UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

 

(Mark One)

 

 

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2019

 

or

 

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________.to _______________.

 

Commission file number 1-11388

 

VIVEVE MEDICAL, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

 

04-3153858

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

345 Inverness Drive South

Building B, Suite 250

Englewood, CO 80112

 (Address of principal executive offices - Zip Code)

 

Registrant's telephone number, including area code: (720)-696-8100

 

Securities registered pursuant to Section 12(b) of the Act:  

 

Title of each class

Trading Symbol

Name of each exchange on which registered

 

 

 

Common Stock, par value $0.0001 per share

VIVE

The Nasdaq Capital Market

   

Securities registered pursuant to Section 12(g) of the Act:   None.

 

Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ☐    No   ☒

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐    No   ☒

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

 

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒    No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): 

  

 

Large accelerated filer ☐

Accelerated filer ☐

 

 

 

 

 

 

Non-accelerated filer ☒

Smaller reporting company ☒

 

 

 

 

 

 

 

Emerging growth company ☐

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes ☐    No   ☒

  

As of June 28, 2019, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the last reported sales price of the Registrant’s common stock, par value $0.0001 per share, on The Nasdaq Capital Market on such date, was approximately $17,634,014.

 

Number of shares outstanding of the Registrant’s common stock, as of March 13, 2020: 10,027,883

   

 

 

 

VIVEVE MEDICAL, INC.

 

   

Table of Contents

 

Part I

 

 

 

Item 1

Business

1

Item 1A

Risk Factors

19

Item 1B

Unresolved Staff Comments

37

Item 2

Properties

38

Item 3

Legal Proceedings

38

Item 4

Mine Safety Disclosures

38

 

 

 

Part II

 

 

 

Item 5

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

38

Item 6

Selected Financial Data

39

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

39

Item 7A

Quantitative and Qualitative Disclosure about Market Risk

52

Item 8

Financial Statements and Supplementary Data

52

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

52

Item 9A

Controls and Procedures

52

Item 9B

Other Information

52

 

 

 

Part III

 

 

 

Item 10

Directors, Executive Officers and Corporate Governance

53

Item 11

Executive Compensation

56

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

61

Item 13

Certain Relationships and Related Transactions, and Director Independence

62

Item 14

Principal Accountant Fees and Services

62

 

 

 

Part IV

 

 

 

Item 15

Exhibits, Financial Statement Schedules

63

 

 

 

Signatures

66

 

i

 
 

Unless otherwise noted, the terms “Viveve”, “the Company,” “we,” “us,” “our” and similar designations in this Annual Report on Form 10-K refer to Viveve Medical, Inc. and its wholly-owned subsidiaries, Viveve, Inc. and Viveve BV.

 

PART I

 

FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this report. In particular, forward-looking statements include statements relating to future actions, prospective products, applications, customers and technologies, and future performance or future financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

 

 

our limited cash and our history of losses;

 

our ability to achieve profitability;

 

our limited operating history;

 

emerging competition and rapidly advancing technology;

 

whether we are successful in having our medical device approved or cleared for sale by the U.S. Food and Drug Administration (“FDA”) for all indications;

 

whether we can obtain regulatory approval in additional markets outside of the United States;

 

whether demand develops for our medical device;

 

the impact of competitive or alternative products, technologies and pricing;

 

the adequacy of protection afforded to us by the patents that we own and the cost to us of maintaining, enforcing and defending those patents;

 

our ability to obtain, expand and maintain protection in the future, and to protect our non-patented intellectual property;

 

our ability to file and obtain additional patents;

 

our ability to broaden our customer base;

 

our exposure to and ability to defend third-party claims and challenges to our patents and other intellectual property rights;

 

our ability to obtain adequate financing in the future, as and when we need it;

 

our ability to continue as a going concern;

 

the impact of the novel coronavirus on our clinical development and on the manufacturing, sales and patient utilization of our Viveve Systems and tips;

 

the impact of an economic recession, including as a result of the novel coronavirus, on our business, financial condition or results of operations;

 

our ability to maintain compliance with The Nasdaq Capital Market continued listing standards;

our success at managing the risks involved in the foregoing items; and

 

other factors discussed in this report.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements included in this report to conform such statements to actual results or changes in our expectations. You should not place undue reliance on these forward-looking statements.

 

Item 1. Business

 

Viveve designs, develops, manufactures and markets a platform medical technology, which we refer to as Cryogen-cooled Monopolar Radiofrequency, or 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 being marketed around the world (outside of the United States) for the non-invasive treatment of vaginal introital laxity, sexual function, vaginal rejuvenation, and stress urinary incontinence depending on the relevant country-specific clearance or approval, that we refer to as the Viveve treatment.

  

1

 

At this time, the Viveve System is indicated for use and being marketed for use in general surgical procedures for electrocoagulation and hemostasis in the United States; the device has not been cleared or approved for use for the treatment of vaginal laxity, to improve sexual function, for vaginal rejuvenation, or for stress urinary incontinence in the United States. Accordingly, the Company is prohibited under current U.S. regulations from promoting it to physicians or consumers for these unapproved uses.  We believe the Viveve System and Viveve treatment provide a number of benefits for physicians and patients, including:

 

 

a safe, minimally-invasive, non-ablative procedure;

 

requiring only a single treatment;

 

compelling physician economics; and

 

ease of use.

 

In the U.S., the Viveve System is sold through a direct sales force. In other regions, we market and sell primarily through a network of distribution partners.

 

Currently, the Viveve System is cleared for marketing in 57 countries throughout the world under the following indications for use:

 

Indication for Use:

No. of Countries:

General surgical procedures for electrocoagulation and hemostasis

4

 (including the U.S.)

General surgical procedures for electrocoagulation and hemostasis of vaginal tissue and the treatment of vaginal laxity

32

 

For treatment of vaginal laxity

4

 

For treatment of the vaginal introitus, after vaginal childbirth, to improve sexual function

14

 

General surgical procedures for electrocoagulation and hemostasis as well as for the treatment of vaginal laxity

1

 

For vaginal rejuvenation

1

 

For treatment of vaginal laxity and to improve mild urinary incontinence and sexual function

1

 

 

As of December 31, 2019, we have sold 840 Viveve Systems and approximately 41,150 single-use treatment tips worldwide.

 

On September 23, 2014, Viveve Medical, Inc. (formerly PLC Systems, Inc.), a Delaware corporation (“Viveve Medical”, “Viveve”, “we”, “us” or “our”) completed a reverse acquisition and recapitalization pursuant to the terms and conditions of an Agreement and Plan of Merger (the “Merger Agreement”) by and among PLC Systems Acquisition Corp., a wholly owned subsidiary of PLC Systems Inc., with and into Viveve, Inc., a Delaware corporation (the “Merger”). Viveve, Inc. is a Delaware corporation that was incorporated in 2005 by Jonathan Parmer, MD, an OBGYN physician, and is a wholly-owned subsidiary of Viveve Medical, Inc. In conjunction with the Merger, we changed our name from PLC Systems Inc. to Viveve Medical, Inc. to better reflect our new business. Viveve Medical competes in the women’s health industry by marketing the Viveve System and the Viveve treatment as a way to improve the overall sexual well-being and quality of life of women suffering from vaginal laxity and/or urinary incontinence, depending on the relevant country-specific clearance or approval. We are currently located at 345 Inverness Drive South, Building B, Suite 250, Englewood, Colorado 80112 and our telephone number is (720) 696-8100. Our website can be accessed at www.viveve.com. The information contained on or that may be obtained from our website is not a part of this report. Viveve, Inc. operates as a wholly-owned subsidiary of Viveve Medical and was incorporated in 2005.

 

Our Products

 

The Viveve System

 

The Viveve System consists of three main components: a radiofrequency (“RF”) generator housed in a table-top console, a reusable handpiece and a single-use treatment tip. Included with the system are single-use accessories (e.g. return pad, coupling fluid), as well as a cryogen canister that can be used for approximately four to five procedures, and a foot pedal. Physicians or medical practitioners attach the single-use treatment tip to the handpiece, which is connected to the console. The generator authenticates the treatment tip and programs the system for the desired Viveve treatment without further intervention. The treatment is performed in a physician’s office and does not require the use of anesthesia. The tissue remodeling effect resulting from the Viveve treatment has been demonstrated by our pre-clinical and clinical research.

 

 

Radiofrequency Generator. The generator produces a six-megahertz signal and is simple and efficient to operate. Controls are within easy reach, and important user information is clearly displayed on the console’s built-in display, including energy delivered, tissue impedance, duration and feedback on procedure technique. Cooling is achieved, in conjunction with the generator, through the delivery of a coolant that helps to cool and protect the mucosa during a procedure.

 

2

 

 

Handpiece. The reusable handpiece holds the treatment tip in place and processes information about temperature, contact, cooling system function and other important data. A precision control valve within the handpiece meters the delivery of coolant, which protects the mucosal surface tissue.

 

 

 

 

Treatment Tip. The single-use treatment tip is available in two sizes and comes pre-sterilized. Each treatment tip contains a proprietary internal EEPROM or Electrically Erasable Programmable Read-Only Memory chip, which stores treatment parameters and safety limits in order to optimize performance and safety. To enhance procedural safety, we have programmed the EEPROM for single-use treatments. Using the same treatment tip to perform multiple procedures could result in injury, therefore, the EEPROM disables the treatment tip after a pre-programmed number of pulses to ensure that the treatment tip is not reused.

 

The Viveve System also includes other consumable components. The console houses a canister of coolant that can be used for approximately two to five procedures (depending on the procedure type and pulses used). Each procedure requires a new return pad, which is typically adhered to the patient’s thigh or buttocks to allow a path of travel for the RF current through the body and back to the generator. We also sell proprietary single-use bottles of coupling fluid, a viscous liquid that helps ensure electrical and thermal contact with the treatment tip.

 

Technology Platform - Cryogen-cooled Monopolar Radiofrequency (CMRF)

 

The Viveve System uses a patented and proprietary method of delivering monopolar RF energy for treating tissue:

 

 

Monopolar Radiofrequency Energy. Monopolar RF delivery uses an active electrode applied to the target tissue and a passive return electrode adhered to the patient’s thigh or buttocks. RF current is concentrated where the active electrode touches the body and expands as it is drawn through progressively deeper layers of tissue toward the return electrode. Providing both precise placement and deep energy penetration, the monopolar arrangement draws higher levels of therapeutic energy into deeper tissue layers than competing bipolar arrangements that rely on passive dispersion of current passing between two closely spaced electrodes on the tissue surface.

 

 

Capacitive Coupling Mechanism of Action for Collagen Heating. Our single-use Viveve treatment tip contains patented technology that uses monopolar RF energy as a controlled tissue heating source through the use of a non-conducting material, known as a dielectric. Capacitive coupling is the use of the dielectric to create an electric field in the area where the treatment tip touches the body. The electric field induces a current within the surrounding tissue, resulting in volumetric heating of the tissue due to the tissue’s natural resistance to electrical current flow. Collagen is an efficient conductor of electricity and therefore acts as a pathway for the electric current. This process results in heating of the fibrous septae, the strands of collagen fibers that permeate tissues and connect the outer mucosal layer to the underlying muscle. Delivery of heat to the fibrous septae located in deeper layers of the tissue shrinks and shortens them, resulting in tightening of the mucosal tissue. Over one to three months, as part of the body’s natural response to the activation of fibroblasts that results from the application of low-energy hyperthermic RF energy, aging collagen is reorganized into stronger, tighter bundles and can be supplemented with new collagen. This renewal of the tissue support matrix leads to improved tissue integrity and function.

 

The Viveve System also uses a proprietary, controlled cryogen surface cooling that enables deep volumetric heating of vaginal tissue:

 

 

Reverse Thermal Gradient. With RF delivery, it is typical to expect higher temperatures closest to the surface electrode and a comparatively lower temperature distal to the electrode. However, with the Viveve System the opposite is true, hence a “reverse” thermal gradient. Maintaining a well-cooled, protected surface allows our treatment tips to safely remain on the tissue longer, allowing an optimal amount of RF energy penetration into the deeper tissue layers, while helping to ensure a comfortable patient experience.

 

 

 

 

Algorithmically-controlled Cryogen Delivery. The Viveve System software actively monitors the temperature of the surface tissue and delivers the appropriate amount of cryogen necessary to keep the surface near normal body temperature. It does so consistently, automatically and completely independently of the actions of the operator, providing an important built-in safety mechanism to protect the delicate surface of vaginal tissue.

  

Market Overview

 

Overview of Vaginal Laxity and Sexual Function

 

Vaginal laxity and tissue architecture have often been overlooked as contributing etiological factors to female sexual dysfunction. Vaginal laxity can lead to diminished physical sensation during intercourse. This reduction in sensation is often coupled with a reduction in sexual satisfaction, all of which can also impact a woman’s sense of sexual self-esteem and her relationship with her sexual partner.

 

3

 

Vaginal laxity is infrequently discussed in a clinical situation, yet most surveyed OB/GYNs and urogynecologists recognize that it is an underreported, yet bothersome, medical condition that impacts relationship happiness and sexual function. Another survey of OB/GYNs, found that vaginal laxity is the most frequent physical change seen or discussed post-vaginal delivery. Additionally, in a survey of women ranging from 25-45 years of age, who had experienced at least one vaginal delivery, approximately half expressed some degree of concern over “looseness” of the vaginal introitus.

 

Women can develop vaginal laxity for a number of reasons, including aging, genetic predisposition, lifestyle, and/or trauma. As women age, slower cellular renewal coupled with reduced vascular and glandular networks contributes to loss of underlying supportive fibrous tissue. Some women may have underlying pathophysiological issues with collagen formation, remodeling and repair; and their lifestyle choices (e.g., alcohol consumption, tobacco use, and excessive food consumption) also play a role in the integrity of vaginal tissue. Vaginal trauma (e.g., childbirth, surgery, self-stimulation, or coitus) can also contribute to vaginal laxity.

  

All women who have given birth vaginally undergo stretching of the tissues of the vaginal opening to accommodate the fetal head. Often the effects are permanent, and many women have long-term physical and psychological consequences including sexual dissatisfaction. One significant issue is the loosening of the introitus ─ the vaginal opening. This may happen with the first vaginal delivery and can be made worse with subsequent vaginal deliveries. Vaginal laxity can result in decreased sexual pleasure for both women and their partners during intercourse. We believe that this condition is not frequently discussed because women are embarrassed, fear that their concerns will be dismissed or fear that their physicians will not understand. Physicians hesitate to discuss the situation with their patients because historically there has been no safe and effective treatment options. Physicians frequently recommend Kegel exercises. However, these exercises only strengthen the pelvic floor muscles and do not address the underlying cause of vaginal laxity – loss of tissue elasticity. While surgery can be performed to tighten the vaginal canal, the formation of scar tissue from the surgery may lead to painful intercourse and permanent side effects.

 

As a consequence of the physical tissue damage that can result from childbirth, a significant decrease in sexual satisfaction has been reported in women who underwent vaginal delivery, when assessed two years after delivery, in comparison with those who underwent elective caesarian section. In the past several years there has been a marked increase in the number of women requesting delivery by caesarian section with the intention of preventing damage to the pelvic floor and introitus. Caesarian sections are not without risk to both the baby and mother. Whether or not to agree to a woman’s request for an elective caesarian section has generated considerable controversy among obstetricians. If a procedure were available to address the concerns of women about vaginal laxity, we believe the perceived need to have a caesarian section to prevent vaginal tissue damage may decrease significantly. 

 

Market for a Proven Solution for Vaginal Laxity & Sexual Function

 

In 2009, we sponsored several on-line marketing surveys in the U.S. with both OB/GYNs and women, ages 25-55, to assess attitudes of physicians and women about vaginal laxity and towards a safe, non-invasive solution to treat this condition.

 

 

Physician Survey: An OB/GYN marketing survey was conducted by OB/GYN Alliance with nearly 525 practicing OB/GYNs from across the U.S. The objectives of the study were to: obtain insights from physicians on physical changes resulting from childbirth and the corresponding sexual health implications for patients; understand the perceptions and opinions of OB/GYN physicians on a procedure that could be offered to address vaginal laxity following childbirth; and gain an understanding of whom the early adopters may be of the Viveve treatment.

 

 

 

 

Consumer Survey: In a consumer marketing survey conducted by Q&A Research, 421 women were screened for vaginal delivery, age (25-55), income, education and other factors. The objectives of the survey were to assess the need for the Viveve treatment and better understand the complexity of emotions and the psychological profile of women who experience, but do not discuss, vaginal changes post childbirth.

 

Results from these surveys suggested that vaginal laxity is a significant unmet medical need, and that patients and physicians would benefit significantly from a safe and effective non-invasive treatment that would also increase physical sensation and sexual satisfaction following vaginal childbirth. Of the 421 patient respondents, up to 48% felt that vaginal laxity was a concern post-childbirth. Furthermore, it is evident that patients and their OB/GYNs are not discussing vaginal laxity on a regular basis; in fact, we believe such conversations occur quite infrequently due to many factors, including patient embarrassment and fear of being ridiculed, lack of time and lack of solutions for physicians. Of the nearly 525 OB/GYNs surveyed, 84% indicated that vaginal laxity is the number one post-delivery physical change for women, being more prevalent than weight gain, urinary incontinence and stretch marks, and believe that it is under-reported by their patients. Additionally, in a separate international survey of urogynecologists, 84% of the 563 respondents described vaginal laxity as underreported by their patients and the majority considered it a bothersome condition that impacts sexual function and relationships.

  

Applying U.S. census data, CDC Vital Statistics data and our projections from these studies, we estimate there are approximately 9 million post-partum women who are potential candidates for this procedure in the U.S. alone, approximately 4.5 million of whom could be candidates for the Viveve treatment for vaginal laxity or sexual function.

 

4

 

In 2012, we conducted a similar consumer study in Japan and Canada in order to understand cultural differences that may exist towards vaginal laxity and the Viveve treatment. The results corroborated our U.S. survey conclusions. Applying World Health Organization census data as well as data from individual countries, we estimate there are 25-30 million women outside the U.S. that could be candidates for the Viveve treatment for vaginal laxity or sexual function.

 

In January 2018, we sponsored a survey of 1,500 women in Great Britain having had a vaginal delivery, and nearly half (48%) worried before having a child about physical changes in their body from childbirth affecting their sex life; this increased to 67% of women in the age range of 25-34. Approximately 4 in 10 (38% overall, 44% ages 25-34) have experienced vaginal tissue changes impacting their physical sensation during sex, with the most common impacts consisting of feeling less confident overall, feeling embarrassed and self-conscious, and feeling less enjoyment or intimacy with their partner.

 

In a 2019 article in the Journal of Women’s Health, the authors concluded that the social stigma for women from Western culture regarding sexuality remains and creates barriers of communication with their health care professionals. The women in the study were typically unaware or had misconceptions of conditions that could adversely affect their sexual life. Additionally, these women lacked awareness of safe and effective treatments. Despite the lack of awareness and communication regarding this issue, we believe there is a strong interest among patients and doctors to advance the conversation of women’s sexual wellness and evolving options a treatment that are clinically proven and safe.

  

Current Treatments for Vaginal Laxity/Sexual Function and Their Limitations

 

Currently, few clinically proven medical treatments are available to effectively treat vaginal laxity or sexual function. The most widely prescribed treatments include pelvic floor muscle exercises, or Kegel exercises, and invasive surgical procedures, known as laser vaginal rejuvenation (“LVR”) or vaginoplasty.

 

 

Kegel Exercises: Kegels are an exercise that was developed by Dr. Arnold Kegel designed to strengthen the muscles of the pelvic floor - the pubococcygeal (“PC”) muscles - to increase vaginal muscle tone, improve sexual response, and limit involuntary urine release due to stress urinary incontinence. These exercises are often prescribed following childbirth or during and after menopause. However, we are not aware of any validated evidence indicating that Kegels improve vaginal laxity or sexual function due to introital laxity.

 

 

 

 

Surgical Procedures: Of the various alternatives for treating vaginal laxity, invasive surgical procedures, such as LVR, are the only modalities with any proven efficacy outcomes. Typically, they are performed by plastic surgeons with patients under general anesthesia. According to The International Society of Aesthetic Plastic Surgeons (“ISAPS”), 206,846 LVR surgeries were performed world-wide in 2017. However, these invasive surgical procedures are expensive, costing thousands of dollars, and can involve weeks of post-surgical recovery time for the patient. They also carry the risk of scarring, which can lead to uncomfortable or painful intercourse, long-term or permanent loss of sensation, serious infection, tissue necrosis, hematomas (fluid collection under the tissue that may require removal), and adverse reactions to anesthesia.

 

Overview of Stress Urinary Incontinence

 

Urinary incontinence (UI) is defined by the International Continence Society (ICS) as “the complaint of involuntary leakage of urine.” UI is increasingly recognized globally as a health and economic problem, which affects the physical, psychological, social and economic well-being of individuals and their families and poses a substantial economic burden on health and social services.

 

Women with urinary incontinence have a significantly poorer quality of life than their continent counterparts. The psychological impact of this condition must neither be underestimated nor ignored. The need to use an external pad to absorb urine leakage associated with even normal activities such as coughing or laughing is unsatisfactory, inconvenient, often embarrassing and negatively impacts a woman’s quality of life. The main impact urinary incontinence has on women’s lives, in terms of social and recreational withdrawal, stems from the fear and anxiety related to becoming incontinent in public and the possibility that others may find out. The result is often reduced activities, decreased productivity, isolation, and depression. Additionally, between 25% to 50% of women with urinary incontinence experience sexual dysfunction.

 

There are three types of UI. Stress Urinary Incontinence (SUI) is the complaint of involuntary leakage of urine due to increased abdominal pressure caused by exertion, sneezing or coughing. Urge Urinary Incontinence (UUI) is the complaint of involuntary leakage of urine accompanied by or immediately preceded by urgency. Mixed Urinary Incontinence (MUI) is the complaint of involuntary leakage of urine associated with urgency and also with exertion, sneezing, or coughing.

 

According to the most recent National Center for Health Statistics (NCHS) Health Survey in the U.S., the prevalence of UI in adult women is 33% which is the highest among the ten conditions tracked including obesity, joint pain and hypertension. Additionally, a review of the epidemiologic literature on incontinence showed a prevalence range of 16% to 51% depending on UI definitions, severity levels, and other factors included in the surveys. The average across the literature is 33%, which is similar to the NCHS survey. This translates to 35 million women in the U.S. Of those 35 million 86% have SUI or MUI, 80% of them are bothered and only approximately 700,000 are receiving treatment in the form of conservative therapy or surgical procedures. Accordingly, over 23 million women in the US are bothered by SUI or MUI symptoms and are untreated. Viveve believes that its non-invasive treatment option for SUI may fulfill this large unmet need.

 

5

 

SUI has two major subtypes: intrinsic sphincter deficiency (ISD) and urethral hypermobility. Patients with ISD leak urine because their urethral sphincters do not effectively seal off the inner muscle of the bladder. Urethral hypermobility (UH) refers to the urethral shift that occurs when there is an increase in intrabdominal pressure (e.g., cough/sneeze/jump) and insufficient urethral support by the surrounding pelvic floor muscles and tissue. Most women with SUI have a degree of both ISD and UH.

 

Risk factors for SUI include pregnancy, childbirth, and menopause. For example, more than 55% of women who have delivered a child vaginally will show symptoms of SUI and are twice as likely to suffer from long-term SUI when compared to cesarean delivery.

 

Current Treatments for Stress Urinary Incontinence and Their Limitations

 

Currently available and effective treatment options for SUI are limited to conservative physiotherapy and more aggressive, invasive options with a lack of efficacious options in between. Pelvic floor muscle training (Kegels), with or without use of a device to assist in Kegels, are generally prescribed as a first step in treatment. Some women may find benefit from these exercises, but long-term compliance and sustainability is challenging. At the other end of the treatment spectrum are bulking agents and surgery with native tissue or mesh or a sling. Bulking agents are best used for women with primarily ISD and can be done in a clinic, however they have limited efficacy and durability. Surgeries including synthetic sling placement have a proven success rate, however, mesh surgery often leads to complications. In addition, surgery requires recovery time for the patient and often comes with risks including recurrence, infection, pain, voiding dysfunction, and anesthetic concerns, leading many women to agree to surgery as a last resort for treatment. The large gap between conservative and highly-invasive treatment options presents an opportunity to provide more effective, safe, and less-invasive treatments for women suffering from SUI.

 

The Viveve Solution

 

RF energy has a long history of use in epithelial/mucosal tissue in the pharynx, skin, cornea, and vagina. Additionally, RF devices have been used to treat a variety of health-related concerns, including SUI. We believe that the Viveve System provides a compelling, safe, non-invasive treatment for vaginal laxity, improvement of sexual function that is supported by clinical studies, and improvement of the symptoms of SUI. The Viveve treatment is conducted on an outpatient basis in a practitioner’s office. The procedure typically takes approximately 30 - 45 minutes depending on the indication being treated and does not require any form of anesthesia. To perform the procedure, a practitioner attaches the single-use treatment tip to the handpiece. As described above, the return pad is then adhered to the patient’s upper leg to allow a path of travel for the RF current back to the generator. Prior to treatment, the treatment area is bathed in coupling fluid, which is used for conduction and lubrication.

 

Benefits of the Viveve Treatment

 

The Viveve treatment provides a number of benefits for physicians and patients:

 

 

Minimally-Invasive, Non-Ablative Treatment with a Demonstrated History of Safety. The Viveve System has been tested in pre-clinical tissue studies and has been used to treat over 500 clinical study patients. To date, we estimate that physicians have treated over 20,000 patients. The procedure is non-invasive and offers a treatment option with little or no downtime from the patient’s normal routine. It is also not a surgical procedure and does not damage either the mucosal, sub-mucosal tissue, or any extra vaginal tissues or require any form of anesthesia.

