
|
|
682
|
|
|
|
-
|
|
|
|
-
|
|
|
Non-cancellable operating lease obligations
|
|
|
213
|
|
|
|
213
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
7,569
|
|
|
$
|
895
|
|
|
$
|
6,674
|
|
|
$
|
-
|
|
|
$
|
-
|
|
In February 2017, we entered into the 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 is 36 months and the monthly base rent for the first, second and third years is $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 is 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 will terminate in May 2021.
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 9,893,776 shares of common stock were also issued. The outstanding principal balance under the 2017 Loan Agreement was $4,377,000 as of September 30, 2020.
In September 2018, the Company entered into a 36-month noncancelable operating lease agreement for office equipment. The monthly payment is approximately $3,000.
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. Please see Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, that was filed with the SEC on March 19, 2020, as amended on June 18, 2020 and June 27, 2020, for a more complete description of our significant accounting policies. There have been no material changes to the significant accounting policies during the three months ended September 30, 2020.
Recent Accounting Pronouncements
In November 2019, the FASB issued ASU 2019-08, “Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606). The amendments in this Update require measurement and classification of share-based payment awards granted to a customer by applying the guidance in Topic 718. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. We adopted this guidance as of January 1, 2020, and the adoption of the guidance did not have a significant impact on the condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740). The amendments in this Update provide further simplification of accounting standards for the accounting for income taxes. Certain exceptions for are removed and requirements regarding the accounting for franchise taxes, tax basis of goodwill, and tax law rate changes are made. This guidance is effective for annual reporting periods beginning after December 15, 2020, including interim periods within that reporting period, with early adoption permitted. We will adopt this guidance as of January 1, 2021 and the adoption of the guidance is not expected to have a significant impact on the consolidated financial statements. 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.
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.
Off-Balance Sheet Transactions
We do not have any off-balance sheet transactions.
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 on Form 10-Q, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.