 

 

 

 

Single Treatment. The Viveve treatment is normally performed in a medical office setting as a single treatment that takes approximately 30 – 45 minutes to complete depending on the indication being treated. Our studies have shown that the clinical effect from our procedure occurs within one to three months and patients continue to report improvement over a period of six months following treatment. In addition, the Viveve treatment maintains its effect for at least 12 months, based upon currently available data from our clinical studies.

 

 

 

 

Compelling Physician Economics. We believe that in an era of declining government and insurance reimbursement, many physicians are seeking to add effective and safe, self-pay procedures to their practices. The Viveve treatment can be easily adapted into many physician practices and offers compelling per-procedure economics for the physician.

 

 

 

 

Ease of Use. The Viveve System offers an easy-to-use, straightforward user interface that allows a trained physician or nurse (where permitted by law) to perform the treatment in approximately 30 – 45 minutes depending on the indication being treated. It provides real-time feedback, and the patient can be monitored during the treatment. The handpiece and single-use treatment tip are designed with a small profile for accurate placement during treatment, comfort and ease of use.

 

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Business Strategy

  

Our goal is to become the leading provider of non-invasive solutions to treat certain women’s intimate health conditions by:

 

 

Increasing the Number of Installed Base of Viveve Systems. In our existing markets, we plan to (i) expand the number of Viveve Systems by leveraging our new business model, current and future clinical study results and through innovative marketing programs directed at both physicians and patients, where permissible by law, and (ii) expand our efforts and obtain regulatory approvals in additional markets, although there are no assurances that we will ever receive such approvals.

 

 

 

 

Driving Increased Treatment Tip Usage. We work collaboratively with our physician customer base to increase treatment tip usage by enhancing customer awareness and facilitating the marketing efforts of our physician customers to their patients, where permitted by law. We intend to launch innovative marketing programs with physician customers, where permitted by law, to develop a high volume Viveve practice.

 

 

Broadening the conditions we treat through robust clinical trials and regulatory label expansion. In addition to pursuing clearance/approval in the U.S. for the improvement of sexual function, we intend to conduct several clinical trials, and if successful, submit for regulatory clearance/approval in the U.S. and abroad for stress urinary incontinence and potentially vulvovaginal atrophy.

 

 

Broadening Our Customer Base. While our initial focus is on marketing our procedure to the aesthetics and OB/GYN specialty, we intend to selectively expand our sales efforts into other physician specialties, such as urology, urogynecology, general surgery and family practice. Additionally, we intend to pursue sales from physician-directed medi-spas with track records of safe and successful treatments.

 

 

 

 

Developing New Treatment Tips and System Enhancements. We intend to continue to expand our line of treatment tips that, in the future, may allow for shorter procedure times to benefit both physicians and patients. We also plan to pursue potential system modifications and next generation enhancements that will further increase the ease-of-use of the Viveve System.

 

 

 

 

Investing in Intellectual Property and Patent Protection. We will continue to defend and invest in expanding our intellectual property portfolio, and we intend to file for additional patents to strengthen our intellectual property rights. Areas in which we may pursue additional patent protection include, but are not limited to, redesign of certain system components, disposable components and software algorithms. We believe that our intellectual property rights protect our position as the exclusive provider of a vaginal laxity treatment using monopolar RF technology in the U.S. and in many other countries. (See discussion under the heading “Patents and Proprietary Technology”.) 

 

Our Customers

 

To date, we have focused our commercial efforts in markets where we have received regulatory clearances/approvals. Within each market, we target thought leaders across multiple specialties in order to increase awareness of the conditions we treat and accelerate patient acceptance of Viveve’s treatments. Currently we target a broad number of physician specialties including; plastic surgeons, aesthetic dermatologists, OBGYNs, urogynecologists, urologists and others.

 

Through our direct sales employees, and distributors, we currently target physicians who have a demonstrated commitment to building a high-volume, non-invasive treatment business within their practice. As sales of our product continue to expand globally, we intend to continue to utilize distribution partners in most countries.

  

Sales and Marketing

 

United States

 

In October 2016, we received clearance from the FDA to sell the Viveve System for use in general surgical procedures for electrocoagulation and hemostasis. From January 2017 through May 2019 the Company relied on a traditional capital sales model, including selling the Viveve Systems and disposable treatment tips. In June of 2019, the Company transitioned to a recurring revenue rental model, where we lease the Viveve System to customers instead of selling it to them. The Company believes that the change in business model lowers the barrier to entry for physicians to adopt the procedures, shortens the sales cycle and improves the cost effectiveness of each sale. At the end of 2019, we had 6 direct sales representatives covering the United States. In 2020, we plan to expand our direct sales efforts under the new business model to achieve broader reach throughout the United States.

 

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International

 

We currently market the Viveve treatments and sell the Viveve System, including the single-use treatment tips in over 50 countries outside of the United States. At the present time, trained direct sales employees or distribution partners represent Viveve and its products in 57 countries in markets in Canada, Europe, the Middle East, Asia Pacific, and Latin America.

 

By using a consultative sales process, we form strong relationships with our customers through frequent interactions. Beyond performing initial system installation and on-site training, which can occur within two weeks of a physician’s purchase decision, our sales consultants provide ongoing consultation to physicians on how to integrate the Viveve treatments into their practices and market procedures to their patients, to the extent permitted by law.

 

We, or our distribution partner, also provide comprehensive training and education to each physician upon delivery of the Viveve System. We are not required to provide training but do so to support our physician customers in safely and effectively performing the Viveve treatments.

 

Further, we intend to actively engage in promotional opportunities through participation in industry tradeshows and clinical workshops, as permitted by law, as well as through trade journals, brochures, and our website. We intend to also actively engage in direct-to-consumer marketing of the Viveve treatments where permitted by law, including extensive use of social media, in many cases on a cooperative basis with our distribution partners.

 

Clinical Studies  

 

We have completed several pre-clinical and human clinical studies in vaginal tissue to assess the safety and efficacy of the Viveve treatment in vaginal laxity/sexual function and SUI. We are currently conducting a sexual function trial under IDE in the U.S. (VIVEVE II), recently completed an international trial in Canada for SUI (LIBERATE-International) and are preparing to conduct a clinical study in the U.S. for SUI, if and when we receive approval of our IDE application from the FDA. While we believe that our pre-clinical and human clinical studies have, and will, show that the Viveve System and the Viveve treatment have a strong safety profile and are effective, there is risk that the FDA will not agree with this assessment. Notwithstanding the safety in trials to date of the Viveve System, patients may experience undesirable side effects such as temporary swelling or reddening of the treated tissue.

 

Pre-clinical Studies

 

In 2010, in collaboration with West Virginia University, we conducted an animal study in sheep to assess the safety, and further understand the mechanism of action, of the Viveve treatment. The vaginal introitus of five parous sheep were treated once with the Viveve System using a variety of energy levels (75−90 Joules/cm2). Each sheep then underwent serial vaginal biopsies immediately after treatment, at approximately one week, and at one, three and six months (4-5 samples per occurrence). Control biopsies were also obtained from three untreated parous sheep. We examined the vaginal mucosa and underlying connective tissue for thermal changes and subsequent tissue responses over a six-month period through light microscopic examination of haematoxylin and eosin (“H&E”) stained slides that were reviewed by pathologists who were blinded as to the treated and untreated sheep.

 

The results of the study indicated that the optimal level of RF energy delivered was 90 J/cm2 and the biopsies supported the hypothesis that the mechanism of action of our technology involves connective tissue remodeling with fibroblast activation and new collagen production. Given the post-treatment absence of ulcerations, regional necrosis or diffuse fibrosis, throughout the six-month follow-up period, we believe the studies help support the safety profile of the Viveve System.

  

As part of our clinical studies, we have studied and continue to study, the interaction of RF energy and tissue to further understand the mechanism of action of the Viveve procedure. We have used transmission electron microscopy on ovine biopsied tissue samples to corroborate that our product induces subtle collagen modification and the deposition of new collagen that leads to tissue tightening and restoration of tissue elasticity. We have developed histology techniques to investigate the depth of heat in tissue, fibroblast activation and collagen deposition that we believe is responsible for long-term improvement and tightening of tissue. We have also created three-dimensional computer models to study tissue heating with our product. Determining the effectiveness of this type of treatment is inherently a subjective evaluation, and the FDA could disagree. When performing our clinical studies, we attempt to utilize the most compelling measures we can in order to provide convincing evidence of efficacy.

 

In November 2019, we conducted a Good Laboratory Practice (GLP) study in six ewes to evaluate the in vivo temperature-time profile and histopathology of vaginal and surrounding tissues in the ovine model after Viveve treatment. Five ewes were utilized for the in vivo energy application procedures while the remaining ewe was utilized as a control. During anesthesia, eight fluoroptic temperature probes were placed at different locations near the vaginal wall, rectum and bladder. After probe placement, five of the ewes received the Viveve SUI protocol (220 pulses of 90 J/cm2 of RF energy) and temperatures recorded. The control ewe did not receive energy application, but temperatures were recorded. In February 2020, study results showed temperature increases only at tissue locations where expected. Histopathology results showed normal histopathology of vaginal and surrounding tissues, and no adverse or other associated treatment-related responses, as evaluated histologically via H&E stain (in formalin fixed, paraffin embedded samples) and LDH/NBT vital stain (in frozen, OCT embedded samples). There were no macroscopic findings in either fresh or formalin-fixed tissues submitted for pathologic evaluation.

 

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Clinical Studies – Vaginal Laxity and Sexual Function

    

United States Pilot Study

 

We conducted our first human study beginning in November 2008. The study was a single-arm study conducted in 24 female subjects, ages 25-44 years old, each of whom had experienced at least one full-term vaginal delivery. The study was designed to assess the safety and efficacy of the Viveve System for the treatment of vaginal laxity at three RF dosing levels. Each woman underwent a single Viveve treatment, three patients received 60 joules/cm2, three patients received 75 joules/cm2, and 18 patients received 90 joules/cm2. Patient outcomes were measured at baseline, one month, three months, six months, and 12 months using several validated patient-reported outcome measures, including a company-designed vaginal laxity/tightness questionnaire (“VSQ”), Female Sexual Function Index (“FSFI”), Female Sexual Distress Scale-Revised (“FSDS-R”) and the Global Response Assessment.

 

Within one month after the Viveve treatment, patients reported a statistically significant improvement in vaginal laxity scores, sexual function and sexual satisfaction scores compared to baseline. These results continued throughout the 12-month follow-up period. Additionally, patients reported a statistically significant decrease at one month, and thereafter, in their personal distress scores from sexual activity. 

 

The Viveve treatment also demonstrated a strong safety profile throughout the study. The treatment was well tolerated and there were no procedure-related adverse events or serious adverse events through the 12-month follow-up period.  

 

Japan Pilot Study

 

Our second human clinical study began in March 2010. This study was an open-label study conducted in 30 female subjects, ages 21-55 years old, each of whom had experienced at least one full-term vaginal delivery and experiencing vaginal laxity. The study was designed to assess the safety and efficacy of the Viveve System for the treatment of vaginal laxity. Each woman was treated once with the Viveve System, using 90 joules/cm2 of RF energy as the therapeutic dose.

  

Patient reported outcomes were measured at baseline, one month, three months, six months, and 12 months using several validated patient-reported outcome measures, including VSQ, FSFI, FSDS-R and the Global Response Assessment.

 

Within one month after the Viveve procedure, patients reported a statistically significant improvement in vaginal laxity scores, sexual function and sexual satisfaction scores compared to baseline. These results continued throughout the 12-month follow-up period. Additionally, patients reported a statistically significant decrease at one month, and thereafter, in their personal distress scores from sexual activity.

   

The Viveve procedure continued to demonstrate a strong safety profile. The treatment was well tolerated and there were no procedure-related adverse events or serious adverse events through the 12-month follow-up period.

 

VIVEVE I Clinical Study

 

In the fourth quarter of 2014, we began the VIVEVE I clinical study (VIveve treatment of the Vaginal introitus to EValuate Effectiveness), sometimes referred to in this report as the “OUS Clinical Trial,” a randomized, blinded and sham-controlled trial designed to further demonstrate the efficacy and safety of the Viveve System versus a sham procedure for the treatment of vaginal laxity. Nine clinical sites in four countries (Canada, Italy, Spain and Japan) enrolled 174 patients, which included pre-menopausal females 18 years of age or older who experienced at least one full term vaginal delivery at least 12 months prior to enrollment date, randomized in a 2:1 ratio to either an active treatment group or sham-control group. Patients were followed for six months post-treatment to assess the primary effectiveness and safety endpoints of the study with data being collected at one, three and six-months. The study also included a prospective interim data analysis at the three-month endpoint of 50% of the patients enrolled. Patients randomized to the sham arm were offered the opportunity to receive a Viveve treatment once they had completed the six-month evaluation following the sham intervention.

 

The primary endpoint of the study was the proportion of subjects in the active arm as compared to the proportion of subjects in the sham arm reporting no vaginal laxity at six months post-intervention. “No vaginal laxity” was operationally defined as a score > 4 on the VSQ, a patient reported global assessment of vaginal laxity based on a 7-point scale. Additionally, the primary safety endpoint was the proportion of subjects in the active arm experiencing an adverse event (“AE”) by six months post-treatment as compared to the proportion of the subjects in the sham arm experiencing an AE by six months post-intervention. Secondary endpoints included the adjusted change in mean score on the FSFI, FSDS-R and the Vaginal Laxity Inventory (“VALI”). The VALI was created specifically for the assessment of vaginal laxity by external medical experts. 

 

In April 2016, we completed the VIVEVE I study and reported the following results:

 

At six months (n=155), the proportion of patients reporting “no vaginal laxity” in the active arm, as measured by the VSQ, was 41.7%, while the proportion of patients reporting “no vaginal laxity” in the sham arm on the VSQ was 19.2% (p=0.005). Moreover, the likelihood of having “no vaginal laxity” following treatment in the active arm was more than three times greater than for the sham arm (p=0.006). Further, nearly 80% of the subjects in the active arm experienced a positive change in VSQ score versus baseline.

 

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At six months, for those patients who scored less than a 26.5 total score on the FSFI at baseline (n=103), the adjusted mean change from baseline score between the active arm and the sham arm was 3.2 (p=0.009). Moreover, for each of the six individual domains of the FSFI, subjects in the active group reported a greater increase in score than in the sham group. Change in scores from baseline for both the sexual arousal and orgasm domains were statistically significant and nearly 93% of subjects in the active arm experienced an increase in score versus baseline.

 

At six months, FSDS-R and VALI were also assessed as part of the secondary end-point analysis. While subjects in the active arm reported a greater increase in scores than the sham arm, the results for the FSDS-R and VALI were not statistically significant.

 

Safety for the study was assessed on the entire study population (n=174). Subjects reported the same level of unrelated (32.5% active versus 35.1% sham), related (11.1% active versus 12.3% sham) and serious (0.0% active versus 1.8% sham) adverse events in both the active and sham arm, further demonstrating that the Viveve treatment is well tolerated with no safety concerns.

 

We believe that the consistency of results across these three clinical study populations, is indicative of the cross-cultural similarities in this medical condition and the positive impact that an effective non-invasive treatment can have on the sexual health of women after vaginal childbirth.

 

VIVEVE II Clinical Study

 

In March 2019, enrollment was completed for the VIVEVE II clinical study following IDE approval by the FDA. This is a prospective, randomized, double-blind, sham controlled study to evaluate the efficacy and safety of the Viveve System to improve symptoms of female sexual dysfunction, associated with vaginal laxity. A total of 19 clinical sites in the United States enrolled up to 250 female patients who were pre-menopausal, 18 years of age or older who experienced at least one full term vaginal delivery at least twelve months prior to enrollment. Patients were randomized in a 2:1 ratio to either an active treatment group or sham-control group. Patients were followed for twelve months post-treatment. Patients randomized to the sham arm were offered the opportunity to receive a Viveve treatment once the study has been unblinded.

 

The primary efficacy endpoint of the study is the mean change from baseline in the Female Sexual Function Index (FSFI) total score at twelve months posttreatment. Secondary endpoints include evaluation of the mean change from baseline of the total FSFI score at six months, as well as evaluation of the mean change from baseline of the six different domains within the FSFI at six and twelve months. At months six and twelve, in addition to the FSFI, subjects were asked to complete the Patient’s Global Impression of Improvement (PGI-I). Subjects were also assessed for adverse events throughout the study. Completion of all subject follow-up visits in the study was reported in March 2020. The Company intends to report final twelve-month clinical data from the study in the second quarter of 2020.

 

Clinical Studies – Stress Urinary Incontinence

 

Canadian Pilot Study

 

In 2017, Viveve funded a single-arm investigator sponsored study to assess the effects of our CMRF technology in treating patients with mild-to-moderate SUI. The study was conducted in Calgary, Alberta and included 10 patients who underwent treatment with our CMRF technology under a proprietary treatment protocol. Patients were followed for 12 months with safety and clinical results reported at 4, 6, 9- and 12-months post-treatment. Clinical results included composite scores from the validated ICIQ-UI-SF (International Consultation on Incontinence Questionnaire–Urinary Incontinence-Short Form) and UDI-6 (Urogenital Distress Inventory-Short Form) outcome questionnaires.

 

Results at 12 months (n=9) included an 89% responder rate (percentage of patients showing an improvement from baseline) for the ICIQ-UI-SF and a 100% responder rate on the UDI-6. Additionally, patients showed a 40% mean improvement on the ICIQ-UI-SF and a 51% mean improvement on the UDI-6 at 12 months across both validated endpoints. No device-related safety issues were reported in any of the patients.

 

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Canadian Feasibility Study

 

In December 2018, we reported the results of a Viveve supported, single-arm, open label feasibility study that was conducted to evaluate the efficacy and safety of our CMRF technology to improve urine leakage and quality of life associated with SUI. The study was conducted in Calgary, Alberta and included 37 patients who underwent treatment with our CMRF technology under a proprietary treatment protocol. Patients with mild to moderate SUI were treated with our proprietary treatment protocol and followed for 12 months with safety and clinical results reported at 3, 6, 9- and 12-months post-treatment. Clinical results included evaluation of the one-hour pad weight test, an FDA acceptable endpoint to assess the severity of and leakage associated with SUI, daily incontinence episodes, as well as composite scores from the validated UDI-6, IIQ-7 (Incontinence Impact Questionnaire), and ICIQ-UI-SF outcome questionnaires.

 

Results at 12 months (n=25) included a 72% responder rate (percentage of patients showing an improvement from baseline) on the one-hour pad weight test, a clinically meaningful benefit across all patient reported outcome measures, and a 64% reduction in daily incontinence episodes. Additionally, 52% of patients experienced greater than a 50% reduction in the one-hour pad weight test from baseline and 60% of patients had less than 1 gram of leakage at 12 months on the one-hour pad weight test. No device-related safety issues were reported in any of the patients.

 

This feasibility study showed a significant reduction of SUI symptoms by the 1-month time point and subjects reported durability of results lasting to the 12-month visit. While this study was on a small number of subjects, the Viveve treatment for SUI showed significant promise and as a result Viveve planned two additional trials in SUI.

 

LIBERATE - International 

 

In January 2019, enrollment was completed for the LIBERATE-International study in SUI. The study was conducted in Canada to support SUI indications in Canada, the European Union and several other international countries. LIBERATE International, a randomized, double-blind, sham-controlled study in 99 patients with mild-to-moderate SUI was conducted at nine sites in Canada. Patients were randomized in a 2:1 ratio to either Active treatment (90 J/cm2 RF with cryogen cooling) or Sham treatment (sub-treatment dose of ≤1 J/cm2 with 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.

 

The primary efficacy endpoint was 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), UDI-6, ICIQ-UI-SF, and FSFI.

 

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 no significant between the Active and Sham groups. The sham response consistently exceeded the 30 – 55% placebo response rates in the literature for SUI studies, suggesting that cryogen alone may have a therapeutic effect.

 

From a safety perspective, both Active and Sham treatments were safe and well tolerated. Only one adverse device event was noted, none of the 3 serious adverse events were identified as related to treatment and the percentage of patients with adverse events were comparable with the Viveve I study. 

 

3-Arm SUI Feasibility Study

 

A single-blind feasibility study was initiated in January 2020 to test the hypothesis that cryogen alone has a therapeutic effect in SUI. This 3-arm study is a prospective, multicenter, randomized, single-blind, study comparing both the Viveve Treatment (cryogen cooling and 90 Joules/cm2 RF energy) and cryogen alone treatment (i.e. cryogen cooling with only 1 Joule/cm2 of RF energy, identified in the latest study as “Sham treatment”) versus sham treatment in patients with mild to moderate stress urinary incontinence.

 

Approximately 36 subjects (12 per treatment arm) from 3 study sites, meeting the inclusion and exclusion criteria will be randomized in a 1:1:1 ratio to the Viveve Treatment group (RF plus cryogen), cryogen only treatment group, or the sham group. Randomization will be stratified by study site.

 

The primary efficacy endpoint is 3-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), and I-QOL.

 

Completion of subject enrollment in the study was reported in March 2020. Study results are expected in third quarter of 2020 and will inform future potential studies with the Viveve Treatment in SUI.

 

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Research and Development

 

We intend to focus on various research and development efforts, including but not limited to:

  

 

conducting additional human clinical trials, in order to support marketing applications for additional indications in the U.S. and internationally, including but not limited to SUI and vulvovaginal atrophy;

 

 

 

 

implementing cost improvement programs to further increase gross margins and our gross profit opportunity;

 

 

 

 

designing new treatment tips and system enhancements to further optimize ease-of-use and reduce procedure times for patients and physicians; and

 

 

 

 

continuing to enhance the security within the Viveve System to prevent counterfeiting and refurbishment.

 

We have formed strategic relationships with outside contractors for assistance on research and development projects, and we work closely with experts in the medical community to supplement our research and development resources. Research and development expenses for the years ended December 31, 2019 and 2018 were $8,590,000 and $13,616,000, respectively. In the future, we expect to pursue further research and development initiatives to improve and extend our technological capabilities and to foster an environment of innovation and quality.

  

Manufacturing

 

Our manufacturing strategy involves the combined utilization of contract manufacturers, approved suppliers and internal manufacturing resources and expertise. We outsource the manufacture of components, subassemblies and finished products that are produced to our specifications and shipped to our Englewood, Colorado facility for inspection, testing and distribution. Our internal manufacturing activities include the testing of Viveve treatment tips and handpieces, as well as the final integration and system testing of the Viveve System. Our finished products are stored at and distributed from our Englewood, Colorado facility or from our contract manufacturer’s location in Fredrick, Colorado. 

 

We have arrangements with our suppliers that allow us to adjust the delivery quantities of components, subassemblies and finished products, as well as delivery schedules, to match our changing requirements. The forecasts we use are based on historical trends, current utilization patterns and sales forecasts of future demand. Lead times for components, subassemblies and finished products may vary significantly depending on the size of the order, specific supplier requirements and current market demand for the components and subassemblies. Most of our suppliers have no contractual obligations to supply us with, and we are not contractually obligated to purchase from them, the components used in our devices.

 

Our first commercial Viveve system which consists of a generator, handpiece and disposable tip was designed and is currently manufactured by Stellartech Research Corporation (“Stellartech”). Stellartech is the sole source supplier for this version of the Viveve system. We have manufacturing, quality and regulatory agreements with Stellartech that define the relationship and responsibilities of both parties in these areas. We also have technology licenses with Stellartech that are discussed in the Patents and Proprietary Technology section of this document.

 

Our second generation Viveve system consists of a generator and handpiece designed and manufactured by Sparton Corporation (“Sparton”), and a disposable treatment tip designed and manufactured by Cirtec Corporation (“Cirtec”). Both Sparton and Cirtec are sole source suppliers for their respective components. We have a Professional Services Agreement with Sparton that governs the design and development relationship and a Manufacturing and Supply Agreement that defines our manufacturing, shipping and servicing relationship. We manage our relationship with Cirtec with long range (12 month) forecasts and purchase orders

 

In addition to our primary system suppliers, we also have critical suppliers at the component level. We obtain proprietary flexible electronic circuits for our treatment tips and the coolant valve for the handpiece from single suppliers (AllFlex and Lee Valve Co.), for which we attempt to mitigate risks through inventory management and either long term supply agreements or 12- to 18-month purchase orders. We currently have two sterilization vendors to mitigate risks. Other products and components come from single suppliers, but alternate suppliers have been qualified or, we believe, can be readily identified and qualified. To date, shipments of finished products to our customers have not been significantly delayed due to material delays in obtaining any of our components, subassemblies or finished products.

 

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We are required to manufacture our product in compliance with Title 21 of the Code of Federal Regulations Part 820 (“21 CFR 820”) enacted by the FDA (known as the Quality System Regulation or QSR). 21 CFR 820 regulates the methods and documentation relating to the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our product. We maintain quality assurance and quality management certifications to enable us to market our product in the member states of the European Union, the European Free Trade Association and countries which have entered into Mutual Recognition Agreements with the European Union. These certifications include EN ISO 9001:2000 and CAN/CSA ISO 13485:2003. We are also required to maintain our product registration in a number of other foreign markets such as Canada.

  

We use small quantities of common cleaning products in our manufacturing operations, which are lawfully disposed of through a routine waste management program. Except for costs that may be incurred in the future in connection with environmental regulations requiring the phase out of R134a, a hydrofluorocarbon, or HFC, upon which our cooling module relies, we do not anticipate any material costs due to compliance with environmental laws or regulations. In 2007, the European Union enacted directives aimed at the automotive industry for the removal of HFC's from air conditioning. As a result of these directives, we anticipate that similar directives may be imposed on the medical device industry over the next decade. In anticipation of future restrictions, we have qualified a more environmentally friendly HFC (1234ZE) for use in our generators. We do not anticipate that we will have to incur costs in the near future to develop an alternative cooling module for our device which is not dependent on HFCs. If and when we are required to do so, and if we do not do so in a timely or cost-effective manner, the Viveve System may not be in compliance with environmental regulations, which could result in fines, civil penalties and the inability to sell our products in certain major international markets.

 

We generally offer a one-year warranty providing for the repair, rework or replacement (at the Company’s option) of products that fail to perform within stated specifications. To the extent that any of our components have performance related or technical issues in the field, we typically replace those components as necessary. We also sell a small number of extended service agreements on certain products for the period subsequent to the normal one-year warranty provided with the original product sale. Warranties are assessed for proper revenue recognition.  Most warranties are classified as assurance type warranties thereby allowing immediate recognition of revenue with accrual for estimated future warranty expenses. Revenue from sale of such extended service agreements was immaterial for the years ended December 31, 2019 and 2018.

  

Patents and Proprietary Technology

 

We rely on patent, copyright, trade secret and trademark laws and confidentiality agreements to protect our technology and the Viveve System. We have an exclusive license (with a field of use limitation) to one issued U.S. patent and own 4 issued U.S. patents directed to our technology and the Viveve System. Additionally, we have 8 pending U.S. patent applications, 73 issued foreign patents, and 14 pending foreign patent applications, some of which foreign applications preserve an opportunity to pursue patent rights in multiple countries. 

  

U.S. Patents

Foreign Patents

Issued

Pending

Issued

 

 

Pending

4

8

73

 

 

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All our employees and consultants are required to execute confidentiality agreements in connection with their employment and consulting relationships with us. We also require them to agree to disclose and assign to us all inventions conceived or made in connection with the employment or consulting relationship. We cannot provide any assurance that our employees and consultants will abide by the confidentiality or invention assignment terms of their agreements. All our manufacturing suppliers are required to execute confidentiality agreements and contracts for our approved suppliers include confidentiality provisions. Despite measures taken to protect our intellectual property, unauthorized parties may copy aspects of our product or obtain and use information that we regard as proprietary.

 

“Viveve,” is a registered trademark in the U.S. and several foreign countries. As of the date of this report, we have various foreign registrations protecting the various marks in numerous countries outside of the U.S. We may file for additional trademarks to strengthen our trademark rights, but we cannot be certain that our trademark applications will issue or that our trademarks will be enforceable.

 

Edward Knowlton Licensed Patents

 

On February 10, 2006, Viveve, Inc. entered into an Intellectual Property Assignment and License Agreement with Edward W. Knowlton (“Knowlton”), as amended on May 22, 2006 and July 20, 2007 (collectively, the “Knowlton IP Agreement”), pursuant to which Knowlton granted to Viveve, Inc. an exclusive, royalty-free and perpetual worldwide sublicense to certain intellectual property and technology licensed to Knowlton from a third party, including rights to several patents and patent applications owned by Thermage, Inc. outside the field of contraction, remodeling and ablation of the skin through and including (but not beyond) the subcutaneous fat layer below the skin (collectively, the “Knowlton Licensed IP”). The sublicense under the Knowlton Licensed IP is fully-paid, transferable, sublicensable and permits us to make, have made, use, sell, offer for sale and import any product or technology solely for use in the field of transmucosal treatment of the vagina or vulva (the “Field”) and to practice any process, method, or procedure solely in the Field. The Knowlton IP Agreement also assigns to us all technology and related intellectual property rights owned by Knowlton for the development and commercialization of devices, including any improvements, in the Field (the “Knowlton Assigned IP”). We are obligated to file and reasonably prosecute any patent applications that include a description of the Knowlton Assigned IP as prior art and maintain all patents included in the Knowlton Assigned IP, at our expense. In consideration of the sale, assignment, transfer, release and conveyance and other obligations of Knowlton under the Knowlton IP Agreement, Viveve, Inc. issued 200,000 shares of our common stock to Knowlton and agreed to engage the consulting services of Knowlton.

 

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Also on February 10, 2006, Viveve, Inc. entered into a Consulting Agreement with Knowlton (“Knowlton Consulting Agreement”), pursuant to which Knowlton assigned all rights to any inventions and intellectual property developed during the course of providing consulting services in the Field during the term of the agreement. Unless earlier terminated pursuant to the provisions described therein, the term of the Knowlton Consulting Agreement continued until the earlier to occur of (i) the date that is six months after the closing of an initial public offering of Viveve, Inc.’s stock; or (ii) the acquisition by a third party of all or substantially all of the business or assets of Viveve, Inc., whether by asset or stock acquisition, merger, consolidation or otherwise. The agreement could be renewed only upon the mutual written agreement of the parties prior to its expiration. The Knowlton Consulting Agreement expired by its terms on September 23, 2014. The assignment of the intellectual property developed during the term of the Knowlton Consulting Agreement survives termination.

  

Agreement with Stellartech Research Corporation

 

On June 12, 2006, Viveve, Inc. entered into the Stellartech Agreement, as amended and restated on October 4, 2007, with Stellartech for an initial term of three years in connection with the performance of development and manufacturing services by Stellartech and the license of certain technology and intellectual property rights to each party. Under the Stellartech Agreement, we agreed to purchase 300 units of generators manufactured by Stellartech. As of December 31, 2019, the Company has purchased 855 units. In conjunction with the Agreement, Stellartech purchased 37,500 shares of Viveve, Inc.’s common stock. Under the Stellartech Agreement, we paid Stellartech $4,889,000 and $10,150,000 for goods and services during the years ended December 31, 2019 and 2018, respectively. In addition, Stellartech granted to us a non-exclusive, nontransferable, worldwide, royalty-free license in the Field (defined above in the discussions titled “Edward Knowlton Licensed Patents”) to use Stellartech’s technology incorporated into deliverables or products developed, manufactured or sold by Stellartech to us pursuant to the Stellartech Agreement (the “Stellartech Products”) to use, sell, offer for sale, import and distribute the Stellartech Products within the Field, including the use of software object code incorporated into the Stellartech Products. The Stellartech technology consists of know-how applicable to the manufacturing and repair of the Viveve System, including any other intellectual property which Stellartech developed or acquired separate and apart from the Stellartech Agreement and all related derivative works. In addition, once we purchase a minimum commitment of 300 units of the RF generator component (the “Minimum Commitment”) and the Stellartech Agreement expires, Stellartech is to grant us a nonexclusive, nontransferable, worldwide, royalty-free, fully-paid license to use the Stellartech technology incorporated into the Stellartech Products to make and have made Stellartech Products in the Field.

   

Stellartech also granted (i) an exclusive (even as to Stellartech), nontransferable, worldwide, royalty-free license within the Field under those certain intellectual property rights licensed to Stellartech pursuant to a development and supply agreement between Stellartech and Thermage, dated October 1, 1997 (the “Thermage Technology”), to use any elements of the Thermage Technology incorporated into the Stellartech Products, solely for the use, sale, offer for sale, importation and distribution within the Field; (ii) upon our satisfaction of the Minimum Commitment and the expiration of the Stellartech Agreement, an exclusive, nontransferable, worldwide, royalty-free, fully-paid license within the Field under Stellartech’s license rights in the Thermage Technology to use any elements of the Thermage Technology which are incorporated into the Stellartech Products to make and have made Stellartech Products in the Field; and (iii) the exclusive right within the Field to prosecute infringers of the portion of Stellartech’s Thermage Technology rights exclusively licensed to us. Our license rights in Thermage Technology also include the use of software object code for Thermage Technology used in the Stellartech Products. As of the date of this report, the Stellartech Agreement has expired by its terms, however, the parties still continue to operate under the terms of the agreement. In addition, we have met the Minimum Commitment requirement, and therefore we are permitted to use the Stellartech technology with any other manufacturer. If Stellartech refuses or is unable to meet our delivery requirements for the Viveve System, our business could be materially adversely affected.

 

In March 2012, Viveve, Inc. entered into a Quality and Regulatory Agreement with Stellartech, pursuant to which the parties clarified their respective quality and regulatory responsibilities under the Stellartech Agreement. The Quality and Regulatory Agreement provides that we will serve as the legal manufacturer for all Stellartech Products developed and sold to us thereunder and that we are obligated to maintain all relevant quality assurance and regulatory processes and requirements required by any regulatory authority and to comply with the processes and requirements set forth in the schedule of responsibilities provided in the agreement.

 

Government Regulation

 

The Viveve System is a medical device subject to extensive and rigorous regulation by international regulatory bodies as well as the FDA. These regulations govern the following activities that we perform, or that are performed on our behalf, to ensure that medical products exported internationally or distributed domestically are safe and effective for their intended uses:

 

 

product design, development and manufacture;

 

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product safety, testing, labeling and storage;

 

 

 

 

record keeping procedures;

 

 

 

 

product marketing, sales and distribution;

     
  Pre-clinical and Clinical experiences; and
 

 

 

 

post-marketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall of products.

 

In addition to the regulatory approvals already received in connection with the sale of the Viveve System in the foreign jurisdictions described below and the approvals/clearances already received and being sought in the U.S., we are currently seeking regulatory approval or clearance for the sale of our product in many other countries around the world.

  

International

 

Sales of our product outside the U.S. are subject to foreign regulatory requirements that vary widely from country to country. In addition, exports of medical devices from the U.S. are regulated by the FDA. Complying with international regulatory requirements can be an expensive and time-consuming process and approval is not certain. The time required to obtain registrations or approvals, as required by other countries, may be longer than that required for FDA clearance, and requirements for such registrations or approvals may significantly differ from FDA requirements. We may be unable to obtain or maintain registrations or approvals in other countries. We may also incur significant costs in attempting to obtain and in maintaining foreign regulatory approvals. If we experience delays in receiving necessary registrations or approvals to market our product outside the U.S., or if we fail to receive those registrations or approvals, we may be unable to market our product or enhancements in international markets effectively, or at all, which could have a material adverse effect on our business and growth strategy.

  

An entity that seeks to export a medical device that is legally marketed in the U.S. (e.g., an FDA cleared Class II medical device) may do so without prior FDA notification or approval.

 

Because the Viveve System has been cleared by the FDA for “use in general surgical procedures for electrocoagulation and hemostasis,” Viveve does not obtain approval from the FDA prior to exporting the device to foreign countries. Additionally, products exported from the U.S. and those with certain levels of U.S. content are subject to the U.S. export control and sanctions laws and regulations, which may restrict proposed transactions to certain countries, end-users and end-uses. Certain products may be controlled for export and reexport and may require licensing or other authorization from the U.S. government prior to engaging in the export or reexport transaction. Changes to these regulations may impact the ability to pursue potential opportunities to export and reexport the products overseas.

 

Moreover, entities legally exporting products from the U.S. are often asked by foreign customers or foreign governments to supply an export certificate issued by the FDA to accompany a device. An export certificate is a document prepared by the FDA containing information about a product’s regulatory or marketing status in the U.S. We have requested the issuance of export certificates to allow exports into many countries around the world, and the FDA has issued those export certificates to us. Accordingly, we provide export certificates to many of our foreign customers.

 

Currently, the Viveve System is cleared for marketing in 57 countries throughout the world under the following indications for use:

 

Indication for Use:

No. of Countries:

General surgical procedures for electrocoagulation and hemostasis

4

 (including the U.S.)

General surgical procedures for electrocoagulation and hemostasis of vaginal tissue and the treatment of vaginal laxity

32

 

For treatment of vaginal laxity

4

 

For treatment of the vaginal introitus, after vaginal childbirth, to improve sexual function

14

 

General surgical procedures for electrocoagulation and hemostasis as well as for the treatment of vaginal laxity

1

 

For vaginal rejuvenation

1

 

For treatment of vaginal laxity and to improve mild urinary incontinence and sexual function

1

 

 

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Outside the U.S., we market and sell through an extensive network of distribution partners. 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.

  

United States

 

FDA’s Premarket Clearance and Approval Requirements

 

Unless an exemption applies, any medical device we wish to commercially distribute in the U.S. will require premarket clearance from the FDA. The FDA classifies medical devices into one of three classes. The classification system is risk based, with devices deemed to pose the lowest risk being Class I, and devices posing the most risk being Class III. Most Class I devices are exempt from the requirement to obtain FDA premarket clearance or approval. For most Class II devices (and a small number of Class I devices), a company must submit to the FDA a premarket notification (known as 510(k) submission) requesting clearance to commercially distribute the device. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) devices, are placed in Class III, requiring either FDA premarket approval via a Premarket Approval (“PMA”) application or a De Novo petition requesting that the FDA reclassify the device into a lower class (i.e., Class II or Class I). The FDA has issued regulations identifying the Class into which different types of devices fall and identifying whether the device type is exempt from the 510(k) process or if a 510(k) is needed.

  

510(k) Clearance Pathway

 

When a 510(k) clearance is required, we must submit a premarket notification to the FDA demonstrating that our device is substantially equivalent to a previously cleared and legally marketed device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of PMAs (known as a predicate device). The FDA strives to make a determination that the device is substantially equivalent (SE) (i.e., clear the device) or not substantially equivalent (NSE) within 90 days of submission of the notification. As a practical matter, clearance often takes significantly longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence. If the FDA determines that the device is not substantially equivalent to a previously cleared device, the FDA will issue an NSE letter and place the device into Class III. If the device is placed into Class III automatically based only on the lack of a predicate device and the device is lower risk, a De Novo submission may be submitted petitioning the FDA to reclassify the device into Class II or Class I, as appropriate.

 

Any modification to a 510(k)-cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety or effectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA, if the change raises complex or novel scientific issues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission in the first instance, but the FDA may review any manufacturer’s decision. If the FDA were to disagree with a manufacturer’s determination that changes did not require a new 510(k), the FDA could require the manufacturer to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA clearance is obtained and the manufacturer could be subject to significant regulatory fines or penalties.

 

In December 2008, a predecessor company to Viveve received 510(k) clearance for a previous version of the Viveve System. Since then, we have made design modifications to the original 510(k)-cleared device. In March 2015, we submitted a Special 510(k) to the FDA seeking clearance for the updated Viveve System to take into account the design modifications to the original 510(k)-cleared device, which included improved user interface capabilities and enhanced manufacturability. In October 2016, we received clearance from the FDA to sell the updated device for use in general surgical procedures for electrocoagulation and hemostasis. In 2017 we received clearance to add an 8 cm tip to the product family.

 

De Novo Process

 

If FDA has not issued a regulation classifying a particular type of device as Class I, and if there is no known predicate for a device (i.e., a legally-marketed device that is not subject to premarket approval with comparable indications for use and technological characteristics), the device is automatically Class III, regardless of the risk the device poses. If a device is automatically/statutorily classified into Class III in this manner, a company can petition FDA to reclassify the category of devices into Class II or Class I via a process known as “Evaluation of Automatic Class III Designation,” which is typically referred to as the “de novo process.” The direct de novo process allows a company to request that a new product classification be established without the company first submitting a 510(k) notification for the device. The reclassification petition should include a risk-benefit analysis demonstrating that, when subject to general controls or general and special controls, the probable benefits to health from use of the device outweigh any probable injury or illness from such use. The submitter also must describe why general controls or general and special controls are adequate to provide reasonable assurance of safety and effectiveness and for proposed Class II devices, provide proposed special controls. If a product is classified as Class II through the de novo review process, then that device may serve as a predicate device for subsequent 510(k) premarket notifications, including by competitors.

 

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We intend to seek FDA authorization to market the Viveve System for the treatment of vaginal tissue to improve sexual function and to improve SUI by utilizing the direct de novo process. However, we cannot predict when or if approval of such a petition will be obtained. In addition, if FDA fails to grant a de novo petition, we will be required to seek FDA premarket approval (via the more stringent PMA process). Delays in receipt of FDA clearance or failure to receive FDA clearance or approval for expanded indication could reduce our sales, profitability and future growth prospects.

  

Clinical Trials

 

Clinical trials are almost always required to support an FDA de novo reclassification and are sometimes required for 510(k) clearance. With respect to the Viveve System, the FDA has asked us to conduct a clinical study under an IDE, to support a future product submission (e.g., a 510(k) or a de novo petition) for the sexual function indication. In the U.S., clinical trials on medical devices generally require submission of an application for an IDE to the FDA if the device is a “significant risk” device. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE must be approved in advance by the FDA for a specific number of patients. Clinical trials for significant risk devices may not begin until the IDE application is approved by both the FDA and the appropriate institutional review boards (“IRBs”) at the clinical trial sites. Our clinical trials must be conducted under the oversight of an IRB at the relevant clinical trial sites and in accordance with FDA regulations, including, but not limited to, those relating to good clinical practices. We are also required to obtain the patients’ informed consent, in compliance with both FDA requirements and state and federal privacy regulations. We, the FDA, or the IRB at each site at which a clinical trial is being performed may suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the benefits. Even if a trial is completed, the results of clinical testing may not demonstrate the safety and efficacy of the device, may be equivocal or may otherwise not be sufficient to obtain clearance or approval of the product. Similarly, in Europe and other regions, clinical study protocols must be approved by the local ethics committee and in some cases, including studies with high-risk devices, by the Ministry of Health in the applicable country.

 

In June 2012, we submitted a pre-IDE application and requested an in-person meeting with the FDA to solicit feedback in advance of filing an IDE to conduct a clinical study of the Viveve System to support regulatory submission for the sexual function indication. In August 2012, we met with the FDA and received feedback on our pre-clinical data, historical clinical data, and a clinical protocol for a prospective randomized controlled trial. We had a second meeting with the FDA on December 17, 2015 and received additional feedback on our clinical protocol design and indication for use. In September 2016 we submitted an IDE application to FDA to begin a U.S. clinical study and the FDA has responded with additional questions regarding the proposed protocol and other aspects of the clinical study design, which we addressed. Approval of the IDE was received in 2018, and we began our U.S. clinical study to demonstrate the safety and effectiveness of the device to improve sexual function.  Completion of enrollment for the clinical study was achieved in March 2019.

 

Continuing Regulation

 

After a device is placed on the market, numerous regulatory requirements continue to apply. These include:

 

 

product listing and establishment registration, which helps facilitate regulatory inspections and other regulatory action;

 

 

 

 

submission of Unique Device Identifiers (UDIs) or the equivalent to regulatory authorities;

 

 

 

 

Good Manufacturing Practice (GMP) and Quality System Regulations (QSRs), which require those who design, manufacture, package, label, store, install, and service devices to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of these processes;

 

 

 

 

labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or “off-label” uses to both physician and consumers;

 

 

regulations governing our interactions with healthcare practitioners;

 

 

 

 

U.S. export control and sanctions regulations associated with the export and reexport of the products;

 

 

 

 

complaint handling and adverse event reporting requirements, such as the Medical Device Reporting (MDR), regulations in the U.S., which require that a manufacturer report to the FDA if its device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur;

 

17

 

 

post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device;

 

 

 

 

regulations pertaining to recalls and notices of corrections or removals; and

 

 

 

 

any other post-market requirements that the FDA or foreign regulatory bodies might impose as part of the device approval or clearance process.

 

The FDA has broad post-market and regulatory enforcement powers. We and our third-party manufacturers are subject to announced and unannounced inspections by the FDA and foreign governments or designated representatives to determine compliance with the quality system requirements and other regulations. In the past, our Sunnyvale, California facility (now closed) was inspected, and observations were noted, including an April 2012 California Department of Public Health (CDPH) inspection that cited deficiencies related to signature authority of inspection documentation, incomplete corrective action responses, and labeling indicating that our product contained no latex without proper objective evidence. The FDA and CDRH have accepted our responses to these observations, and we believe that we and our third-party manufacturer are in substantial compliance with the QSR.

 

Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, states, or foreign governments, which may include any of the following actions:

 

 

warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;

 

 

 

 

repair, replacement, refunds, recall, market withdrawal or seizure of our products;

 

 

 

 

operating restrictions, partial suspension or total shutdown of production;

 

 

 

 

refusing our requests for 510(k) clearance, de novo reclassification, or premarket approval of new products or new intended uses;

 

 

 

 

refusing to grant export certificates for our product;

 

 

 

 

reclassifying a device that previously received a 510(k) clearance or withdrawing premarket approvals that are already granted; and

 

 

 

 

criminal prosecution.

 

If any of these events were to occur, it could have a material adverse effect on our business.

 

We are also subject to a wide range of federal, state and local laws and regulations, including those related to distribution of medical devices, the environment, health and safety, fraud and abuse, land use, advertising, and quality assurance. We believe that compliance with these laws and regulations as currently in effect will not have a material adverse effect on our capital expenditures, earnings and competitive and financial position.

 

Competition

 

The medical device industry is characterized by intense competition and rapid innovation. While we believe that our solutions to treat vaginal laxity and SUI are unique and offer a more effective treatment options from that which is on the market currently, we also believe that the market for the treatment of vaginal laxity, women’s sexual function, and incontinence remain tremendous, under-developed opportunities. Therefore, competition is expected to increase, particularly as the market becomes further developed with additional treatment options. Aside from Kegel exercises and invasive surgical procedures, such as LVR, fillers, bulking agents, slings, and mesh there are many companies that may be developing or that have developed energy-based technologies for vaginal use as well as others developing modalities for the treatment of female sexual dysfunction and incontinence. Further, the overall size and attractiveness of the market may compel larger companies focused in the Urology, OB/GYN, aesthetic or women’s health markets, and with much greater capital and other resources, to pursue development of or acquire technologies that may address these indications. Potential energy-based competitors include, but are not limited to, Cynosure, Syneron, Fotona, Thermi Aesthetics, Cutera, Inmode, BTL, Venus Concepts and others, some of whom have more established products and customer relationships than we have.

 

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Employees

 

As of March 13, 2020, we had 55 full-time employees and we retain the services of several qualified consultants. We believe that our future success will depend in part on our continued ability to attract, hire and retain qualified personnel. None of our employees is represented by a labor union, and we believe that our employee relations are good.

  

Continuance into Delaware

 

On July 22, 2015, at our 2015 Annual and Special Meeting of Stockholders, our stockholders approved a special resolution authorizing a continuance of the Company (the “Continuance”) into the State of Delaware under the Delaware General Corporation Law (the “DGCL”) and the adoption of charter documents that comply with the DGCL in connection therewith, effective as of a date to be determined by the Board, in its sole discretion, no more than 12 months from the date of the meeting. On May 9, 2016, the Company filed the necessary Application for Authorization to Continue into Another Jurisdiction and Statutory Declaration with the Yukon registrar. On May 10, 2016, the Company filed a Certificate of Conversion and Certificate of Incorporation with the Secretary of State of the State of Delaware to move its domicile from the Yukon Territory to Delaware.

 

The Continuance did not involve any change in our business, properties, corporate headquarters or management. The officers of the Company immediately prior to the Continuance continued to serve as our officers following the Continuance, and the current members of the Board of Directors continued to serve as the members of the Board following the Continuance. There was no change in our operations, assets, liabilities or obligations as a result of the Continuance. Other than the approval of our stockholders and the filings with the Yukon Registrar of Corporations and the Secretary of State of Delaware, there were no federal or state regulatory requirements that we were required to comply with or approvals that we were required to obtain in connection with the Continuance.

  

Upon the effectiveness of the Continuance, each outstanding share of our common stock continued to be an outstanding share of our common stock as incorporated in Delaware and each outstanding option, right or warrant to acquire shares of our common stock continued to be an option, right or warrant to acquire an equal number of shares of common stock under the same terms and conditions. Upon effectiveness of the Continuance, we were governed by the Certificate of Incorporation filed with the Secretary of State of Delaware and by bylaws prepared in accordance with the DGCL, which were approved by our stockholders at the 2015 Annual and Special Meeting. Following the Continuance, we were governed by the DGCL instead of the Yukon Business Corporation Act.

 

Item 1A. Risk Factors

 

Investing in our common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below, together with all of the other information included or referred to in this Annual Report on Form 10-K, before purchasing shares of our common stock. There are numerous and varied risks that may prevent us from achieving our goals. If any of these risks actually occurs, our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.

 

Risks Related to Our Business

 

We are dependent upon the success of the Viveve System, which has a limited commercial history. If the device fails to gain or loses market acceptance, our business will suffer.

 

In 2012, we began marketing the Viveve System (radiofrequency generator, handpiece and single-use treatment tips) and other ancillary consumables, in Canada, Hong Kong and Japan. Since then, we have expanded our market to a total of 57 countries, including the United States. Our continued success depends on our ability to significantly penetrate current or new markets. If demand for the Viveve System and Viveve treatment does not expand in new markets or does not increase in existing markets as we anticipate, or if demand declines, our business, financial condition and results of operations will be harmed.

 

We compete against companies that have more established products, longer operating histories and greater resources, which may prevent us from achieving significant market penetration or increased operating results.

 

The medical device and aesthetics markets are highly competitive and dynamic and are marked by rapid and substantial technological development and product innovations. Demand for the Viveve System could be diminished by equivalent or superior products and technologies developed by competitors. Specifically, Viveve competes against other offerings in these markets, including laser and other light-based medical devices, pharmaceutical and consumer products, surgical procedures and exercise therapies.

 

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Competing in these markets could result in price-cutting, reduced profit margins and loss of market share, any of which would harm our business, financial condition and results of operations. Our ability to compete effectively depends upon our ability to distinguish our company, the Viveve System, and the Viveve treatment from our competitors and their products, on such factors as:

 

 

safety and effectiveness;

 

product pricing;

 

success of our marketing initiatives;

 

compelling clinical data;

 

intellectual property protection;

 

quality of customer support; and

 

development of successful distribution channels, both domestically and internationally.

 

Some of our competitors have more established products and customer relationships than we have, which could inhibit our market penetration efforts. For example, we may encounter situations where, due to pre-existing relationships, potential customers decide to purchase additional products from our competitors.  Potential customers may need to recoup the cost of expensive products that they have already purchased to perform LVR surgery or vaginoplasty and thus may decide not to purchase, or to delay the purchase of, the Viveve System. If we are unable to achieve continued market penetration, we will be unable to compete effectively, and our business will be harmed.

  

In addition, potential competitors could have significantly greater financial, research and development, manufacturing, and sales and marketing resources than we have and could utilize their greater resources to acquire or develop new technologies or products that could effectively compete with our existing product. Given the relatively few competitors currently in the market, any such action could exacerbate existing competitive pressures, which could harm our business.

   

Performing clinical studies with the Viveve System and collecting data from the Viveve treatment is inherently subjective, and we have limited data regarding the efficacy of the Viveve procedure. If future data is not positive or consistent with our prior experience, rates of physician adoption will likely be harmed.

 

We believe that in order to significantly grow our business, we will need to conduct in process and future clinical studies of the effectiveness of the Viveve System and Viveve treatment. Clinical studies of sexual function and SUI are subject to a number of limitations. First, some of these studies do not involve objective standards for measuring the effectiveness of treatment. Subjective, patient reported outcomes are the most common method of evaluating effectiveness. As a result, clinical studies may conclude that a treatment is effective even in the absence of objective measures. Second, as with other non-invasive, energy-based treatments, the effect of the Viveve treatment varies from patient to patient and can be influenced by a number of factors, including the age, ethnicity and degree of vaginal laxity, sexual function, and SUI of the patient, among other things.

 

Current reported studies of Viveve’s CMRF technology have investigated improvement in vaginal laxity, sexual function and SUI using single-arm studies where all patients enrolled in the trial received the same treatment without comparison to a control group. Clinical studies designed in a randomized, blinded and controlled fashion (e.g., assessing the efficacy of a product or therapy versus a placebo or sham group) represent the gold-standard in clinical trial design. A sham-controlled treatment or procedure refers to a procedure performed as a control and that is similar to the treatment or procedure under investigation without the key therapeutic element being investigated. Future clinical studies, which may be required to drive physician adoption or support regulatory clearance or approval, will likely require randomized, blinded and controlled trial designs. In the fourth quarter of 2014, we initiated a randomized, blinded and sham-controlled clinical trial in Europe and Canada designed to demonstrate the efficacy of the Viveve procedure versus a sham-controlled procedure for the treatment of vaginal laxity and sexual function (the “OUS Clinical Trial”). In April 2016, we completed this study. In the second quarter of 2018, we initiated a randomized, double-blind, sham-controlled clinical trial in the United States designed to evaluate the efficacy and safety on the Viveve procedure versus the sham-controlled procedure for the treatment of vaginal laxity and sexual function. We expect to complete this study by the end of the first quarter of 2020 (See discussion under the heading “Clinical Studies”.)

 

Additionally, we have not conducted any head-to-head clinical studies that compare results from treatment with the Viveve System to surgery or treatment with other therapies. Without head-to-head studies against competing alternative treatments, which we have no current plans to conduct, potential customers may not find clinical studies of our technology sufficiently compelling to purchase the Viveve System. If we decide to pursue additional studies in the future, such studies could be expensive and time consuming, and the data collected may not produce favorable or compelling results. If the results of such studies do not meet physicians’ expectations, the Viveve procedure may not become widely adopted, physicians may recommend alternative treatments for their patients, and our business may be harmed.

 

We currently have clearance to market the Viveve System in the U.S. for use in general surgical procedures for electrocoagulation and hemostasis but not for vaginal laxity, sexual function, or stress urinary incontinence. If we want to sell our device and single-use treatment tips in the U.S. for the treatment of vaginal laxity, sexual function, or stress urinary incontinence, we will need to obtain additional FDA clearance or approval, which may not be granted.

 

Developing and promoting our CMRF technology in additional countries for additional indications, including the U.S., is a key element of our future growth strategy. We currently do not have FDA clearance or approval to market the Viveve System in the U.S. for the treatment of vaginal laxity, sexual function, or stress urinary incontinence. We intend to seek clearance or approval from the FDA to expand our marketing efforts and have engaged with the FDA to help improve our likelihood of success. However, we cannot predict whether we will receive such clearances or approvals. The FDA has required us to conduct clinical trials to support regulatory clearance or approval, which trials are be time-consuming and expensive, and may produce results that do not result in clearance or approval of our FDA marketing application. In the event that we do not obtain FDA clearance or approval of the Viveve System for the treatment of vaginal laxity, sexual function, or stress urinary incontinence, we will be unable to promote it in the U.S. for those indications, and the ability to grow our revenues may be adversely affected.

  

20

 

Our business is not currently profitable, and we may not be able to achieve profitability even if we are able to generate significant revenue.

 

As of December 31, 2019, we have incurred losses since inception of approximately $197.9 million. In 2019, we incurred a loss of $42.5 million and in 2018 a loss of $50.0 million. Even though our revenue may increase, we expect to incur significant additional losses while we grow and expand our business. We cannot predict if and when we will achieve profitability. Our failure to achieve and sustain profitability could negatively impact the market price of our common stock and may require us to seek additional financing for our business. There are no assurances that we will be able to obtain any additional financing or that any such financing will be on terms that are favorable to us.

 

If there is not sufficient consumer demand for the procedures performed with our products, demand for our products could decline, which would adversely affect our operating results. 

 

The medical device and aesthetic markets in which we operate are particularly vulnerable to economic trends. The procedures performed using the Viveve System are elective procedures that are not currently reimbursable through government or private health insurance. The cost of these elective procedures must be borne by the patient. As a result, the decision to undergo a procedure that uses our products may be influenced by the cost. 

 

Consumer demand, and therefore our business, is sensitive to a number of factors that affect consumer spending, including political and macroeconomic conditions, health of credit markets, disposable consumer income levels, consumer debt levels, interest rates, consumer confidence and other factors. If there is not sufficient consumer demand for the procedures performed with our products, practitioner demand for our products would decline, and our business would suffer. 

 

It is difficult to forecast future performance, which may cause our financial results to fluctuate unpredictably.

 

 Our limited operating history makes it difficult to predict future performance. Additionally, the demand for the Viveve System may vary from quarter to quarter. A number of factors, over which we have limited or no control, may contribute to fluctuations in our financial results, such as:

 

 

delays in receipt of anticipated purchase orders;

 

performance of our independent distributors;

 

positive or negative media coverage of the Viveve treatment or products of our competitors;

 

our ability to obtain further regulatory clearances or approvals;

 

delays in, or failure of, product and component deliveries by our subcontractors and suppliers;

 

customer response to the introduction of new product offerings; and

 

fluctuations in foreign currency.

 

Our limited operating history has limited our ability to determine an appropriate sales price for our products.

 

 Our historical operating performance has limited our ability to determine the proper sales prices for the Viveve System and the single-use treatment tips. Establishing appropriate pricing for our capital equipment and components has been challenging because there have not existed directly comparable competitive products. We may experience similar pricing challenges in the future as we enter new markets or introduce new products, which could have an unanticipated negative impact on our financial performance.

 

If there is not sufficient patient demand for our treatments, practitioner demand for the Viveve System could drop, resulting in unfavorable operating results.

 

 All procedures performed using the Viveve System are elective procedures, the cost of which must be borne by the patient and are not currently reimbursable through government or private health insurance. The decision to undergo a Viveve treatment is thus driven by consumer demand, which may be influenced by a number of factors, such as:

 

 

whether our marketing efforts directed toward increasing consumer awareness of the Viveve treatment, for which we have limited experience and resources and indications, are successful;

 

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the extent to which physicians recommend the Viveve treatment to their patients;

 

the cost, safety and effectiveness of the Viveve procedure versus alternative treatments;

 

general consumer sentiment about the benefits and risks of such procedures; and

 

consumer confidence, which may be impacted by economic and political conditions.

 

Our financial performance could be materially harmed in the event that any of the above factors discourage patients from seeking the Viveve treatment.

 

The failure of the Viveve treatment to meet patient expectations or the occurrence of unpleasant side effects from a Viveve treatment could impair our financial performance.

 

Our future success depends upon patients having a positive experience with the Viveve treatment in order to increase physician demand for our products, as a result of positive feedback and word-of-mouth referrals. Patients may be dissatisfied if their expectations of the procedure, side effects and results, among other things, are not met. Despite what we believe to be the safety of the Viveve treatment, patients may experience undesirable side-effects such as temporary swelling or reddening of the treated tissue. Experiencing any of these side effects could discourage a patient from completing a Viveve treatment or discourage a patient from having future procedures or referring the Viveve procedure to others. In order to generate referral business, we believe that patients must be satisfied with the effectiveness of the Viveve treatment. Results obtained from the procedure are subjective and may be subtle. The Viveve treatment may produce results that may not meet patients’ expectations. If patients are not satisfied with the procedure or feel that it is too expensive for the results obtained, our reputation and future sales will suffer.

 

Our success depends on growing physician adoption of the Viveve System and continued use of treatment tips.

 

Some of our target physician customers already own self-pay device products. Our ability to grow our business and convince physicians to purchase or rent a Viveve System depends on the success of our sales and marketing efforts. Our business model involves both an equipment rental and continued purchases by our customers of single-use treatment tips and ancillary consumables. This may be a novel business model for many potential customers who may be used to competing products that are exclusively capital equipment, such as many laser-based systems. We must be able to demonstrate that the cost of the Viveve System and the revenue that the physician can derive from performing procedures using it are compelling when compared to the cost and revenue associated with alternative products or therapies. When marketing to plastic surgeons, we must also, in some cases, overcome a bias against non-invasive procedures. If we are unable to increase physician adoption of our device and use of the treatment tips, our financial performance will be adversely affected.

 

Our revenue may suffer due to our transition of U.S. sales from a capital equipment sales model to a 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 reducing selling time per unit. The transition has resulted in reduced revenue in 2019 per unit placed, which is projected to be offset by higher unit placements and improved revenue performance in the long term. While physician adoption rates have increased since this transition, the unit placements in the long term may not be sufficient to offset the reduced revenue per unit placed.

 

To successfully market and sell the Viveve System internationally, we must address many issues with which we have limited experience.

 

Sales outside the U.S. accounted for 44%, 27% and 28% of our revenue during the year ended December 31, 2019, 2018 and 2017, respectively. International sales are subject to a number of risks, including:

 

 

difficulties in staffing and managing international operations;

 

difficulties in penetrating markets in which our competitors’ products may be more established; 

 

reduced or no protection for intellectual property rights in some countries;

 

export restrictions, trade regulations and foreign tax laws;

 

fluctuating foreign currency exchange rates;

 

foreign certification and regulatory clearance or approval requirements;

 

difficulties in developing effective marketing campaigns for unfamiliar, foreign countries;

 

customs clearance and shipping delays;

 

Compliance with anti-bribery laws such as U.S. Foreign Corrupt Practices Act and its foreign counterparts;

 

political and economic instability; and

 

preference for locally produced products.

 

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If one or more of these risks were realized, it could require us to dedicate significant resources to remedy the situation, and even if we are able to find a solution, our revenues may still decline.

  

If we violate the U.S. Foreign Corrupt Practices Act or applicable anti-bribery laws in other countries our business could be harmed.

 

We earn a significant portion of our total revenues from international sales. As a result, we are subject to the U.S. Foreign Corrupt Practices Act (FCPA), which generally prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment and requires companies to maintain appropriate record-keeping and internal accounting practices to accurately reflect the transactions of the company. The FCPA applies to companies, individual directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for actions taken by agents or local partners or representatives. In addition, the government may seek to hold us liable for successor liability FCPA violations committed by companies which we acquire. We are also subject to the U.K. Bribery Act and may be subject to certain anti-corruption laws of other countries in which we do business. If we or our intermediaries fail to comply with the requirements of the FCPA or the anti-corruption laws of other countries, governmental authorities in the U.S. or other countries could seek to impose civil and/or criminal penalties, which could have a material adverse effect on our business, results of operations, financial conditions and cash flows.

 

We depend on distributors to market and sell the Viveve System internationally. If they are not successful, our marketing and sales efforts will be harmed.

 

We currently depend exclusively on third-party distributors to sell and service the Viveve System internationally and to train our international customers, and if these distributors terminate their relationships with us or under-perform, we may be unable to maintain or increase our level of international revenue. We will also need to engage additional international distributors to grow our business and expand the territories in which we sell the Viveve System. Distributors may not commit the necessary resources to market, sell and service our device to the level of our expectations. If current or future distributors do not perform adequately, or if we are unable to engage distributors in particular geographic areas, our revenue from international operations will be adversely affected.

 

The pandemic of the novel coronavirus in various parts of China, South Korea, the United States and several other countries may materially and adversely affect our business, financial condition and results of operations.

 

We may face significant risks due to the current worldwide outbreak of Covid-19, the novel coronavirus and the significant anticipated adverse impact on the economy resulting from actions taken to battle that outbreak. There have been recent outbreaks in several countries, including China, South Korea and the United States, of a novel, highly transmissible and pathogenic coronavirus. Such outbreaks have resulted in a widespread global health crisis.  Actions taken to mitigate or control those outbreaks have adversely affected general commercial activity and the economies and financial markets of many countries, including the United States, and will likely adversely affect our business, financial condition and results of operations. For example, an outbreak could significantly disrupt our business by limiting our ability to manufacture our Viveve Systems and tips, ship materials within or outside countries where we have sales teams or distributors, and the ability of our sales teams and distributors to operate. Furthermore, some countries including the United States are discouraging elective treatments and non-essential movement and/or ordering social distancing and shelter-in-place in order to control the transmission of the novel coronavirus. These actions are expected to reduce discretionary medical treatments such as the Viveve procedure.  If there is not sufficient consumer demand for the procedures performed with our products, demand for our products could decline, which would adversely affect our sales and operating results in the United States and worldwide. The efforts to control and treat the novel coronavirus may also impact our clinical development as hospitals and clinics refocus energies on the coronavirus and patients may be less willing to participate in future clinical trials due to health risk concerns during an outbreak. 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. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious and long-term outbreak or sustained reduction of interest in elective medical procedures. The spread of the novel coronavirus and efforts to control such spread are also expected to induce an economic recession in the United States and elsewhere, which could adversely affect our business, financial condition and results of operations.

 

 We currently have limited sales and marketing resources or experience and failure to build and manage a sales force or to market and distribute the Viveve System effectively could have a material adverse effect on our business.

 

Our sales and marketing organization is structured so that we rely on a direct sales force to sell the Viveve System in the United States. However, in the first quarter of 2019, we reorganized and reduced the number of direct sales reps selling our products. We believe our reorganization will help reduce our operating expenses. We do not currently anticipate making any significant changes to our international distribution network. 

 

Our reorganization may not have the desired effect of reducing our operating expenses and may result in a disruption to our business, adversely affect our sales and marketing organization and make it more difficult to retain qualified personnel. In addition, our management may divert a disproportionate amount of time away from its day-to-day activities to devoting a substantial amount of time to managing the reorganization which may increase our expenses. Our future financial performance and ability to compete effectively will depend, in part, on our ability to effectively manage the reorganization and future growth. To that end, we must be able to:

  

 

hire qualified individuals as needed;

 

provide adequate training for the effective sale of our device; and

 

retain and motivate sales employees.

 

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We may not be able to accomplish these tasks and successfully execute the reorganization which could harm our financial results and have a material adverse effect on our business.

  

Competition among providers of devices for the medical device and aesthetics markets is characterized by rapid innovation, and we must continuously innovate technology and develop new products or our revenue may decline.

   

While we attempt to protect our technology through patents and other intellectual property rights, there are few barriers to entry that would prevent new entrants or existing competitors from developing products that compete directly with our products. For example, while we believe our monopolar RF technology maintains a strong intellectual property position, there may be other companies employing competing technologies which claim to have a similar clinical effect to our technology. Additionally, there are others who may market monopolar RF technology for competing purposes in a direct challenge to our intellectual property position. As we continue to create market demand for a non-surgical, non-invasive way to treat vaginal laxity, sexual dysfunction, and SUI competitors may enter the market with other products making similar or superior claims. We expect that any competitive advantage we may enjoy from our current and future innovations may diminish over time, as companies successfully respond to our innovations, or create their own. Consequently, we believe that we will have to continuously innovate and improve our technology or develop new products to compete successfully. If we are unable to develop new products or innovate successfully, the Viveve System could become obsolete and our revenue will decline as our customers purchase competing products.

  

We outsource the manufacturing and repair of key elements of the Viveve System to a single manufacturing partner.

 

We outsource the manufacture and repair of the Viveve System to a single contract manufacturer, Stellartech. If Stellartech’s operations are interrupted or if Stellartech is unable to meet our delivery requirements due to capacity limitations or other constraints, we may be limited in our ability to fulfill new customer orders or to repair equipment at current customer sites, and we may be required to seek new manufacturing partners in the future. Stellartech has limited manufacturing capacity, is itself dependent upon third-party suppliers and is dependent on trained technical labor to effectively repair components making up the Viveve System. In addition, Stellartech is a medical device manufacturer and is required to demonstrate and maintain compliance with the FDA’s Quality System Regulation, or QSR. If Stellartech or any future manufacturing partner fails to comply with the FDA’s QSR, its manufacturing and repair operations could be halted. In addition, both the availability of our product to support the fulfillment of new customer orders as well as our ability to repair those products installed at current customer sites would be impaired. In addition, as of the date of this report, the development and manufacturing agreement under which Viveve and Stellartech operate has expired without any subsequent extension or renewal by the parties and the minimum conditions to the licenses granted therein have not been satisfied by us. Although the parties continue to operate under the terms of this agreement, our manufacturing operations could be adversely impacted if we are unable to enforce Stellartech’s performance under this agreement, or enter into a new agreement with Stellartech, or a potential new manufacturer, if necessary, upon favorable terms or at all.

  

Our manufacturing operations and those of our key manufacturing subcontractors are dependent upon third-party suppliers, making us vulnerable to supply shortages and price fluctuations, which could harm our business.

 

The single source supply of the Viveve System from Stellartech could not be replaced without significant effort and delay in production. Also, several other components and materials that comprise our device are currently manufactured by a single supplier or a limited number of suppliers. In many of these cases, we have not yet qualified alternate suppliers and we rely upon purchase orders, rather than long-term supply agreements. A supply interruption or an increase in demand beyond our current suppliers’ capabilities could harm our ability to manufacture the Viveve System until new sources of supply are identified and qualified. Our reliance on these suppliers subjects us to a number of risks that could harm our business, including:

 

 

interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;

 

delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s variation in a component;

 

a lack of long-term supply arrangements for key components with our suppliers;

 

inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms;

 

difficulty locating and qualifying alternative suppliers for our components in a timely manner;

 

production delays related to the evaluation and testing of products from alternative suppliers, and corresponding regulatory qualifications;

 

delay in delivery due to suppliers prioritizing other customer orders over our orders;

 

damage to our brand reputation caused by defective components produced by our suppliers;

 

increased cost of our warranty program due to product repair or replacement based upon defects in components produced by our suppliers; and

 

fluctuation in delivery by our suppliers due to changes in demand from us or from their other customers.

 

Any interruption in the supply of components or materials, or our inability to obtain substitute components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers, which would have an adverse effect on our business.

 

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If, in the future, we decide to perform additional manufacturing functions internally that we currently outsource, our business could be harmed by our limited manufacturing experience and related capabilities.

 

In the future, for financial or operational purposes, we may elect to perform component or system manufacturing functions internally. Our limited experience with manufacturing processes could lead to difficulties in producing sufficient quantities of manufactured items that meet our quality standards and that comply with applicable regulatory requirements in a timely and cost-effective manner. In addition, if we experience these types of manufacturing difficulties, it may be expensive and time consuming to engage a new or previous subcontractor or supplier to fulfill our replacement manufacturing needs. The occurrence of any of these events could harm our business.

   

If the Viveve System malfunctions or if we discover a manufacturing defect that could lead to a malfunction, we may have to initiate a product recall or replace components, which could adversely impact our business.

 

Problems in our manufacturing processes, or those of our manufacturers or subcontractors, which lead to an actual or possible malfunction in any of the components of our device, may require us to recall product from customers or replace components and could disrupt our operations. Our results of operations, reputation and market acceptance of our products could be harmed if we encounter difficulties in manufacturing that result in a more significant issue or significant patient injury and delays our ability to fill customer orders.

   

We may not be able to develop an alternative cooling module that will be in compliance with changing environmental regulations in a timely or cost-effective manner.

 

Our cooling module relies upon a hydrofluorocarbon, or HFC, called R134a, to protect the outer layer of the tissue from over-heating while the device delivers RF energy to the submucosal tissue. New environmental regulations phasing out HFCs over the next decade have been adopted or are under consideration in a number of countries. Since 2007, European Union directives aimed at the automotive industry require the phase-out of HFCs and prohibit the introduction of new products incorporating HFCs and it is currently anticipated that such directives may impact the medical device industry. As a result, if we are unable to develop an alternative cooling module for our device which is not dependent on HFCs in a timely or cost-effective manner, the Viveve System may not be in compliance with environmental regulations, which could result in fines, civil penalties and the inability to sell our products in certain major international markets.

 

In addition, the impending restrictions on HFCs have reduced their current availability, as suppliers have less of an incentive to expand production capacity or maintain existing capacity. This change in supply could expose us to supply shortages or increased prices for R134a, which could impair our ability to manufacture our device and adversely affect our results or operations. HFCs may also be classified by some countries as a hazardous substance and, therefore, subject to significant shipping surcharges that may negatively impact profit margins.

 

We rely on a limited number of suppliers and third-party manufacturers, and if they are unable or unwilling to continue to work with us, our business could be materially adversely affected.

 

We rely on a limited number of suppliers and third-party manufacturers. Our reliance on them increases our risk since in the event of an interruption from one or more of them, we may not be able to develop alternative resources without incurring additional costs or delays.

 

We forecast sales to determine requirements for components and materials used in Viveve procedures, and if our forecasts are incorrect, we may experience delays in shipments or increased inventory costs.

 

We keep limited materials, components and finished product on hand. To manage our manufacturing operations with our suppliers, we forecast anticipated product orders and material requirements to predict our inventory needs up to twelve months in advance and enter into purchase orders on the basis of these requirements. Our limited historical experience may not provide us with enough data to accurately predict future demand. If our business expands, our demand for components and materials would increase and our suppliers may be unable to meet our demand. If we overestimate our component and material requirements, we will have excess inventory, which would increase our expenses. If we underestimate our component and material requirements, we may have inadequate inventory, which could interrupt, delay or prevent delivery of the Viveve System to our customers. Any of these occurrences would negatively affect our financial performance and the level of satisfaction that our customers have with our business.

 

Even though we require training for users of the Viveve System, and we do not sell it to non-physicians, there exists a potential for misuse, which could harm our reputation and our business.

 

Outside of the U.S., our independent distributors sell in many jurisdictions that do not require specific qualifications or training for purchasers or operators of the Viveve System. We do not supervise the procedures performed with the device, nor can we be assured that direct physician supervision of our equipment occurs according to our recommendations. We and our distributors require purchasers of our device to undergo an initial training session as a condition of purchase, but do not require ongoing training. In addition, we prohibit the sale of the device to companies that rent it to third parties, but we cannot prevent an otherwise qualified physician from contracting with a rental company in violation of his or her purchase agreement with us.

  

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In the U.S., we only sell the Viveve System to licensed physicians who have met certain training requirements. However, current federal regulations will allow us to sell our device to “licensed practitioners,” The definition of “licensed practitioners” varies from state to state. As a result, the Viveve System may be operated by licensed practitioners with varying levels of training, and in many states by non-physicians, including physician assistants, registered nurses and nurse practitioners. Thus, in some states, the definition of “licensed practitioner” may result in the legal use of the Viveve System by non-physicians.

 

The use of our device by non-physicians, as well as noncompliance with the operating guidelines set forth in our training programs, may result in product misuse and adverse treatment outcomes, which could harm our reputation and expose us to costly product liability litigation.

 

Product liability suits could be brought against us due to defective design, labeling, material or workmanship, or misuse of the Viveve System, and could result in expensive and time-consuming litigation, payment of substantial damages and an increase in our insurance rates.

  

If the Viveve System is defectively designed, manufactured or labeled, contains defective components or is misused, we may become subject to substantial and costly litigation by our customers or their patients. Misusing the device or failing to adhere to operating guidelines could cause serious adverse events. In addition, if our operating guidelines are found to be inadequate, we may be subject to liability. We may, in the future, be involved in litigation related to the use of the device. Product liability claims could divert management’s attention from our business, be expensive to defend and result in sizable damage awards against us. We may not have sufficient insurance coverage for all future claims. We may not be able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and reduce product sales. Product liability claims in excess of our insurance coverage would be paid out of cash reserves, harming our financial condition and adversely affecting our operating results.

 

After-market modifications to treatment tips by third parties and the development of counterfeit products could reduce our sales, expose us to product liability litigation and dilute our brand quality.

 

Third parties may introduce adulterated after-market modifications to our treatment tips, which enable re-use of treatment tips in multiple procedures. Because the treatment tips are designed to withstand a finite number of pulses, modifications intended to increase the number of pulses could result in patient injuries caused by the use of worn-out or damaged treatment tips. In addition, third parties may seek to develop counterfeit products that are compatible with the Viveve System and available to practitioners at lower prices. If security features incorporated into the design of the device are unable to prevent after-market modifications to the treatment tips or the introduction of counterfeit products, we could be subject to reduced sales, product liability lawsuits resulting from the use of damaged or defective goods and damage to our reputation. 

 

A data breach or cyberattack affecting our devices, information technology systems, or protected data could expose us to regulatory liability and litigation and dilute our brand quality.

 

Our information technology systems and the Viveve System, like other medical devices with software that may be accessible in some manner to users, are vulnerable to security breaches, cyberattacks, malicious intrusion, breakdown, destruction, loss of data privacy, or other significant disruption. We also collect, manage, and process protected personal information, including health information, in connection with our operations. A significant breach, attack, or other disruption could result in adverse consequences, including increased costs and expenses, regulatory inquiries, litigation, problems with product functionality, reputational damage, lost revenue, and fines or penalties. We invest in systems and technology and in the protection of our products and data to reduce the risk of an attack or other significant disruption. However, there can be no assurance that these measures and efforts will prevent future attacks or other significant disruptions to our information technology systems and the Viveve System. Additionally, Viveve products have no WiFi nor do they contain a receiver or transmitter effectively making a cyber attack impossible. 

 

We depend on skilled and experienced personnel to operate our business effectively. If we are unable to recruit, hire and retain these employees, our ability to manage and expand our business will be harmed, which would impair our future revenue and profitability.

 

Our success largely depends on the skills, experience and efforts of our officers and other key employees. While we have employment contracts with our Chief Executive Officer and our Vice President of Finance and Administration (Principal Accounting and Financial Officer), these officers and other key employees may terminate their employment at any time. The loss of any senior management team members could weaken our management expertise and harm our business.

 

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Our ability to retain our skilled labor force and our success in attracting and hiring new skilled employees will be a critical factor in determining whether we will be successful in the future. We may not be able to meet our future hiring needs or retain existing personnel. We will face particularly significant challenges and risks in hiring, training, managing and retaining engineering and sales and marketing employees, as well as independent distributors, most of whom are geographically dispersed and must be trained in the use of our device and benefits of the Viveve System and treatment. Failure to attract and retain personnel, particularly technical and sales and marketing personnel, would materially harm our ability to compete effectively and grow our business.

  

Any acquisitions or in-licenses that we make could disrupt our business and harm our financial condition.

 

We expect to evaluate potential strategic acquisitions of complementary businesses, products or technologies. We may also consider joint ventures and other collaborative projects, including in-license opportunities. We may not be able to identify appropriate acquisition candidates or strategic partners, or successfully negotiate, finance or integrate acquisitions of any businesses, products or technologies, as applicable, on favorable terms or at all. Furthermore, the integration of any acquisition or in-license and management of any collaborative project may divert management’s time and resources from our business and disrupt our operations. We do not have any experience with acquiring companies or products or in-licensing of technologies. If we decide to expand our product offerings, we may spend time and money on projects that do not increase our revenues. Our inability to identify and secure such opportunities may harm our financial condition and our ability to compete and grow our business.

 

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations which could affect our ability to realize tax benefits from our net operating losses.

 

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations. As of December 31, 2019, we had federal and state net operating loss carryforwards (“NOLs”), of approximately $77.3 million and $6.2 million, respectively, due to prior period losses. In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” can be subject to limitations on its ability to utilize its NOLs to offset future taxable income. Our existing NOLs may be subject to limitations arising from past ownership changes, including in connection with this offering. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code.  In addition, under the Tax Cuts and Jobs Act (the “Tax Act”), the amount of future NOLs that we are permitted to deduct in any taxable year is limited to 80% of our taxable income in such year, where taxable income is determined without regard to the NOL deduction itself. In addition, the Tax Act generally eliminates the ability to carry back any future NOL to prior taxable years, while allowing unused future NOLs to be carried forward indefinitely. There is a risk that due to changes under the Tax Act, regulatory changes, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.

 

Risks Related to Regulatory Matters

 

We or our distributors may be unable to obtain or maintain international regulatory clearances or approvals for our current or future products, or our distributors may be unable to obtain necessary qualifications, which could harm our business.

  

Sales of the Viveve System internationally are subject to foreign regulatory requirements that vary widely from country to country. In addition, the FDA regulates exports of medical devices from the U.S. Complying with international regulatory requirements can be an expensive and time-consuming process, and marketing approval or clearance is not certain. The time required to obtain clearances or approvals, if required by other countries, may be longer than that required for FDA clearance or approvals, and requirements for such clearances or approvals may significantly differ from FDA requirements. We may rely on third-party distributors to obtain regulatory clearances and approvals required in other countries, and these distributors may be unable to obtain or maintain such clearances or approvals. Our distributors may also incur significant costs in attempting to obtain and in maintaining foreign regulatory approvals or clearances, which could increase the difficulty of attracting and retaining qualified distributors. If our distributors experience delays in receiving necessary qualifications, clearances or approvals to market our products outside the U.S., or if they fail to receive those qualifications, clearances or approvals, we may be unable to market our products or enhancements in international markets effectively, or at all.

 

Foreign governmental authorities that regulate the manufacture and sale of medical devices have become increasingly stringent and, to the extent we market and sell our products outside of the U.S., we may be subject to rigorous international regulation in the future. In these circumstances, we would be required to rely on our foreign independent distributors to comply with the varying regulations, and any failures on their part could result in restrictions on the sale of our product in foreign countries.

 

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 If we fail to maintain regulatory approvals and clearances, or if we are unable to obtain, or experience significant delays in obtaining, FDA clearances or approvals for the Viveve System or any future products we may develop or acquire, including product enhancements, our business and results of operations could be adversely affected.

 

The Viveve System is, and any future products we may acquire or develop will be, subject to rigorous regulation by the FDA and numerous other federal, state and foreign governmental authorities. The process of obtaining regulatory clearances or approvals to market a medical device can be costly and time consuming, and we may not be able to obtain these clearances or approvals on a timely basis, if at all. In particular, the FDA permits commercial distribution of a new medical device only after the device has received clearance under section 510(k) of the Federal Food, Drug, and Cosmetic Act, or FDCA, (unless the device is exempt from the 510(k) requirements), has been classified pursuant to a de novo classification request, or is the subject of an approved premarket approval application, or PMA. The FDA will permit marketing of a lower risk medical device through the 510(k) process if the manufacturer demonstrates that the new product is substantially equivalent to a previously cleared and legally marketed device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of PMA, referred to as a predicate device. Devices deemed to pose the greatest risk, such as life-sustaining, life-supporting, or implantable devices, or devices not deemed substantially equivalent to a previously cleared device, require the approval of a PMA, unless a de novo submission is appropriate. The PMA process is more costly, lengthy and uncertain than the 510(k) clearance process. A PMA application must be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing and labeling data, to demonstrate to the FDA a reasonable assurance of the safety and efficacy of the device for its intended use.

  

If the FDA has not issued a regulation classifying a particular type of device as Class I, and if there is no known predicate for a device and/or it’s indication, the device is automatically Class III, regardless of the risk the device poses. If a device is automatically/statutorily classified into Class III in this manner, a company can petition FDA to reclassify the category of devices into Class II or Class I via a process known as “Evaluation of Automatic Class III Designation,” which is typically referred to as the de novo process. The direct de novo process allows a company to request that a new product classification be established without the company first submitting a 510(k) notification for the device.   Our plan is to seek FDA authorization to market the Viveve System for the treatment of vaginal tissue to improve sexual function and SUI by utilizing the direct de novo process. However, we cannot predict when or if such de novo classification will be obtained. If FDA fails to reclassify the device pursuant to the de novo process, we will be required to seek FDA premarket approval (via the more stringent PMA process) for the Viveve System. Delays in receipt of FDA clearance or approval or failure to receive FDA clearance or approval could adversely affect our business, results of operations and future growth prospects.

 

Our marketed products may be used by physicians for indications that are not cleared by the FDA. If the FDA finds that we marketed our products in a manner that promoted off-label use, we may be subject to civil or criminal penalties.

 

Under the FDCA and other laws, we are prohibited from promoting our products for off-label uses. This means that we may not make claims about the use of any of our marketed medical device products outside of their approved or cleared indications, and that our website, advertising promotional materials and training methods may not promote or encourage unapproved uses. Therefore, we may not provide information to physicians or patients that promote off-label uses, except in limited circumstances, such as in response to unsolicited requests for off-label information or the distribution of scientific and medical publications under certain circumstances. The FDA does not generally restrict physicians from prescribing products for off-label uses (or using products in an off-label manner) in their practice of medicine. Should the FDA determine that our activities constitute the promotion of off-label uses, the FDA could bring action to prevent us from distributing our devices for the off-label use and could impose fines and penalties on us and our executives. In addition, failure to follow FDA rules and guidelines relating to promotion and advertising can result in, among other things, the FDA’s refusal to approve or clear products, the withdrawal of an approved product from the market, product recalls, fines, disgorgement of profits, operating restrictions, injunctions or criminal prosecutions. Any of these adverse regulatory actions could result in substantial costs and could significantly and adversely impact our reputation and divert management’s attention and resources, which could have a material adverse effect on our business.

  

If the Office of Inspector General within the Department of Health and Human Services, the U.S. Department of Justice (DOJ), or another federal or state agency determines that we have promoted off-label use of our products, we may be subject to various penalties, including civil or criminal penalties, and the off-label use of our products may result in injuries that lead to product liability suits, which could be costly to our business.

 

In addition to the FDA restrictions on our marketed products, other state and federal healthcare laws have been applied by DOJ and state attorneys general to restrict certain marketing practices in the medical device industry. While physicians may generally prescribe and administer products for off-label uses, if we engage in off-label promotion, we may be subject to civil or criminal penalties including significant fines and could be prohibited from participating in government healthcare programs such as Medicaid and Medicare. Even if we are successful in resolving such matters without incurring penalties, responding to investigations or prosecutions will likely result in substantial costs and could significantly and adversely impact our reputation and divert management’s attention and resources, which could have a material adverse effect on our business, operating results, financial condition and ability to finance our operations. In addition, the off-label use of our products may increase the risk of injury to patients, and, in turn, the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s attention and result in substantial damage awards against us.

 

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If we modify an FDA-cleared device, we may need to seek and obtain new clearances, which, if not granted, would prevent the sale of our modified product or require us to redesign the product.

 

 Any modifications to an FDA-cleared device that could significantly affect its safety or effectiveness or that would constitute a major change in its intended use would require a new 510(k) clearance or possibly a premarket approval. We may not be able to obtain additional 510(k) clearances or premarket approvals for new products or for modifications to, or additional indications for, our existing product in a timely fashion, or at all. Delays in obtaining future clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn could harm our revenue and potential future profitability. We have made modifications to our device in the past and may make additional modifications in the future that we believe do not or will not require additional clearances or approvals. If the FDA disagrees, and requires new clearances or approvals for the modifications, we may be required to recall and to stop marketing the modified device, which could harm our operating results and require us to redesign the product.

  

Clinical trials necessary to support a 510(k)notification, de novo petition or PMA application will be expensive and will require the enrollment of large numbers of patients. Suitable patients may be difficult to identify and recruit. Delays or failures in our clinical trials may prevent us from commercializing our current product or any modified or new products and will adversely affect our business, operating results and prospects.

 

The FDA has asked us to conduct a clinical study, pursuant to the agency’s investigational device exemption, or IDE, regulations, to support a future product submission for the Viveve System. Initiating and completing clinical trials necessary to support a 510(k) notification, de novo petition, or PMA application for the Viveve System, as well as other possible future product candidates, is time consuming and expensive and the outcome is uncertain. Moreover, the results of early clinical trials are not necessarily predictive of future results, and any product we advance into clinical trials may not have favorable results in later clinical trials.

 

Conducting successful clinical studies will require the enrollment of patients, and suitable patients may be difficult to identify and recruit. Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, including the size of the patient population, the nature of the trial protocol, the desirability of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability of appropriate clinical trial investigators and support staff, the proximity of patients to clinical sites, the ability of patients to comply with the eligibility and exclusion criteria for participation in the clinical trial and patient compliance. For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and effectiveness of our product or if they determine that the treatments received under the trial protocols are not desirable or involve unacceptable risk or discomfort.

 

Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy are required and we may not adequately develop such protocols to support clearance or approval. Further, the FDA may require us to submit data on a greater number of patients than we originally anticipated and/or for a longer follow-up period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure of patients to continue to participate in a clinical trial may cause an increase in costs and delays in the approval or clearance and attempted commercialization of our product or result in the failure of the clinical trial. In addition, despite considerable time and expense invested in clinical trials, the FDA may not consider our data adequate to demonstrate safety and efficacy. Such increased costs and delays or failures could adversely affect our business, operating results and prospects.

 

If the third parties on which we rely to conduct our clinical trials and to assist us with preclinical development do not perform as contractually required or expected, we may not be able to obtain the regulatory clearance or approval which would permit us to commercialize our products.

 

We do not have the ability to independently conduct the preclinical studies and clinical trials for our product, therefore we must rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct the studies and trials. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory clearance or approval for, or be able to successfully commercialize, our product on a timely basis, if at all. In that event, our business, operating results and prospects may be adversely affected.

 

 The results of our clinical trials may not support our proposed product claims or may result in the discovery of adverse side effects. Any of these events could have a material adverse impact on our business.  

 

Even if our clinical trials are completed as planned, it cannot be certain that the results of the clinical trials will support our proposed claims for the Viveve System, that the FDA or foreign authorities will agree with our conclusions regarding them or that even if our product receives regulatory approval or clearance, that it will not later result in adverse side effects that limit or prevent its use. Success in preclinical studies and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the later trials will replicate the results of prior trials and preclinical studies. The clinical trial process may fail to demonstrate that our product is safe and effective for the proposed indicated uses. Any delay of our clinical trials or failure by the FDA or other foreign authorities to accept our product claims will delay, or even prevent, our ability to commercialize our product and generate revenues.  

   

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Even if our product is approved by regulatory authorities, if we or our suppliers fail to comply with ongoing FDA or other foreign regulatory authority requirements, or if we experience unanticipated problems with our product, the product could be subject to restrictions or withdrawal from the market.

 

Any product for which we obtain clearance or approval, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities for such product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic and foreign regulatory bodies, such as the Food and Drug Branch of the California Department of Public Health (CDPH). In particular, we and our suppliers are required to comply with the FDA’s QSR, and International Standards Organization, or ISO, standards for the manufacture of our product and other regulations which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of any product for which we obtain clearance or approval. Regulatory bodies, such as the FDA, enforce the QSR and other regulations through periodic inspections. In the past, our Sunnyvale, California facility has been inspected by the FDA and CDPH, and observations were noted. The FDA and CDPH have accepted our responses to these observations, and we believe that we are in substantial compliance with the QSR. Any future failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions and unanticipated expenditures to address or defend such actions:

 

 

untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;

 

 

 

 

customer notifications for repair, replacement or refunds;

 

 

 

 

recall, detention or seizure of our products;

 

 

 

 

operating restrictions or partial suspension or total shutdown of production;

 

 

 

 

refusing or delaying our requests for 510(k) clearance, de novo classification, or premarket approval of new products or modified products;

 

 

 

 

operating restrictions;

 

 

 

 

reclassifying a device that previously received a 510(k) clearance or withdrawing a PMA approval that was previously granted;

 

 

 

 

refusal to grant export approval for our product; or

 

 

 

 

criminal prosecution.

 

If any of these actions were to occur, it would harm our reputation and cause our product sales to suffer and may prevent us from generating revenue. Furthermore, our third-party manufacturers may not currently be, or may not continue to be, in compliance with all applicable regulatory requirements which could result in a failure to produce our product on a timely basis and in the required quantities, if at all.

 

Even if regulatory clearance or approval of a product is granted for the Viveve System or future products, such clearance or approval may be subject to limitations on the intended uses for which the product may be marketed and reduce our potential to successfully commercialize the product and generate revenue from the product. If the FDA determines that our promotional materials, labeling, training or other marketing or educational activities constitute promotion of an unapproved use, it could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.

 

In addition, we may be required by the FDA or other foreign regulatory bodies to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products, and we must comply with medical device reporting requirements, including the reporting of adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as the QSR, may result in changes to labeling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, operating results and prospects.

   

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The Viveve System may also be subject to state regulations which are, in many instances, in flux. Changes in state regulations may impede sales. For example, federal regulations may allow the device to be sold to, or on the order of, “licensed practitioners,” as determined on a state-by-state basis. As a result, in some states, non-physicians may legally purchase and operate our device. However, a state could change its regulations at any time, disallowing sales to particular types of end users. We cannot predict the impact or effect of future legislation or regulations at the federal or state levels.

 

If we or our third-party manufacturers fail to comply with the FDA’s QSR, our business would suffer.

 

We and our third-party manufacturers are required to demonstrate and maintain compliance with the FDA’s QSR. The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our product. The FDA enforces the QSR through periodic unannounced inspections. We anticipate that in the future we will be subject to such inspections. Our failure, or the failure of our third-party manufacturers, to take satisfactory corrective action in response to an adverse QSR inspection could result in enforcement actions, including a public warning letter, a shutdown of our manufacturing operations, a recall of our product, civil or criminal penalties or other sanctions, which would cause our reputation, sales and business to suffer.

 

If our product causes or contributes to a death or a serious injury, or malfunctions in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.

  

 Under the FDA’s medical device reporting regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would be likely to cause or contribute to death or serious injury if the malfunction of the device were to recur. If we fail to report these events to the FDA within the required timeframes, or at all, the FDA could take enforcement action against us. Any such adverse event involving the Viveve System or future products could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as mounting a defense to a legal action, if one were to be brought, would require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.

 

The Viveve System may, in the future, be subject to product corrections, removals, or recalls that could harm our reputation, business and financial results.

 

The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the device would cause serious, adverse health consequences or death. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. A recall of our product would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations. The FDA requires that certain classifications of recalls be reported to the FDA within 10 working days after the recall is initiated. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA. In the future, we may initiate one or more voluntary correction or removal actions involving our product that we determine do not require notification to the FDA. If the FDA disagrees with our determinations, the FDA could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the corrections, removals, or recalls when they were conducted.

  

Federal and state regulatory reforms may adversely affect our ability to sell our product profitably.

 

From time to time, legislation is drafted and introduced in the U.S. Congress that could significantly change the statutory provisions governing the clearance or approval, manufacture and marketing of a medical device. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our product. It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations will be changed, and what the impact of such changes, if any, may be. 

  

For example, in August 2010, the FDA issued its preliminary recommendations on reform of the 510(k) pre-market notification process for medical devices. On January 19, 2011, the FDA announced its “Plan of Action” for implementing these recommendations. The Plan of Action included 25 action items, most of which have now been implemented by the agency. In August 2016, the FDA released its proposals for reforming long-standing procedures and requirements related to modifications to medical devices already on the market.  In December 2016, Congress passed the 21st Century Cures Act, which makes multiple changes to FDA’s rules for medical devices as well as for clinical trials, and Congress (passed the Medical Device User Fee reauthorization package in 2017.  

 

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The FDA or Congress may implement other reforms in the future. Future reforms could have the effect of making it more difficult and expensive for us to obtain FDA clearance or approval.  Such changes may also be made by legislators or regulators in the foreign jurisdictions in which we do business and could similarly affect our operations and profitability in those markets.

 

In addition, a state could change its statutes or regulations at any time, disallowing sales to particular types of end users or placing restrictions on certain chemicals, such as those used in our cryogen. We cannot predict the impact or effect of future legislation or regulations at the federal or state levels, or in any foreign jurisdiction in which we do business.

 

Failure to comply with the U.S. Foreign Corrupt Practices Act and similar laws associated with our activities outside the U.S. could subject us to penalties and other adverse consequences.

 

A significant portion of our revenues is and will be from jurisdictions outside of the U.S. We are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, which generally prohibits U.S. companies and their intermediaries from making payments to foreign officials for the purpose of directing, obtaining or keeping business, and requires companies to maintain reasonable books and records and a system of internal accounting controls. The FCPA applies to companies and individuals alike, including company directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for the corrupt actions taken by employees, strategic or local partners or other representatives. In addition, the government may seek to rely on a theory of successor liability and hold us responsible for FCPA violations committed by companies or associated with assets which we acquire. In recent years, the medical device and pharmaceutical industries have been a focus of the U.S. government’s FCPA enforcement priorities, and settlements often include very significant payments potentially consisting of millions of dollars. Other countries have similar laws to which we may be subject, including the United Kingdom Bribery Act.

 

In many foreign countries where we operate, particularly in countries with developing economies, it may be a local custom for businesses to engage in practices that are prohibited by the FCPA or other similar laws and regulations. In contrast, we have implemented a company policy requiring our employees and consultants to comply with the FCPA and similar laws. At the present time, we have not conducted formal FCPA compliance training for our foreign distributors and partners, but we are in the process of devising a training schedule for certain of our employees, agents and partners. Nevertheless, there can be no assurance that our employees, partners and agents, as well as those companies to which we outsource certain of our business operations, will not take actions in violation of the FCPA or our policies for which we may be ultimately held responsible. As a result of our anticipated growth, our development of infrastructure designed to identify FCPA matters and monitor compliance is at an early stage. If we or our intermediaries fail to comply with the requirements of the FCPA or similar legislation, governmental authorities in the U.S. and elsewhere could seek to impose civil and/or criminal fines and penalties which could have a material adverse effect on our reputation, business, operating results and financial conditions. We may also face collateral consequences, such as debarment and the loss of our export privileges. 

 

Viveve’s relationships with customers and healthcare providers and professionals may be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, as well as comparable state and foreign laws, which could expose Viveve to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings. 

 

Healthcare providers and physicians play a primary role in the recommendation and prescription of any medical product, including the Viveve System marketed by the Company. Viveve’s future arrangements with customers, healthcare providers and other medical professionals could expose Viveve to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which Viveve markets, sells and distributes its medical device products.  There are various federal and state healthcare laws and regulations that impose restrictions that may apply to Viveve, and there may also be comparable foreign laws and regulations that similarly could apply to the Company.

 

The federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federally funded healthcare programs.  This statute has been broadly interpreted to apply to manufacturer arrangements with prescribers and purchasers, among others.  There are similar laws at the state level in the U.S., and several other countries, including the United Kingdom, have enacted similar anti-kickback, fraud and abuse, and healthcare laws and regulations.

 

The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.  HIPAA also imposes criminal liability for knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services.

  

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The federal Physician Sunshine Act requirements under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, referred to together as the Affordable Care Act, require manufacturers of drugs, devices, biologics and medical supplies for which payment is available under title XVIII of the Social Security Act [Medicare] or under a State plan under title XIX [Medicaid] or XXI [SCHIP] of the Social Security Act (or a waiver of such a plan) to report to the Department of Health and Human Services information related to payments and other transfers of value made to or at the request of covered recipients, such as physicians and teaching hospitals, and physician ownership and investment interests in such manufacturers.  Payments made to physicians and research institutions for clinical trials are included within the scope of this federal disclosure law. 

 

Analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by nongovernmental third-party payors, including private insurers.  Some state laws also require pharmaceutical and medical device companies to comply with the relevant industry’s voluntary compliance guidelines, in addition to requiring manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.  There may also be comparable foreign laws and regulations that could impact Viveve’s business and operations. 

 

If Viveve’s operations are found to be in violation of any of these laws or any other governmental regulations that may apply to it, the Company may be subject to significant civil, criminal and administrative penalties, damages, or fines.  Moreover, if any of the physicians or other providers or entities with whom Viveve expects to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, or potentially to other sanctions in foreign jurisdictions. 

 

We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

 

Developing our products is expensive, and we expect our research and development expenses to increase substantially in connection with our ongoing activities. 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.

 

As of December 31, 2019, our cash and cash equivalents were $13.3 million. We expect that our cash and cash equivalents will be sufficient to fund our current operations through June 2020. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. In any event, we will require additional capital to obtain regulatory approval for, and to commercialize, our product candidates. Raising funds in the current economic environment may present additional challenges. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

 

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidate or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

 

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.

 

Our historical operating results indicate substantial doubt exists related to the Company's ability to continue as a going concern.

 

Our financial statements have been prepared assuming that our company will continue as a going concern. We have incurred net losses and used significant cash in operating activities since inception. We have an accumulated deficit of approximately $197.9 million, cash and cash equivalents of $13.3 million and working capital of $15.9 million as of December 31, 2019. Additionally, the Company used $31.2 million in cash for operations in the year ended December 31, 2019. These factors raise substantial doubt about our ability to continue as a going concern and satisfying our estimated liquidity needs 12 months from the issuance of the financial statements.

 

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If we continue to experience operating losses, and we are not able to generate additional liquidity through a capital raise or other cash infusion, we might need to secure additional sources of funds, which may or may not be available to us. Additionally, a failure to generate additional liquidity could negatively impact our ability to operate our business.

 

 Risks Related to Our Intellectual Property

 

Intellectual property rights may not provide adequate protection for the Viveve System, which may permit third parties to compete against us more effectively.

 

We rely on patent, copyright, trade secret and trademark laws and confidentiality agreements to protect our technology and Viveve treatment. We have an exclusive license (with a field of use limitation) to one issued U.S. patent and own 4 issued U.S. patents primarily covering our technology and Viveve treatment and methods of use. Additionally, we have 8 pending U.S. patent applications; 73 issued foreign patents; and 14 pending foreign patent applications, some of which foreign applications preserve an opportunity to pursue patent rights in multiple countries. Some of the Viveve System’s components are not, and in the future may not be, protected by patents. Additionally, our patent applications may not issue as patents or, if issued, may not issue in a form that will be advantageous to us. Any patents we obtain may be challenged, invalidated or legally circumvented by third parties. Consequently, competitors could market products and use manufacturing processes that are substantially similar to, or superior to, ours. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors, former employees or current employees, despite the existence generally of confidentiality agreements and other contractual restrictions. Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be effective. Moreover, we do not have patent rights in all foreign countries in which a market may exist, and where we have applied for foreign patent rights, the laws of many foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S.

 

In addition, competitors could purchase the Viveve System and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If our intellectual property is not adequately protected so as to defend our market against competitors’ products and methods, our competitive position and business could be adversely affected.

 

We have been involved in and may be involved in future costly intellectual property litigation, which could impact our future business and financial performance.

 

Our industry has been characterized by frequent intellectual property litigation. Our competitors or other patent holders may assert that our device and the methods we employ are covered by their patents. If our device or methods are found to infringe, we could be prevented from marketing the Viveve System. In addition, we do not know whether our competitors or potential competitors have applied for, or will apply for or obtain, patents that will prevent, limit or interfere with our ability to make, use, sell, import or export the Viveve System. We may also initiate litigation against third parties to protect our intellectual property that may be expensive, protracted or unsuccessful. In the future there may be companies that market products for competing purposes in direct challenge to our intellectual property position, and we may be required to initiate litigation in order to stop them. For example, in October 2016 we filed a patent infringement lawsuit against ThermiGen, LLC, ThermiAesthetics, LLC and Dr. Red Alinsod alleging unauthorized use of certain of our patented technologies. based on Viveve’s U.S. Patent Number 8,961,511 (the “‘511 patent”). Viveve, Inc. v. ThermiGen, LLC et al., No. 2:16-cv-1189-JRG (E.D. Tx.), filed October 16, 2016. On October 20, 2017, ThermiGen and ThermiAesthetics filed two petitions for inter partes review (IPR) of the ‘511 patent at the U.S. Patent Trial and Appeal Board (PTAB) challenging the validity of the ‘511 patent claims. ThermiGen, LLC et al. v. Viveve, Inc., No. IPR2018-00088 (October 20, 2017) and ThermiGen, LLC et al. v. Viveve, Inc., No. IPR2018-00089 (October 20, 2017). On June 4, 2018, we entered into a Settlement and License Agreement (the “Settlement Agreement”) with ThermiGen LLC and ThermiAesthetics LLC (“ThermiGen,” collectively) as well as Red Alinsod, M.D. resolving our patent litigation against ThermiGen and Dr. Alinsod. The Settlement Agreement also resolved ThermiGen’s IPR proceedings against the Viveve.

 

Litigation related to infringement and other intellectual property claims, with or without merit, is unpredictable, can be expensive and time-consuming and could divert management’s attention from our business. If we lose this kind of litigation, a court could require us to pay substantial damages, and prohibit us from using technologies essential to the Viveve System and Viveve treatment, any of which would have a material adverse effect on our business, results of operations and financial condition. In that event, we do not know whether necessary licenses would be available to us on satisfactory terms, or whether we could redesign the Viveve System or processes to avoid infringement.

 

Competing products may also appear in other countries in which our patent coverage might not exist or be as strong. If we lose a foreign patent lawsuit, we could be prevented from marketing the Viveve System in one or more countries.

 

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In addition, we may hereafter become involved in litigation to protect our trademark rights associated with our device name or treatment name. Names used may be claimed to infringe names held by others or to be ineligible for proprietary protection. If we have to change the name of the company, device or treatment, we may experience a loss in goodwill associated with our brand name, customer confusion and a loss of sales.

  

Risks Related to our Securities

 

Public company compliance may make it more difficult to attract and retain officers and directors.

 

The Sarbanes-Oxley Act and rules implemented by the Securities and Exchange Commission have required changes in corporate governance practices of public companies. As a public company, these rules and regulations increase our compliance costs and make certain activities more time consuming and costly. These rules and regulations may also make it more difficult and expensive for us to maintain our director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers, and to maintain insurance at reasonable rates, or at all.

 

Concentration of ownership of our common stock may have the effect of delaying or preventing a change in control.

 

As of March 13, 2020, our officers, directors and principal stockholders, i.e., stockholders who beneficially own greater than 10% of our outstanding common stock, collectively beneficially own approximately 6.0% of our outstanding common stock. As a result, these stockholders, if they act together, will be able to control the management and affairs of our company and most matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of our other stockholders.

 

We are a holding company with no business operations of our own and we depend on cash flow from Viveve, Inc. to meet our obligations.

 

We are a holding company with no business operations of our own or material assets other than the stock we own in Viveve, Inc. All of our operations are conducted by Viveve, Inc. As a holding company, we will require dividends and other payments from our subsidiary to meet cash requirements. The terms of any agreements governing indebtedness that we may enter into may restrict our subsidiary from paying dividends and otherwise transferring cash or other assets to us. If there is an insolvency, liquidation or other reorganization of our subsidiary, our stockholders likely will have no right to proceed against its assets. Creditors of our subsidiary will be entitled to payment in full from the sale or other disposal of the assets of our subsidiary before we, as an equity holder, would be entitled to receive any distribution from that sale or disposal. If Viveve, Inc. is unable to pay dividends or make other payments to us when needed, we will be unable to satisfy our obligations.

 

Our stock price may be volatile.

 

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

 

actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

 

changes in the market’s expectations about our operating results;

 

success of competitors;

 

our operating results failing to meet the expectations of securities analysts or investors in a particular period;

 

changes in financial estimates and recommendations by securities analysts concerning our business, the market for our products, the health services industry, or the healthcare and health insurance industries in general;

 

operating and stock price performance of other companies that investors deem comparable to us;

 

our ability to market new and enhanced products on a timely basis;

 

changes in laws and regulations affecting our business;

 

commencement of, or involvement in, litigation involving us;

 

changes in our capital structure, such as future issuances of securities or the incurrence of debt;

 

the volume of shares of our common stock available for public sale;

 

any major change in our board of directors or management;

 

sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and

 

general economic and political conditions such as recessions, fluctuations in interest rates and international currency fluctuations.

  

35

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

  

Our shares of common stock are thinly traded, the price may not reflect our value, and there can be no assurance that there will be an active market for our shares of common stock either now or in the future.

 

Our shares of common stock are thinly traded, our common stock is held by a small number of holders, and the price may not reflect our actual or perceived value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. The market liquidity will be dependent on the perception of our operating business, among other things. We will take certain steps including utilizing investor awareness campaigns, investor relations firms, press releases, road shows and conferences to increase awareness of our business. Any steps that we might take to bring us to the awareness of investors may require that we compensate consultants with cash and/or stock. There can be no assurance that there will be any awareness generated or the results of any efforts will result in any impact on our trading volume. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business, and trading may be at a depressed price relative to the performance of the Company due to, among other things, the availability of sellers of our shares. If an active market should develop, the price may be highly volatile. Because there is currently a relatively low per-share price for our common stock, many brokerage firms or clearing firms are not willing to effect transactions in the securities or accept our shares for deposit in an account. Many lending institutions will not permit the use of low-priced shares of common stock as collateral for any loans.

 

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

 

 If our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding period under Rule 144, or shares issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and, in anticipation of which, the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

In general, under Rule 144, a non-affiliated person who has held restricted shares of our common stock for a period of six months may sell into the market all of their shares, subject to the Company being current in our periodic reports filed with the Commission.

  

We do not expect to declare or pay dividends in the foreseeable future.

 

We have never paid cash dividends on our common stock and have no plans to do so in the foreseeable future, except the cumulative dividend payable on our Series B preferred stock, which could reduce a return in your investment in us. We intend to retain any earnings to develop, carry on, and expand our business. In addition, the terms of the indebtedness of our existing credit facility also restrict us from paying cash dividends to stockholders under some circumstances. The terms of our Series A preferred stock and our Series B preferred stock also provide that we may not pay dividends on our common stock without concurrently declaring dividends on each. If we do not pay dividends, our stock may be less valuable because a return on your investment will only occur if you sell our common stock after our stock price appreciates. For more information on restrictions governing our ability to pay dividends, see the section titled “Dividend” in Item 5 of Part II below.

 

CRG has the right to acquire a significant percentage of our stock upon conversion of its Series B preferred stock and exercise of its warrants and is able to exert significant control over matters pursuant to the protective provisions therein as well as the covenants and other restrictions in the Loan Agreement.

 

CRG has the right to acquire approximately 46% of our outstanding common stock on a fully-diluted basis, subject to stockholder approval to authorize a sufficient number of common stock, Nasdaq stockholder approval requirements and beneficial ownership restrictions contained in the Series B Certificate of Designation and warrants held by CRG. Even though Series B preferred stock is non-voting stock, and has beneficial ownership restrictions, the Series B Certificate of Designation has protective provisions that will require CRG’s consent to perform certain significant company events. For example, CRG's consent would be necessary to amend our organizational documents, or approve any merger, sale of assets, or other major corporate transaction. This consent requirement could delay or prevent any acquisition of our company on terms that other stockholders may desire and may adversely affect the market price of our common stock. CRG may have interests different than yours. For example, CRG may want us to pursue strategies that deviate from the interests of other stockholders.

 

36

 

The Series B preferred stock has a liquidation preference to our common stock and the Series A preferred stock.

 

Series B preferred stock has a liquidation preference that gets paid prior to any payment on our common stock (including shares issuable upon the exercise of the warrants) and Series A preferred stock. As a result, if we were to dissolve, liquidate, merge with another company or sell our assets, the holders of our Series B preferred stock would have the right to receive up to approximately $31.68 million plus any unpaid dividend from any such transaction before any amount is paid to the holders of our Series A preferred stock or common stock or pursuant to the redemption rights in the warrants for fundamental transactions. The payment of the liquidation preferences could result in common stockholders, Series A preferred stockholders and warrant holders not receiving any consideration if we were to liquidate, dissolve or wind up, either voluntarily or involuntarily.

 

The existence of the liquidation preferences may reduce the value of our common stock, make it harder for us to sell shares of common stock in offerings in the future, or prevent or delay a change of control. Furthermore, any conversion of Series B preferred stock into common stock will cause substantial dilution to our common stockholders.

 

 We may not be able to comply with all applicable listing requirements or standards of The Nasdaq Capital Market and Nasdaq could delist our common stock.

 

Our common stock is currently listed on The Nasdaq Capital Market. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards. One such requirement is that we maintain a minimum bid price of at least $1.00 per share for our common stock. For example, in May 2019, we received a letter from the Listing Qualifications Department of The Nasdaq Stock Market (Nasdaq) advising us that for the 30 trading days preceding the date of the notice, the bid price of our common stock had closed below the $1.00 per share minimum required for continued listing on The Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5450(a)(1) and providing us 180 days to regain compliance. On September 18, 2019, we filed a Certificate of Amendment to our Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-100 reverse stock split of our issued and outstanding common stock. On October 3, 2019, we were notified by Nasdaq that as of October 2, 2019 we had maintained a closing bid above $1.00 for a period of 10 consecutive trading days and therefore had regained compliance with the minimum bid price requirement.

 

Furthermore, as of March 13, 2020, the bid price of our common stock has closed below $1.00 per share for 5 consecutive trading days. In the event that the bid price of our common stock remains below such threshold for 30 consecutive trading days, we may receive another notice from the Listing Qualifications Department of Nasdaq for our lack of compliance with the $1.00 minimum bid price requirement and grace period to regain compliance. In such an event, we may need to effect another reverse stock split to regain compliance with the $1.00 minimum bid price requirement. Nasdaq may also decline to continue our listing if we undertake multiple reverse stock splits for compliance with the $1.00 minimum bid price requirement.

 

In addition, on May 21, 2019, we received another written notice from the Listing Qualifications Department of Nasdaq notifying us that we are not in compliance with the market value of listed securities requirement set forth in Nasdaq Listing Rule 5550(b)(2). On November 19, 2019, we received a notice from Nasdaq that our securities would be subject to delisting from The Nasdaq Capital Market for failure to regain compliance with the market value of listed securities requirement, unless we timely request a hearing before a Nasdaq Hearings Panel (the "Panel"). We requested a hearing before the Panel and made submissions to the Panel demonstrating the Company’s compliance with the alternative stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1). On December 30, 2019, the Company received a formal determination from the Panel indicating that the Company had evidenced compliance with all applicable requirements for continued listing on The Nasdaq Capital Market. Accordingly, the Company’s hearing before the Panel was cancelled and the Company’s common stock continued to be listed and traded on The Nasdaq Capital Market. 

 

There can be no assurance that we will continue to be in compliance with the $1.00 minimum bid price requirement or comply with Nasdaq’s other continued listing standards in the future. 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.

 

Item 1B. Unresolved Staff Comments

 

None.

  

37

 

Item 2. Properties

 

On February 1, 2017, we entered into a Sublease for approximately 12,400 square feet of building space for the Company’s corporate headquarters to Englewood, Colorado, which was effective as of January 26, 2017. The lease term is 36 months. The lease term commenced on June 1, 2017 and will terminate in May 2020. We believe that this facility is adequate for our current business operations.

 

The office operating lease expense for the year ended December 31, 2019 was $268,000. The office rent expense for the years ended December 31, 2018 and 2017 was $358,000 and $442,000, respectively. Future minimum payments under the lease are approximately as follows:

 

Year Ending December 31,

      

2020

$272,000

2021

$115,000

2022

  $0

  

Item 3. Legal Proceedings

 

The Company currently has no pending or open legal proceedings.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

PART II

 

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

As of March 13, 2020, our common stock is trading on The Nasdaq Capital Market under the symbol “VIVE”.

 

Holders of Common Stock

 

As of March 13, 2020, there were approximately 116 holders of record of our common stock.

 

Dividends

 

 Our Series B preferred stock carries a cumulative dividend at a rate of 12.5% of $1,000 per annum, compounded annually. This cumulative dividend is payable in arrears on quarterly basis, commencing with December 31, 2019, and at our option is payable in additional shares of Series B preferred stock. Additionally, the terms of our Series A preferred stock and Series B preferred stock provide that we may not declare dividends on the common stock without concurrently declaring dividends on such series of preferred stock in an amount equal to that payable had they been converted to common stock prior to the dividend. We have paid $2,382 in cash and issued a total of 378 shares of Series B preferred stock as preferred dividend to the holders of Series B preferred stock through December 31, 2019.

 

Other than the preferred dividend on Series B preferred stock, we have not declared or paid any cash dividends on our common stock, and we currently intend to retain future earnings, if any, to finance the expansion of our business; we do not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on our common stock will be made by our board of directors, in their discretion, and will depend on our financial condition, results of operations, capital requirements and other factors that our board of directors considers significant.

 

Securities Authorized For Issuance Under Equity Compensation Plans

 

Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report.

 

Issuances of Unregistered Securities

 

In consideration for consulting services rendered to our company, we made the following issuances of securities to Acorn Management Partners LLC, exempt from registration pursuant to Section 4(a)(2) of the Securities Act: 274 shares of common stock (as adjusted for September 18, 2019 reverse stock split) issued on March 12, 2019; 7,740 shares of common stock issued on October 11, 2019; and 30,675 shares of common stock issued on December 11, 2019.

 

In consideration of conversion of $31.3 million in outstanding obligations, we made the following issuances of securities to affiliates of CRG, exempt from registration pursuant to Section 4(a)(2) of the Securities Act, on November 26, 2019: 31,300 shares of Series B preferred stock; and warrants to purchase 9,893,776 shares of common stock.

 

Pursuant to the Certificate of Designation of Series B preferred stock, we issued 378 shares of Series B preferred stock in lieu of $378,000 in cash dividend to holders of Series B preferred stock, exempt from registration pursuant to Section 4(a)(2) of the Securities Act, on December 31, 2019.

 

The shares of Series B preferred stock and warrants to purchase shares of common stock issued to affiliates of CRG will only be convertible or exercisable into common stock, as applicable, following such time as we have filed an amendment to the certificate of incorporation that authorizes at least 125,000,000 shares of common stock. The conversion or exercise of securities issued to affiliates of CRG are also further subject to certain beneficial ownership restrictions and Nasdaq stockholder approval requirements. If the Series B preferred stock becomes convertible into common stock, it will be convertible into that number of shares of common stock determined by dividing $1,000 by the conversion price of $1.53.

 

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Item 6. Selected Financial Data

 

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

This report contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including, "could" "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

  

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Annual Report.

 

The following discussion should be read in conjunction with the consolidated financial statements and the related notes contained elsewhere in this Annual Report. In addition to historical information, the following discussion contains forward looking statements based upon current expectations that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including, but not limited to, risks described in the section entitled “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, or 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 57 countries throughout the world under the following indications for use: 

 

Indication for Use:

No. of Countries:

General surgical procedures for electrocoagulation and hemostasis

4

 (including the U.S.)

General surgical procedures for electrocoagulation and hemostasis of vaginal tissue and the treatment of vaginal laxity

32

 

For treatment of vaginal laxity

4

 

For treatment of the vaginal introitus, after vaginal childbirth, to improve sexual function

14

 

General surgical procedures for electrocoagulation and hemostasis as well as for the treatment of vaginal laxity

1

 

For vaginal rejuvenation

1

 

For treatment of vaginal laxity and to improve mild 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 December 31, 2019, we have sold 840 Viveve Systems and approximately 41,150 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 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.  

 

39

 

Recent Events

 

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 $9,952,000.  

 

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, 5,497,593 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.

 

In November and December 2019, the holders of Series A preferred stock converted 600,000 shares and 3,021,237 shares into common stock, respectively. As of December 31, 2019, 1,852,173 remaining shares of Series A convertible preferred stock were 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.

 

Reverse Stock Split

 

The Company effected a 1-for-100 reverse stock split of its common stock that became effective after the Nasdaq Capital Market trading closed on September 18, 2019. The reverse stock split uniformly affected all issued and outstanding shares of the Company’s common stock. The reverse stock split did not alter any stockholder's percentage ownership interest in the Company, except to the extent that the reverse stock split results in fractional shares. No fractional shares were issued in connection with the reverse stock split. Any fractional share that resulted from the reverse stock split was rounded down and stockholders were issued cash in lieu of such fractional share interest.

 

The par value of the Company’s common stock remained unchanged at $0.0001 per share after the reverse stock split. The number of authorized shares of common stock remained at 75 million.

 

The reverse stock split proportionately affected the number of shares of common stock available for issuance under the Company’s equity incentive plans. All stock options warrants and restricted stock awards of the Company outstanding shares immediately prior to the reverse stock split were adjusted in accordance with their terms.

 

On the effective date of the reverse stock split, (i) each 100 shares of outstanding common stock were reduced to one share of common stock; (ii) the number of shares of common stock into which each outstanding stock option or warrant to purchase common stock is exercisable were proportionately reduced on an 100-to-1 basis; (iii) the exercise price of each outstanding stock option or warrant to purchase common stock were proportionately increased on a 1-to-100 basis; and (iv) the number of shares of common stock each outstanding restricted stock award will be issued upon vesting were proportionally reduced on a 100-to-1 basis.

 

40

 

All of the share numbers, share prices, and exercise prices have been adjusted, on a retroactive basis, to reflect this 1-for-100 reverse stock split.

 

Nasdaq Delisting Notice and Compliance Determination

  

On May 13, 2019 and May 21, 2019, the Company received written notices from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying it that the Company was not in compliance with the minimum bid price requirements and the market value of listed securities requirements, respectively. Both notification letters state that the Company has 180 calendar days, or until November 11, 2019 and November 18, 2019, respectively, to regain compliance. 

 

On September 17, 2019, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-100 reverse stock split of the Company’s issued and outstanding common stock. The reverse stock split became effective after the Nasdaq Capital Market trading closed on September 18, 2019 and the Company’s common stock began trading on a split-adjusted basis on the Nasdaq Capital Market on September 19, 2019.

 

Following our reverse stock split described above, on October 3, 2019, the Company was notified by Nasdaq that as of October 2, 2019, it had maintained a closing bid above $1.00 for a period of 10 consecutive trading days and therefore had regained compliance with the minimum bid price requirement.

 

On November 19, 2019, we received a notice from Nasdaq that our securities would be subject to delisting from The Nasdaq Capital Market for failure to regain compliance with the market value of listed securities requirement under Nasdaq Listing Rule 5550(b)(2), unless we timely request a hearing before a Nasdaq Hearings Panel (the "Panel"). A hearing was requested before the Panel, which stayed the delisting action by Nasdaq. The Company also made submissions to the Panel demonstrating its compliance with the alternative stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1).

 

On December 30, 2019, the Company received a formal determination from the Panel indicating that the Company has evidenced compliance with all applicable requirements for continued listing on The Nasdaq Capital Market. Accordingly, the Company’s hearing before the Panel scheduled for January 16, 2020 was cancelled and the Company’s common stock will continue to be listed and trade on The Nasdaq Capital Market.

 

“At-the-Market” Offering

 

The Company established an “at-the-market” equity offering program through the filing of a prospectus supplement on August 16, 2019 to its shelf registration statement on Form S-3filed on November 8, 2017, under which the Company could offer and sell, from time-to-time, up to $6,760,000 aggregate offering price of shares of its common stock (the “August 2019 ATM Facility”). The Company’s offering of $6,760,000 of its common stock under the August 2019 ATM Facility was completed in late September 2019. During the year ended December 31, 2019, the Company sold 1,004,171 shares of common stock under the August 2019 ATM Facility for net proceeds, after deducting sales commissions and other offering costs, of approximately $6,322,000. As of December 31, 2019, the Company had no remaining capacity to issue shares under the August 2019 ATM Facility.

 

The Company had previously established an “at-the-market” equity offering program through the filing of a prospectus supplement on November 28, 2017 to its shelf registration statement on Form S-3 filed on November 8, 2017, under which the Company could offer and sell, from time-to-time, up to $25,000,000 aggregate offering price of shares of its common stock (the “November 2017 ATM Facility”). On August 16, 2019, the Company suspended and subsequently terminated the November 2017 ATM Facility. The Company will no longer make any sales of its common stock under the November 2017 ATM Facility. During the years ended December 31, 2019 and 2018, the Company sold zero and 2,771 shares of common stock under the November 2017 ATM Facility, respectively. Through the termination of the November 2017 ATM Facility in August 2019, the Company sold 3,364 shares of common stock under the equity offering program for net proceeds, after deducting sales commissions and other offering costs, of approximately $1,318,000.

 

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, 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 December 31, 2019, the Company had no capacity for sales under the 2017 Shelf Registration Statement due to the baby shelf rules.

 

41

 

ITA Approval and Initiation of 3-Arm Feasibility Study in SUI

 

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 Stress Urinary Incontinence (SUI) in women. This three-month study may provide us with a strategic path forward in our pursuit of global label expansion for SUI. Study subjects will be randomized in a 1:1:1 ratio to the three arms and assessed using the 1-hour Pad Weight Test, 3-day Voiding Diary, the 24-hour Pad Weight Test and I-QOL at three months post treatment. Completion of subject enrollment in the study was reported in March 2020. The three-arm feasibility study is targeted for read-out in the third quarter of 2020.  

   

Launch of Next Generation 2.0 Platform

 

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.

 

Completion of All Follow-up Patient Visits in VIVEVE II Clinical Study

 

In March 2019, enrollment was completed for the VIVEVE II (VIveve treatment of the Vaginal Introitus to EValuate Effectiveness) clinical study. In March 2020, all patient follow-up visits were completed in this 12-month FDA approved IDE trial. VIVEVE II is a prospective, randomized, double-blind, sham controlled study to evaluate the efficacy and safety of the Viveve System to improve symptoms of female sexual dysfunction, associated with vaginal laxity. Nineteen (19) clinical sites in the United States enrolled up to 250 female patients who were pre-menopausal, 18 years of age or older who experienced at least one full term vaginal delivery at least twelve months prior to enrollment date. Patients were randomized in a 2:1 ratio to either an active treatment group or sham-control group. All patients have now been followed for twelve months post-treatment to assess the primary effectiveness and safety endpoints of the study with data being collected at one, three, six, nine and twelve months. Patients randomized to the sham arm will be offered the opportunity to receive a Viveve treatment once the study has been unblinded.

 

The primary efficacy endpoint of the study is the mean change from baseline in the Female Sexual Function Index (FSFI) total score at twelve months posttreatment. Secondary endpoints include evaluation of the mean change from baseline of the total FSFI score at six months, as well as evaluation of the mean change from baseline of the six different domains within the FSFI at six and twelve months. At months six and twelve, in addition to the FSFI, subjects were asked to complete the Patient’s Global Impression of Improvement (PGI-I). Subjects were also assessed for adverse events throughout the study. Completion of all subject follow-up visits in the study was reported in March 2020. The Company intends to report final twelve-month clinical data from the study in the second quarter of 2020.

 

Clinical Results Reported from 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).

 

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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 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. The sham response consistently exceeded the 30 – 55% placebo response rates in the literature for SUI studies, suggesting that cryogen alone may have a therapeutic effect.

 

The LIBERATE-International study was conducted in Canada to evaluate support for SUI indications in Canada, the European Union and several other international countries. Further analysis by the Company of the positive yet inconclusive results of the trial enabled Viveve to identify and pursue a strategic pathway to continue the advancement of its SUI clinical development program and pursuit of a label expansion for the SUI indication on a global basis.

 

Submission of IDE to FDA for Approval to Conduct SUI Trial in the United States

 

In September 2018, the Company submitted an Investigational Device Exemption (IDE) to the U.S. Food and Drug Administration (FDA) for authorization to begin a clinical study in the U.S. for SUI, a multicenter, randomized, double-blinded, sham-controlled trial to evaluate the safety and efficacy of the Company’s proprietary CMRF technology for the improvement of SUI in women. Intended enrollment for the clinical study in the U.S. for SUI trial is approximately 240 subjects at up to 25 study sites in the United States. Subjects will be randomized in a 2:1 ratio for active and sham treatments.

 

In October 2018, the FDA sent a letter to the Company stating that the FDA did not approve the IDE submission for the clinical study in the U.S. for SUI and requested the Company to submit additional safety testing as part of an IDE re-submission.  Viveve has had ongoing discussions with the FDA regarding such safety testing. 

 

In November 2019, we conducted a Good Laboratory Practice (GLP) study in six ewes to evaluate the in vivo temperature-time profile and histopathology of vaginal and surrounding tissues in the ovine model after Viveve treatment. Five ewes were utilized for the in vivo energy application procedures while the remaining ewe was utilized as a control. During anesthesia, eight fluoroptic temperature probes were placed at different locations near the vaginal wall, rectum and bladder. After probe placement, five of the ewes received the Viveve SUI protocol (220 pulses of 90 J/cm2 of RF energy) and temperatures recorded. The control ewe did not receive energy application, but temperatures were recorded. In February 2020, study results showed temperature increases only at tissue locations where expected. Histopathology results showed normal histopathology of vaginal and surrounding tissues, and no adverse or other associated treatment-related responses, as evaluated histologically via H&E stain (in formalin fixed, paraffin embedded samples) and LDH/NBT vital stain (in frozen, OCT embedded samples). There were no macroscopic findings in either fresh or formalin-fixed tissues submitted for pathologic evaluation.

 

Pending the results of the Company’s 3-Arm Feasibility Study in SUI, the Company plans to resubmit the IDE to the FDA.

 

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 is continuing to gain traction in the U.S. market. In December 2019, Viveve Systems placed with new customers represented a higher monthly productivity rate per sales representative than any prior month in the company’s history. Sale of Viveve products outside of the U.S. will continue to be supported by the Company’s current distributors without significant change to the international business model.

 

43

 

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 Accounting 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 revenue and is currently not a material amount. The Viveve Systems that are being leased are included in property and equipment, net and depreciated over their expected useful lives of 5 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.

 

Strategic Organizational Realignment

 

In January 2019, the Company implemented a strategic and organizational realignment plan (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 Strategic Organizational Realignment included a reduction in total headcount of approximately 40 full-time employees. It also included a nearly two-thirds reduction in the Company’s direct sales organization, which has been repositioned to provide targeted market development activities to further expand awareness and adoption of Viveve’s CMRF technology in the gynecology, urogynecology, and female sexual medicine specialties. The Company’s current and prospective aesthetic medicine customers in the U.S. will be supported by a network of distributor partners under Viveve’s direction. International commercial distribution will remain unchanged through Viveve’s global network of distributor partners. The total restructuring costs for employee severance and other related termination benefits were approximately $742,000 and it was recorded in the quarter ended March 31, 2019. This restructuring contributed to a reduction in our total operating expenses in the first quarter of 2019 as planned and additional operating cost savings occurred through the remainder of 2019.

 

Adoption of New Accounting Standard - Leases

 

The Company adopted the FASB’s ASC Topic 842, as of January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at the beginning of the period of adoption. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification and we elected the hindsight practical expedient to determine the lease term for existing leases. We determined that the renewal options for the facilities lease would be reasonably certain to be renewed and as such, included that renewal period in determining the expected lease term of that lease. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Adoption of the new standard resulted in the recording of operating lease right-of-use assets of $629,000 and operating lease liabilities of $629,000, as of January 1, 2019.

 

Impact of the Novel Coronavirus
 

As of the filing of this Annual Report on Form 10-K, China, South Korea, the United States and most other countries face the outbreak of a novel highly transmissible and pathogenic coronavirus, which has resulted in a widespread global health crisis, adversely affected general commercial activity and the economies and financial markets of many countries, and is likely to also 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 will be sufficient to fund our activities for at least the next twelve 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 $1,000,000 annually.  

  

44

 

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 Annual Report on Form 10-K, 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 Year Ended December 31, 2019 and 2018

 

Revenue

 

   

Year Ended

                 
   

December 31,

   

Change

 
   

2019

   

2018

    $    

%

 
   

(in thousands, except percentages)

 
                                 

Revenue

  $ 6,567     $ 18,517     $ (11,950 )     (65 )%

 

We recorded revenue of $6,567,000 for the year ended December 31, 2019, compared to revenue of $18,517,000 for the year ended December 31, 2018, a decrease of $11,950,000, or approximately 65%. The decrease in revenue was primarily due to our shift in our U.S. commercial sales model to a recurring revenue rental model versus selling systems under a capital equipment sales model. Sales in 2019 included 137 Viveve Systems and approximately 7,850 disposable treatment tips. Under the new U.S. recurring revenue rental model, which was launched in June 2019, the Company placed 82 Viveve Systems. Rental revenue on these leases is recognized on a straight-line basis over the term of the lease, which is initiated upon completion of system installation and training. Rental revenue recognized in 2019 was not material. Sales in 2018 included 259 Viveve Systems, and approximately 18,450 disposable treatment tips.   

 

Gross Profit

 

   

Year Ended

                 
   

December 31,

   

Change

 
   

2019

   

2018

    $    

%

 
   

(in thousands, except percentages)

 
                                 

Gross profit

  $ 1,016     $ 7,320     $ (6,304 )     (86 )%

 

Gross profit was $1,016,000, or 15% of revenue, for the year ended December 31, 2019, compared to gross profit of $7,320,000, or 40% of revenue, for the year ended December 31, 2018, a decrease of $6,304,000 or approximately 86%. 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. Additionally, fixed manufacturing costs in 2019 were spread over a lower sales volume thus lowering gross margins.

 

Research and development expenses 

 

   

Year Ended

                 
   

December 31,

   

Change

 
   

2019

   

2018

    $    

%

 
   

(in thousands, except percentages)

 
                                 

Research and development

  $ 8,590     $ 13,616     $ (5,026 )     (37 )%

 

Research and development expenses totaled $8,590,000 for the year ended December 31, 2019, compared to research and development expenses of $13,616,000 for the year ended December 31, 2018, a decrease of $5,026,000, or approximately 37%. Spending on research and development decreased in 2019 primarily due to reduced engineering and development work related to our products as well as certain cost savings in connection with the Company’s Strategic Organizational Realignment which occurred in the first quarter of 2019. Research and development expenses during the year also included lower clinical study costs primarily due to the completion and readout of our LIBERATE-International SUI clinical trial in July 2019.

 

45

 

Selling, general and administrative expenses

 

   

Year Ended

                 
   

December 31,

   

Change

 
   

2019

   

2018

    $    

%

 
   

(in thousands, except percentages)

 
                                 

Selling, general and administrative

  $ 22,363     $ 38,669     $ (16,306 )     (42 )%

 

Selling, general and administrative expenses totaled $22,363,000 for the year ended December 31, 2019, compared to $38,669,000 for the year ended December 31, 2018, a decrease of $16,306,000, or approximately 42%. The decrease in selling, general and administrative expenses in 2019 was primarily due to certain cost savings in connection with the Company’s Strategic Organizational Realignment which occurred in the first quarter of 2019, as well as lower professional and legal fees associated with our intellectual property. 

 

Restructuring costs

 

   

Year Ended

                 
   

December 31,

   

Change

 
   

2019

   

2018

    $    

%

 
   

(in thousands, except percentages)

 
                                 

Restructuring costs

  $ 742     $ -     $ 742       -  

 

Loss on debt restructuring

 

   

Year Ended

                 
   

December 31,

   

Change

 
   

2019

   

2018

    $    

%

 
   

(in thousands, except percentages)

 
                                 

Loss on debt restructuring

  $ (6,705 )   $ -     $ (6,705 )     -  

 

In connection with the November 2019 Offering, the Company’s secured lender, CRG, converted approximately $31.3 million of debt obligations into the newly authorized Series B convertible preferred stock and warrants to purchase common stock, which had a fair value in excess of the debt exchanged. As a result, the Company recorded a loss on debt restructuring of approximately $6,705,000 on the CRG debt conversion.       

 

In January 2019, the Company implemented the Strategic Organizational Realignment to reduce operating expenses. The restructuring included a reduction in headcount of approximately 40 full-time employees. The total restructuring costs recorded in 2019 were approximately $742,000. This restructuring contributed to a reduction in total operating expenses in 2019.

 

Interest expense 

 

   

Year Ended

                 
   

December 31,

   

Change

 
   

2019

   

2018

    $    

%

 
   

(in thousands, except percentages)

 
                                 

Interest expense, net

  $ 4,354     $ 4,372     $ (18 )     NM  

 

During the year ended December 31, 2019, we had interest expense, net, of $4,354,000 compared to $4,372,000, for the year ended December 31, 2018, a decrease of $18,000. 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.

 

46

 

Other income (expense), net

 

   

Year Ended

                 
   

December 31,

   

Change

 
   

2019

   

2018

    $    

%

 
   

(in thousands, except percentages)

 
                                 

Other income (expense), net

  $ (161 )   $ 13     $ (174 )     NM  

 

During the year ended December 31, 2019, we had other expense, net, of $161,000 as compared to other income, net, of $13,000 for the year ended December 31, 2018.

 

Loss from minority interest in limited liability company

 

   

Year Ended

                 
   

December 31,

   

Change

 
   

2019

   

2018

    $    

%

 
   

(in thousands, except percentages)

 
                                 

Loss from minority interest in limited liability company

  $ 627     $ 657     $ (30 )     (5 )%

 

The Company uses the equity method to account for its investment in InControl Medical, LLC (“ICM”). For the year ended December 31, 2019 and 2018, the allocated net loss from ICM’s operations was $627,000 and $657,000, respectively.

 

Liquidity and Capital Resources

 

Comparison of the Year Ended December 31, 2019 and 2018

 

At December 31, 2019, we had accumulated deficit of $197.9 million, $13.3 million in cash and cash equivalents and working capital of $15.9 million . During 2019, we raised $16.3 million from the sale of common stock and convertible preferred stock and warrants. However, we used $31.2 million in cash for operations during the year ended December 31, 2019. As of the date our financial statements for the year ended December 31, 2019 are issued, we did not have sufficient cash to fund our operation through March 31, 2021, 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 financial statements are 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. 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):

 

   

Year Ended

 
   

December 31,

 
   

2019

   

2018

 
                 

Net cash used in operating activities

  $ (31,236 )   $ (43,090 )

Net cash used in investing activities

    (1,087 )     (2,142 )

Net cash provided by financing activities

    16,108       54,025  

Net increase (decrease) in cash and cash equivalents

  $ (16,215 )   $ 8,793  

 

 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.

 

47

 

Operating activities used $31,236,000 of cash for the year ended December 31, 2019 compared to $43,090,000 used for the year ended December 31, 2018. 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 year ended December 31, 2019 consisted of a net loss of $42,526,000 adjusted for non-cash expenses including provision for doubtful accounts and the write-off of distributor accounts receivable of $1,028,000, depreciation and amortization of $1,177,000, stock-based compensation of $2,400,000, non-cash interest expense of $1,577,000, loss on debt restructuring of $6,705,000, loss from minority interest in limited liability company of $627,000, loss on disposal of property and equipment of $108,000, and cash outflows from changes in operating assets and liabilities of $2,337,000.

 

Net cash used during the year ended December 31, 2018 consisted of a net loss of $49,981,000 adjusted for non-cash expenses including provision for doubtful accounts of $179,000, depreciation and amortization of $786,000, stock-based compensation of $3,035,000, fair value of restricted common shares issued of $256,000, non-cash interest expense of $1,580,000, loss from minority interest in limited liability company of $657,000, and cash inflows from changes in operating assets and liabilities of $398,000.

 

Investing Activities

 

Net cash used in investing activities during the year ended December 31, 2019 and 2018 was $1,087,000 and $2,142,000, respectively. Net cash used in investing activities during 2019 and 2018 was used for the purchase of property and equipment. The purchase of property and equipment in 2019 primarily consisted of rental equipment in connection with the new subscription offering program, which was launched in June 2019. 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 increase in the number of our employees and any changes to the capital equipment requirements related to our development programs and clinical trials.

  

Financing Activities

 

Net cash provided by financing activities during year ended December 31, 2019 was $16,108,000, which was the result of gross proceeds of $11,500,000 from our November 2019 Offering (partially offset by transaction costs of $1,548,000), gross proceeds of $6,760,000 from our August 2019 ATM Facility (partially offset by transaction costs of $438,000), and proceeds from shares purchased under the Company’s employee stock purchase plan of $56,000, partially offset by transaction costs of $216,000 in connection with our note payable.

 

Net cash provided by financing activities during year ended December 31, 2018 was $54,025,000, which was the result of the gross proceeds of $22,093,000 from our December 2018 Offering (partially offset by transaction costs of $1,709,000), gross proceeds of $34,500,000 from our February 2018 Offering (partially offset by transaction costs of $2,286,000), gross proceeds of $1,327,000 from our November 2017 ATM Facility (partially offset by transaction cost of $134,000), and proceeds from shares purchased under the Company’s employee stock purchase plan of $233,000.

 

As of December 31, 2019, there is a balance of $35,016,000 available for future issuance under the 2017 Shelf Registration Statement following the termination of our November 2017 ATM Facility and the use of our August 2019 ATM Facility. However, the Company is subject to the limitations under General Instruction I.B.6. As of December 31, 2019, the Company had no capacity to issue shares under the 2017 Shelf Registration Statement due to these limitations.

        

Contractual Payment Obligations

 

We have obligations under a non-cancelable operating lease and a bank term loan. As of December 31, 2019, our contractual obligations are as follows (in thousands): 

 

           

Less than

                   

More than

 

Contractual Obligations (including interest):

 

Total

   

1 Year

   

1 - 3 Year

   

3 -5 Years

   

5 Years

 

Debt obligations

  $ 5,992     $ -     $ -     $ 5,992     $ -  

Non-cancellable operating lease obligations

    440       303       137       -       -  

Total

  $ 6,432     $ 303     $ 137     $ 5,992     $ -  

 

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 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 was also provided 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 on June 1, 2017 and will terminate in May 2020.

 

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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 is $3,995,000 as of December 31, 2019.

 

In September 2018, the Company entered into a 36-month noncancelable operating lease agreement for office equipment.  The lease commenced on September 20, 2018.  The monthly payment is approximately $2,600.  

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of financial condition and results of operations is based upon our 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 consolidated financial statements for a more complete description of our significant accounting policies.

  

Inventory

 

Inventory is stated at the lower of cost or net realizable value. Cost is determined on an actual cost basis on a first-in, first-out method. Inventory as of December 31, 2019 and 2018 is mainly finished goods but also includes a small quantity of raw materials. Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence or impaired inventory. Excess and obsolete inventory is charged to cost of revenue and a new lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

 

As part of the Company’s normal business, the Company generally utilizes various finished goods inventory as sales demos to facilitate the sale of its products to prospective customers. The Company is amortizing these demos over an estimated useful life of five years. The amortization of the demos is charged to selling, general and administrative expense and the demos are included in the medical equipment line within the property and equipment, net balance on the consolidated balance sheets as of December 31, 2019 and 2018.

 

Impairment of Long-Lived Assets

 

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. When such an event occurs, management determines whether there has been an impairment by comparing the anticipated undiscounted future net cash flows to the related asset’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. The Company has not identified any such impairment losses to date.

 

Revenue from Contracts with Customers

 

Revenue consists primarily of the sale of the Viveve System, single-use treatment tips and ancillary consumables. The Company applies the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company considers customer purchase orders to be the contracts with a customer. Revenues, net of expected discounts, are recognized when the performance obligations of the contract with the customer are satisfied and when control of the promised goods are transferred to the customer, typically when products, which have been determined to be the only distinct performance obligations, are shipped to the customer. Expected costs of assurance warranties and claims are recognized as expense. Revenue is recognized net of any sales taxes from the sale of the products.

 

49

 

 Rental revenue is generated through the lease of the Viveve System. The Company’s operating leases for the Viveve System have a rental period of six months and can be extended or terminated by the customer after that time or the Viveve System can be purchased by the customer. Rental revenue on those operating leases is recognized on a straight-line basis over the terms of the underlying leases. The Company began this rental program in the quarter ended June 30, 2019 and the revenue associated with it has not been material to the periods presented. As of December 31, 2019, the Company had deferred revenue in the amount of $662,000 related to its rental program.

 

In connection with the lease of the Viveve System, the Company offers single-use treatment tips and ancillary consumables that are considered non-lease components. In the contracts with lease and non-lease components, the Company follows the relevant guidance in ASC 606, Revenue from Contracts with Customers, to determine how to allocate contractual consideration between the lease and non-lease components.

 

Sales of our products are subject to regulatory requirements that vary from country to country. The Company has regulatory clearance for differing indications, or can sell its products without a clearance, in many countries throughout the world, including countries within the following regions: North America, Latin America, Europe, the Middle East and Asia Pacific. In North America, we market and sell primarily through a direct sales force. Outside of North America, we market and sell primarily through distribution partners.

 

The Company does not provide its customers with a right of return.

 

Allowance for Doubtful Accounts

 

We make ongoing assumptions relating to the collectability of our accounts receivable in our calculation of the allowance for doubtful accounts. In determining the amount of the allowance, we make judgements about the creditworthiness of customers based on ongoing credit evaluations and assess current economic trends affecting our customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. We also consider our historical level of credit losses. As of December 31, 2019, and 2018, the allowance for doubtful accounts was $407,000 and $284,000, respectively.

 

Product Warranty

 

The Company’s products are generally subject to a one-year warranty, which provides for the repair, rework or replacement of products (at the Company’s option) that fail to perform within stated specification. The Company has assessed the historical claims and, to date, product warranty claims have not been significant.

 

Research and Development

 

Research and development costs are charged to operations as incurred. Research and development costs include, but are not limited to, payroll and personnel expenses, prototype materials, laboratory supplies, consulting costs, and allocated overhead, including rent, equipment depreciation, and utilities.

 

Income Taxes

 

Accounting for income taxes requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. The liability method is used in accounting for income taxes. Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets may be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. We evaluate annually the realizability of our deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. As of December 31, 2019, and 2018, the Company has recorded a full valuation allowance for our deferred tax assets based on our historical losses and the uncertainty regarding our ability to project future taxable income. In future periods if we are able to generate income, we may reduce or eliminate the valuation allowance.

    

Accounting for Uncertainty in Income Taxes

 

We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments, and which may not accurately anticipate actual outcomes. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Whether the more-likely-than-not recognition threshold is met for a tax position is a matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence.

  

50

 

Accounting for Stock-Based Compensation

 

Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee’s service period. The Company recognizes compensation expense on a straight-line basis over the requisite service period of the award.

  

We determined that the Black-Scholes option pricing model is the most appropriate method for determining the estimated fair value for stock options and purchase rights under the Company’s employee stock purchase plan. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions which determine the fair value of share-based awards, including the option’s expected term and the price volatility of the underlying stock.

 

Equity instruments issued to nonemployees are recorded in the same manner as similar instruments issued to employees.

 

Recent Accounting Pronouncements

 

The Company adopted FASB’s ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at the beginning of the period of adoption. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification and we elected the hindsight practical expedient to determine the lease term for existing leases. We determined that the renewal options for the facilities lease would be reasonably certain to be renewed and as such, included that renewal period in determining the expected lease term of that lease. Adoption of the new standard resulted in the recording of operating lease right-of-use assets of $629,000 and operating lease liabilities of $629,000, as of January 1, 2019. The standard did not have an impact on our consolidated results of operations, cash flows or stockholders’ equity previously reported. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

In June 2018, the FASB issued ASU 2018-07, “Stock Compensation (Topic 718) – Improvements to Nonemployee Share- Based Payment Accounting”. The intent of this guidance is to simplify the accounting for nonemployee share-based payment accounting. The amendments in this guidance expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied. Equity- classified nonemployee share-based payment awards are measured at the grant date. Consistent with the accounting for employee share-based payment awards, an entity considers the probability of satisfying performance conditions when nonemployee share-based payment awards contain such conditions. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within the reporting period. We adopted this guidance as of January 1, 2019 and the adoption of the guidance did not have a significant impact on the consolidated financial statements.

 

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 will adopt this guidance as of January 1, 2020 and the adoption of the guidance is not expected to have a significant impact on the 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 consolidated financial statements as a result of future adoption.  

 

Off-Balance Sheet Transactions

 

We do not have any off-balance sheet transactions.

 

51

 

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 Annual Report on Form 10-K, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.

  

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

 

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

Item 8. Financial Statements and Supplementary Data

 

See pages beginning with page F-1.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure. 

 

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Principal Accounting and Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2019, the end of the period covered by this Annual Report on Form 10-K. Based upon the evaluation of our disclosure controls and procedures as of December 31, 2019, our Chief Executive Officer and Principal Accounting and Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. 

 

Changes in Internal Control over Financial Reporting

 

There were no changes during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

  

52

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Set forth below is certain information regarding our current executive officers and directors. Each of the directors was elected to serve until our next annual meeting of stockholders or until his or her successor is elected and qualified. Our officers are appointed by, and serve at the pleasure of, the board of directors.

 

Name

 

Age

 

Position

         

Scott Durbin

  51  

Director and Chief Executive Officer

Steven Basta

  54  

Chairman of the Board

Debora Jorn

  61  

Director

Arlene Morris

  68  

Director

Karen Zaderej

  58  

Director

Jim Robbins

  56  

Vice President of Finance and Administration

Sean Shapiro

  44  

Vice President of U.S. Sales

 

Biographical information with respect to our executive officers and directors is provided below. There are no family relationships between any of our executive officers and directors.

 

Scott Durbin. Mr. Durbin was appointed to serve as the Chief Executive Officer and Director on May 10, 2018. Mr. Durbin joined Viveve, Inc. as its Chief Financial Officer in February 2013 and was appointed as the Chief Financial Officer and Secretary of Viveve Medical, Inc. on September 23, 2014. From June 2012 to January 2013, he served as an advisor and Acting Chief Financial Officer for Viveve, Inc. Prior to joining Viveve, Inc., from June 2010 to October 2011, he was Chief Financial Officer of Aastrom Biosciences (“Aastrom”), a publicly traded, cardiovascular cell therapy company. Before Aastrom, he spent six years as Chief Operating and Financial Officer for Prescient Medical (“Prescient”) from May 2004 to June 2010, a privately held company that developed diagnostic imaging catheters and coronary stents designed to reduce deaths from heart attacks. Prior to Prescient, from January 2003 to April 2004, he spent several years as a financial consultant for two publicly traded biotech companies, Scios Inc., a Johnson & Johnson company, and Alteon Inc. Mr. Durbin began his career in corporate finance as an investment banker in the Healthcare and M&A groups at Lehman Brothers Inc. from August 1999 to January 2003, where he focused on mergers and acquisitions and financings for the life science industry. At Lehman, he successfully executed over $5 billion in transactions for medical device and biotechnology companies. He began his career as a Director of Neurophysiology for Biotronic, Inc. Mr. Durbin received a B.S. from the University of Michigan and an M.P.H. in Health Management with Honors from the Yale University School of Medicine and School of Management.

 

Steven Basta. Steven Basta joined the Viveve board in September of 2018 and was appointed chairman of the board in January 2019. He currently serves as president, chief executive officer, and director of Menlo Therapeutics, Inc., a publicly listed biopharmaceutical company that develops and commercializes treatments for dermatologic and other chronic conditions. From October 2011 until August 2015, Mr. Basta served as chief executive officer of AlterG, Inc., a privately held medical device company. From November 2002 to February 2010, Mr. Basta served as chief executive officer of BioForm Medical, Inc., a publicly listed medical aesthetics company acquired by Merz and from February 2010 to September 2011 served as chief executive officer of Merz Aesthetics, the successor to BioForm Medical, where he led multiple product launches managing the global business to reach its position as a worldwide leader in the injectable aesthetics industry. He served on the board of Carbylan, Inc. from September 2009 to November 2016 and the board of RF Surgical, Inc. (acquired by Medtronic) from December 2013 to August 2015. Mr. Basta received a B.A. from The Johns Hopkins University and an M.B.A. from the Kellogg Graduate School of Management at Northwestern University.

 

Debora Jorn. Ms. Jorn joined our Board on May 11, 2016. Ms. Jorn is currently principal and founder at Jorn Consulting, LLC. She was previously employed as Executive Vice President Corporate and Commercial Development at EyePoint Pharmaceuticals, Inc., formerly known as pSivida Corporation, from November 2016 to March 2018. From August 2013 through March 2016, Ms. Jorn was Executive Vice President and Group Company Chair of Valeant Pharmaceuticals International, Inc. Ms. Jorn served as Chief Global Marketing Officer of Bausch & Lomb Pharmaceuticals, a producer of prescription drugs for eye conditions, from June 2010 to August 2013. From September 2004 to January 2010 she held various senior positions at Schering Plough Corporation including Group Vice President Allergy & Respiratory and Group Vice President Women's Health. From 2002 to 2004 she was the World-Wide Vice President Internal Medicine and Early Commercial Input at Johnson & Johnson. Prior to that she was the Vice President, Urology at Pharmacia Corporation from 2000 to 2002. From 1980 to 2000, Ms. Jorn served in a number of senior roles of increasing responsibilities at Merck and Company. She served as Worldwide Acting head of the ACE Inhibitor Franchise, Executive Director (Respiratory Franchise), Director of Marketing (Merck Frosst Canada), and various other roles for Merck. Ms. Jorn received her M.B.A from NYU Stern Graduate School of Business Administration and her B.A. from Rutgers University in biochemistry. Ms. Jorn’s extensive executive and marketing experience in the healthcare industry led us to believe that she should serve as a director.

 

53

 

Arlene Morris. Ms. Morris joined our Board of Directors on May 11, 2016. Ms. Morris has served as the CEO of Willow Advisors, LLC since May 2015. From May 2011 to April 2015, Ms. Morris was the President, CEO, and a member of the board of Syndax Pharmaceutical, a Boston based epigenetic company. Prior to her employment with Syndax, from June 2003 to February 2011 she was the President, CEO and a member of the board of directors of Affymax, Inc. During her eight years at Affymax, Ms. Morris led the company through the development of OMONTYS peginesatide, a strategic collaboration with Takeda, an initial public offering, and several follow-on offerings. Prior to Affymax, Ms. Morris was the President and CEO of Clearview Projects, an advisory firm which counsels biopharmaceutical and biotechnology companies on strategic transactions. Before that, she was the Senior Vice President of Business Development at both Coulter Pharmaceuticals, Inc. and Scios. Ms. Morris began her career at Johnson & Johnson as a sales representative, rising to Vice President of Business Development. Ms. Morris serves on the board of directors of Neovacs SA, Palatin Technologies, Miragen and the Medical University of South Carolina Foundation for Research and Development. We believe Ms. Morris’ qualifications to serve on our Board include her many years serving as a senior executive with companies in the biopharma industry and her extensive experience serving on boards of directors.

 

Karen Zaderej. Karen Zaderej joined the Viveve board in September of 2018. She currently serves as chairman, chief executive officer and president of AxoGen, Inc., a medical products company focused on the development and commercialization of technologies for peripheral nerve regeneration and surgical repair. Karen joined Axogen Corporation in May 2006 and assumed the position of president, chief executive officer, and director in September 2011. She became chairman of the AxoGen, Inc. board of directors in May 2018. Karen’s previous executive roles at AxoGen included chief operating officer from October 2007 to May 2010 and vice president of marketing and sales from May 2006 to October 2007. In October 2004 Karen founded Zaderej Medical Consulting and assisted medical device companies build and execute successful commercialization plans until 2007. From 1987 to 2004, Karen worked at ETHICON, Inc., a Johnson & Johnson company, where she held senior positions in marketing, business development, research and development, and manufacturing. She also serves as a director of SEBio, a non-profit organization supporting the life science industry in the southeastern United States. Karen has a M.B.A. from the Kellogg Graduate School of Business and a B.S. in Chemical Engineering from Purdue University.

 

Jim Robbins. Mr. Robbins joined the Company as Vice President of Finance in July 2014 and was promoted to Vice President of Finance and Administration in May 2017. In May 2018, Mr. Robbins assumed expanded responsibilities and was appointed as the Company’s Principal Accounting Officer, and in November 2018, Mr. Robbins became the Principal Accounting and Financial Officer. He has over 25 years of accounting and finance experience in both industry and public accounting. Prior to joining the Company, Mr. Robbins provided accounting, finance and business consulting services for various biotech companies. From 2010 to 2012 he served as Vice President of Finance and Administration for Auxogyn, Inc., a privately held medical technology company focused on advancing women’s reproductive health by translating scientific discoveries in early embryo development into clinical solutions that improve patient outcomes in vitro fertilization (IVF) procedures. He served as Director of Finance and Vice President of Finance 2004 to 2010 for Micrus Endovascular, Inc., a company which develops, manufactures and markets both implantable and disposable medical devices used in the treatment of cerebral vascular diseases. Prior to Micrus Endovascular, Mr. Robbins served at Genitope Corporation as Corporate Controller, a biotechnology company focused on the research and development of novel immunotherapies for the treatment of cancer. From 1995 to 2001, he served in management positions for high technology companies including Extricity, Inc., InVision Technologies, Inc., and Truevision, Inc. Mr. Robbins was in the audit practice of Price Waterhouse, LLP from 1987 to 1995. He received his Bachelor of Business Administration with a concentration in accounting from the University of Texas at Austin and is a Certified Public Accountant.

 

Sean Shapiro. Sean joined Viveve as Vice President of U.S. Sales in September 2016 and brings extensive experience in medical device and aesthetic industry sales, commercial team organization, development, and management. Most recently, Sean served as Director of Sales, Merz North America, Aesthetic Device Division where he was responsible for capital and consumable sales of $100M annually directing a team of 50 regional and direct sales professionals. He led the commercial launch of the Cellfina™ System that in 12 months became the market leader generating over $15M in sales. A Regional Sales Director at Ulthera, Inc., Sean managed a team selling new ultrasound tissue lifting technology and capital equipment to physicians in the aesthetic marketplace earning top sales awards personally and with the team he led. At Zeltiq, Inc. he served as an Area Sales Manager and launched CoolSculpting®, again earning sales revenue and management awards. Prior to this, Sean had five years as a successful Area Sales Manager at Lumenis, Inc. A known and respected sales leader in the aesthetic marketplace, Sean has consistently received annual awards and recognition for top sales dollar volume, region and territory revenue, new technology and product launches in addition to sales management and business development accomplishments. Sean earned his Bachelor of Science in Communications from the University of Arizona.

 

Legal Proceedings

 

To the best of our knowledge, none of our directors or executive officers has, during the past ten years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K.

 

54

 

Section 16(a) Beneficial Ownership Reporting Compliance 

 

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership (Forms 3, 4 and 5) with the SEC. Officers, directors and greater than 10% stockholders are required to furnish us with copies of all such forms which they file.

 

We believe that, during the year ended December 31, 2019, our directors, executive officers and beneficial owners of more than 10% of the Company’s common stock complied with all Section 16(a) filing requirements.

 

Code of Ethics

 

The Company has adopted a Code of Business Conduct and Ethics that applies to every director, officer and employee of the Company. Such Code of Business Conduct and Ethics includes written standards that are reasonably designed to deter wrongdoing and to promote:

 

 

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

 

 

 

full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the Commission and in other public communications made by the Company;

 

 

 

 

compliance with applicable governmental laws, rules and regulations;

 

 

 

 

the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

 

 

 

 

accountability for adherence to the code.

 

A current copy of the code is posted on the Corporate Governance section of our website, which is located at www.viveve.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions, or any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.

 

Director Nominations

 

The Company does not have any defined procedures by which stockholders may submit nominations for directors and there has been no change to that policy.

 

Audit Committee and Audit Committee Financial Expert

 

The board of directors of the Company has an audit committee to oversee the accounting and financial reporting processes of the Company and the audits of the Company’s consolidated financial statements. The members of our audit committee are Steven Basta, Arlene Morris and Karen Zaderej.  The board of directors has determined that Steven Basta is an “audit committee financial expert” as defined by applicable SEC rules.

 

55

 

Item 11. Executive Compensation

 

2019 Summary Compensation Table

 

The following table provides information regarding the total compensation for services rendered in all capacities that was earned during the fiscal years indicated by our named executive officers.

 

Name and

Principal Position

 

Year

 

Salary
($)

   

Bonus

($)(1)

   

Non-Equity

Incentive Plan

Compensation

($)(2)

   

Option

Awards

($)(3)

   

All Other

Compensation
($)

   

Total
($)

 
                                                     

Scott Durbin,

 

2019

    415,000       207,500       -       2,312,787       48,282 (4)     2,983,569  

Chief Executive Officer

 

2018

    389,958       137,512               686,751       16,140 (4)     1,230,361  
                                                     

James Atkinson,

 

2019

    329,934       -       -       226,298       298,546       854,778  

Chief Business Officer and President

 

2018

    353,500       147,572       -       422,198       -       923,270  
                                                     

Jim Robbins,

 

2019

    260,000       62,400               255,461       19,998 (4)     597,859  
Vice President of Finance and Administration (Principal Accounting                                                    
and Financial Officer)   2018     256,897       61,305       -       203,169       59,807 (5)     581,178  
                                                     

Sean Shapiro,

 

2019

    315,334       -       157,500       255,461       9,600 (6)     737,895  

Vice President of U.S. Sales

 

2018

    208,000       10,000       161,785       86,973       9,400 (6)     476,158  

 

(1) The amounts reported represent cash bonuses awarded with respect to the years indicated based upon the achievement of corporate performance goals related to (i) strengthening financial position; (ii) expanding market opportunities and ensuring competitiveness; (iii) providing clinically proven solutions; and (iv) ensuring reliable quality supply of products for the years indicated. The bonuses for 2019 performance were paid 100% in cash. The bonuses for 2018 performance were paid 50% in cash and 50% in the form of restricted stock awards that vest in full upon FDA approval of the Viveve System for improvement of sexual function or stress urinary incontinence in the United States. The bonus amounts reported for 2018 represent the amount of cash paid and the grant date fair value of the restricted stock award as follows: (i) Mr. Durbin received $62,250 in cash and restricted stock award with a grant date fair value of $75,262; (ii) Mr. Atkinson received $42,420 in cash and restricted stock award with a grant date fair value of $105,152; and (iii) Mr. Robbins received $27,788 in cash and a restricted stock award with a grant date fair value of $33,517. The restricted stock awards for the 2018 bonuses were granted in January 2019. The 2018 bonus amount reported for Mr. Shapiro represents a cash payment for an annual sales leadership award.

 

(2) The amounts reported represent the commission earned with respect to the years indicated based upon the achievement of certain sales targets in accordance with Mr. Shapiro’s Sales Compensation Plan.

 

(3) The amounts reported represent the aggregate grant date fair value of option awards granted to our named executive officers computed in accordance with FASB ASC Topic 718, excluding the impact of estimated forfeitures related to service-based vesting. See Note 12 of the notes to our consolidated financial statements in this annual report on Form 10-K filed for a discussion of our assumptions in determining the grant date fair values of equity awards. These amounts do not correspond to the actual value that may be recognized by the named executive officers.

 

(4) The amount reported represents cash-out of accrued PTO hours in accordance with the Company’s PTO Policy. 

 

(5) The amount reported for 2018 represents $9,807 in cash-out of accrued PTO hours in accordance with the Company’s PTO Policy and $50,000 in relocation allowance, which was paid pursuant to the terms of the relocation agreement between Mr. Robbins and the Company, dated August 22, 2017.  

 

(6) The amount reported represents cash paid out for car allowance in accordance with Mr. Shapiro’s Employment Agreement.

 

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Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth certain information regarding outstanding equity awards granted to our named executive officers that were outstanding as of December 31, 2019. These awards were granted under our Amended and Restated 2006 Stock Plan and our Amended and Restated 2013 Stock Option and Incentive Plan.

 

    Option Awards    
       

Number of Securities
Underlying
Unexercised Options 
(#)(1)

           

Name

 

Vesting

Start Date

 

Exercisable

   

Unexercisable

   

Option

Exercise Price

($)

 

Option

Expiration

Date

Scott Durbin

                             
   

11/26/2019

    68,708       3,229,292       0.87  

11/26/2029

   

1/15/2019 (2) 

    1,925       4,375       124.00  

1/15/2029

   

5/11/18 (3)

    1,063       1,936       197.00  

5/11/2028

   

01/23/2018

    575       624       448.00  

1/23/2028

   

03/03/2017

    913       414       446.00  

03/03/2027

   

12/23/2016

    375       125       522.00  

12/23/2026

   

12/16/2015 (3) 

    966             600.00  

12/16/2025

   

9/26/2014

    478             480.00  

9/26/2024

   

1/22/2013 (5)

    103             992.00  

2/2/2023

James Atkinson

                             
   

1/15/2019 (2)

    1,333             124.00  

1/15/2029

   

1/23/2018

    874             448.00  

1/23/2028

   

12/23/2016 (4)

    22             522.00  

12/23/2026

   

12/23/2016

    640             522.00  

12/23/2026

   

12/16/2015

    879             600.00  

12/16/2025

   

2/4/2015

    668             376.00  

2/4/2025

Jim Robbins

                             
   

11/26/2019

    6,875       323,125       0.87  

11/26/2029

   

1/15/2019 (2)

    290       659       124.00  

1/15/2029

   

5/11/2018 (3)

    66       258       197.00  

5/11/2028

   

1/23/2018

    280       306       448.00  

1/23/2028

   

12/23/2016

    150       50       522.00  

12/23/2026

   

12/16/2015

    242             600.00  

12/16/2025

   

7/1/2014 (3)

    145             480.00  

9/26/2024

                               

Sean Shapiro

 

11/26/2019

    6,875       323,125       0.87  

11/26/2029

   

1/15/2019 (2)

    290       659       124.00  

1/15/2029

   

1/23/2018

    148       160       448.00  

1/23/2028

   

9/6/2016 (3)

    486       113       758.00  

9/6/2026

  

(1) Except as otherwise set forth below, the shares of our common stock underlying each of the outstanding stock options vest and become exercisable in equal monthly installments over 48 months following the grant date.

 

(2) The shares of common stock underlying this stock option vest and become exercisable in equal monthly installment overs 36 months following the grant date.

 

(3) The shares of common stock underlying this stock option vest and become exercisable as follows: ¼ of the shares vested on the one-year anniversary of the grant date and the remaining shares vest in equal monthly installments over the following 36 months.

 

(4) This stock option was fully vested on the date of grant.

 

(5) These stock options were fully vested upon the merger that took place on September 23, 2014 between PLC Systems Inc., Viveve, Inc. and PLC Systems Acquisition Corp. Prior to merger, the Board voted to accelerate the vesting of all unvested options that were outstanding as of the date of the merger such that all options would be immediately vested and exercisable by the holders.

 

57

 

Employment Agreements, Severance and Change in Control Arrangements

 

In February 2018, we entered into an employment agreement with Mr. Atkinson, and in May 2018, we entered into employment agreements with Messrs. Durbin and Robbins that provide for specified payments and benefits in connection with a termination of employment by us without cause or a resignation by the executive officer for good reason (as each such term is defined in the employment agreement). Our goal in providing these severances and change in control payments and benefits is to offer sufficient cash continuity protection such that our named executive officers will focus their full time and attention on the requirements of the business rather than the potential implications for their respective positions. We prefer to have certainty regarding the potential severance amounts payable to the named executive officers, rather than negotiating severance at the time that a named executive officer’s employment terminates. We have also determined that accelerated vesting provisions with respect to outstanding equity awards in connection with a qualifying termination of employment are appropriate because they encourage our named executive officers, to stay focused on the business in those circumstances, rather than focusing on the potential implications for them personally. In addition, these employment agreements with our named executive officers contain confidentiality provisions and require the named executive officers to execute a general release of claims to receive any payments and benefits.

 

In December 2019, in connection with his termination as President and Chief Business Officer, we entered into a separation agreement and release with Mr. Atkinson.

 

Employment Agreement with Scott Durbin

 

Pursuant to our amended and restated agreement with Mr. Durbin, he serves as our Chief Executive Officer on an at-will basis and as a director. Mr. Durbin currently receives a base salary of $435,750, which is subject to periodic review and adjustment. Mr. Durbin is also eligible for an annual performance bonus targeted at 50% of his base salary and to participate in the employee benefit plans generally available to employees, subject to the terms of those plans.

 

The employment agreement further provides that if Mr. Durbin’s employment is terminated by us without cause or Mr. Durbin terminates his employment with us for good reason, he will be entitled to receive: (i) base salary continuation for 12 months following termination, (ii) any earned but unpaid incentive compensation with respect to any completed calendar year period, (iii) if Mr. Durbin was participating in the Company’s group health plan immediately prior to the date of termination, a monthly cash payment in an amount equal to the employer portion of his monthly health insurance premium until the earliest of 12 months following the date of termination, the expiration of his continuation coverage under COBRA or the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, and (iv) accelerated vesting of all stock options and other stock-based awards held by Mr. Durbin that would have vested had he remained employed for an additional six months following termination. In lieu of the severance payments and benefits set forth in the preceding sentence, in the event Mr. Durbin’s employment is terminated by us without cause or he terminates his employment with us for good reason, in either case within 12 months following a change in control (as defined in his employment agreement), he will be entitled to receive: (i) a lump sum cash amount equal to 1.5 times the sum of (A) his current base salary (prior to any reduction triggering good reason, if applicable, or his base salary in effect prior to the change in control if higher) plus (B) Mr. Durbin’s target annual cash incentive compensation for the year of termination, (ii) if Mr. Durbin was participating in the Company’s group health plan immediately prior to the date of termination, a monthly cash payment in an amount equal to the employer portion of his monthly health insurance premium until the earliest of 18 months following the date of termination, the expiration of his continuation coverage under COBRA or the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, and (iii) except as otherwise provided in the applicable award agreement, accelerated vesting of all stock options and other stock-based awards subject to time-based vesting held by Mr. Durbin as of the date of termination. Receipt of the severance payments and benefits described above is conditioned upon Mr. Durbin entering into an effective separation agreement, containing, among other provisions, a general release of claims against the Company and our affiliates, confidentiality, return of property and non-disparagement. 

 

Employment Agreement with Jim Robbins

 

Pursuant to our employment agreement with Mr. Robbins, he serves as our Vice President of Finance and Administration and Principal Accounting and Financial Officer on an at-will basis. Mr. Robbins currently receives a base salary of $273,000, which is subject to periodic review and adjustment. Mr. Robbins is also eligible for an annual performance bonus targeted at 30% of his base salary and to participate in the employee benefit plans generally available to employees, subject to the terms of those plans.

 

The employment agreement further provides that if Mr. Robbins’ employment is terminated by us without cause or Mr. Robbins terminates his employment with us for good reason, he will be entitled to receive: (i) base salary continuation for six months following termination, (ii) any earned but unpaid incentive compensation with respect to any completed calendar year period, (iii) if Mr. Robbins was participating in the Company’s group health plan immediately prior to the date of termination, a monthly cash payment in an amount equal to the employer portion of his monthly health insurance premium until the earliest of six months following the date of termination, the expiration of his continuation coverage under COBRA or the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, and (iv) accelerated vesting of all stock options and other stock-based awards held by Mr. Robbins that would have vested had he remained employed for an additional six months following termination. In lieu of the severance payments and benefits set forth in the preceding sentence, in the event Mr. Robbins’ employment is terminated by us without cause or he terminates his employment with us for good reason, in either case within 12 months following a change in control (as defined in his employment agreement), he will be entitled to receive: (i) a lump sum cash amount equal to .75 times the sum of (A) his current base salary (prior to any reduction triggering good reason, if applicable, or his base salary in effect prior to the change in control if higher) plus (B) Mr. Robbins’ target annual cash incentive compensation for the year of termination, (ii) if Mr. Robbins was participating in the Company’s group health plan immediately prior to the date of termination, a monthly cash payment in an amount equal to the employer portion of his monthly health insurance premium until the earliest of six months following the date of termination, the expiration of his continuation coverage under COBRA or the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, and (iii) except as otherwise provided in the applicable award agreement, accelerated vesting of all stock options and other stock-based awards subject to time-based vesting held by Mr. Robbins as of the date of termination. Receipt of the severance payments and benefits described above is conditioned upon Mr. Robbins entering into an effective separation agreement, containing, among other provisions, a general release of claims against the Company and our affiliates, confidentiality, return of property and non-disparagement.

 

58

 

Employment Agreement with Sean Shapiro

 

Pursuant to our employment agreement with Mr. Shapiro, he serves as our Vice President of Sales on an at-will basis. Mr. Shapiro currently receives a base salary of $320,000, which is subject to periodic review and adjustment. Mr. Shapiro is also eligible to earn cash incentive compensation subject to the terms of the Company’s Sales Compensation Plan, as in effect from time to time and to participate in the employee benefit plans generally available to employees, subject to the terms of those plans.

 

The employment agreement further provides that if Mr. Shapiro’s employment is terminated by us without cause or Mr. Shapiro terminates his employment with us for good reason, he will be entitled to receive: (i) base salary continuation for six months following termination, (ii) if Mr. Shapiro was participating in the Company’s group health plan immediately prior to the date of termination, a monthly cash payment in an amount equal to the employer portion of his monthly health insurance premium until the earliest of six months following the date of termination, the expiration of his continuation coverage under COBRA or the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, and (iv) accelerated vesting of all stock options and other stock-based awards held by Mr. Shapiro that would have vested had he remained employed for an additional six months following termination. In lieu of the severance payments and benefits set forth in the preceding sentence, in the event Mr. Shapiro’s employment is terminated by us without cause or he terminates his employment with us for good reason, in either case within 12 months following a change in control (as defined in his employment agreement), he will be entitled to receive: (i) a lump sum cash amount equal to .75 times the sum of (A) his current base salary (prior to any reduction triggering good reason, if applicable, or his base salary in effect prior to the change in control if higher) plus (B) Mr. Shapiro’s target annual cash incentive compensation for the year of termination, (ii) if Mr. Shapiro was participating in the Company’s group health plan immediately prior to the date of termination, a monthly cash payment in an amount equal to the employer portion of his monthly health insurance premium until the earliest of six months following the date of termination, the expiration of his continuation coverage under COBRA or the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, and (iii) except as otherwise provided in the applicable award agreement, accelerated vesting of all stock options and other stock-based awards subject to time-based vesting held by Mr. Shapiro as of the date of termination. Receipt of the severance payments and benefits described above is conditioned upon Mr. Shapiro entering into an effective separation agreement, containing, among other provisions, a general release of claims against the Company and our affiliates, confidentiality, return of property and non-disparagement.

 

Separation Agreement and Release with Mr. Atkinson

 

On December 12, 2019, in connection with Mr. Atkinson’s termination from his position as President and Chief Business Officer of the Company, Mr. Atkinson and the Company entered into a separation agreement and release. Pursuant to such agreement, Mr. Atkinson is entitled to receive: (i) base salary continuation for 9 months following termination, (ii) a monthly cash payment in an amount equal to the employer portion of his monthly health insurance premium until the earliest of September 30, 2020, the expiration of his continuation coverage under COBRA or the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, (iii) accelerated vesting of 780 shares subject to the Employee Option resulting in a total of 4,545 shares being vested and exercisable. Severance payments paid to or accrued for Mr. Atkinson pursuant to the separation agreement and release are reported in the “2019 Summary Compensation Table” above.

 

Employee Benefits

 

Our executive officers are eligible to participate in all of our employee benefit plans, in each case on the same basis as other employees, including the 401(k) plan. The Company has not made any contributions to the 401(k) plan to date.

 

Director Compensation

  

On December 23, 2016, the Board of Directors adopted an independent director compensation policy designed to compensate non-employee directors of the Company for their time, commitment and contributions to the Board. The Board amended and restated the independent director compensation policy effective July 17, 2018 and again effective January 9, 2019 (as amended and restated, the “Director Compensation Policy”). Under the Director Compensation Policy, during the year ended December 31, 2019, all independent directors were eligible to receive cash compensation as set forth below, pro-rated to reflect the number of days served during any calendar quarter:  

 

   

Annual
Retainer($)

 

Board of Directors:

       

All Independent Directors

    35,000  

Chairperson Additional Retainer

    35,000  

Audit Committee:

       

All Audit Committee Members

    10,000  

Chairperson

    20,000  

Compensation Committee:

       

All Compensation Committee Members

    5,000  

Chairperson

    10,000  

Governance and Nominating Committee:

       

All Governance and Nominating Committee Members

    3,750  

Chairperson

    7,500  

 

59

 

Under the Director Compensation Policy, all independent directors eligible to receive cash compensation have the option to elect to receive all or any portion of such cash compensation in the form of a stock award, in lieu of a cash payment. Such election is to be made quarterly until the 2020 annual meeting and annually thereafter. Such restricted stock awards have a fair market value equal to the value of the cash retainer to be paid during such period and are fully vested upon grant.

 

In addition, under the policy, each new non-employee director who is initially appointed or elected to the Board after effectiveness of the policy is granted an equity-based award with a value at the time of issuance equal to two times the Subsequent Award (defined below) in effect at the time of election, which vests in three equal annual installments on each of the first three anniversaries of the date of grant, subject to the director’s continued service on the Board (the “Initial Award”). In addition, on the date of each annual meeting of the Company’s stockholders, each continuing non-employee director is eligible to receive an annual option grant to purchase 35,000 shares of common stock, which vests in full on the first anniversary of the grant date, subject to the director’s continued service on the Board (each a “Subsequent Award”). Furthermore, the Chairman of the Board is granted an equity-based initial retainer award in the form of a Stock Option to purchase 35,000 shares, which shall vest and become exercisable on the first anniversary of the date of grant subject to the Independent Director continuing in service as the Chairman of the Board through such vesting date. A non-employee director elected for the first time to the Board at an annual meeting of the Company’s stockholders shall only receive an Initial Award in connection with such election, and shall not receive a Subsequent Award until the annual meeting for the next fiscal year. In the event a non-employee director’s service on the Board terminates, the vesting and exercise of such director’s unvested stock options shall be subject to the terms of the applicable award agreement.

   

The Company has also agreed to reimburse all reasonable out-of-pocket expenses incurred by non-employee directors in attending board of directors and committee meetings.

 

2019 Director Compensation Table

 

The following table presents information regarding the compensation of our non-employee directors for the year ended December 31, 2019. Scott Durbin, our Chief Executive Officer, serves on our Board of Directors but did not receive compensation for his service as a director and the compensation paid to Mr. Durbin as an employee during the year ended December 31, 2019 is set forth in the “2019 Summary Compensation Table” below.

 

Name

 

Fees

Earned or

Paid in

Cash

($)(1)(2)

   

Stock

Awards

($)(1)(3)

   

Option

Awards

($)(4)(5)

   

All Other

Compensation

($)

   

Total

($)

 

Steven Basta

    74,064       21,931       406,579       -       502,574  
                                         

Debora Jorn

    26,250       9,282       196,317               231,849  
                                         

Arlene Morris

    58,449       -       196,317       -       254,766  
                                         

Karen Zaderej

    28,750       27,316       196,317       -       252,383  
                                         

Daniel Janney (6) 

    -       3,640       -       -       3,640  

 

 

(1)

Mr. Basta and Mses. Jorn and Zaderej elected to receive a portion of their 2019 director fees in cash and a portion of their 2019 director fees in the form of a restricted stock award in lieu of cash. Ms. Morris elected to receive all of her 2019 director fees in cash. The number of shares covered by the restricted stock awards made in lieu of cash compensation are set forth in footnote 3 above.

 

(2)

The amounts represent the non-employee director compensation paid in cash for the four quarters of 2019. The fourth quarter of 2019 compensation was paid in January 2020.

 

(3)

On April 1, 2019, we made grants of fully vested common stock to certain of our non-employee directors with respect to services for the first quarter of 2019 in the following amounts: Mr. Basta – 241 shares, Ms. Jorn - 102 shares, Ms. Zaderej - 142 shares and Mr. Janney - 40 shares. On July 1, 2019, we made grants of fully vested common stock to certain of our non-employee directors with respect to services for the second quarter of 2019 in the following amounts: Ms. Zaderej - 378. No grants of fully vested common stock were made to non-employee directors with respect to services for the third and fourth quarters of 2019.

 

(4)

The amount reported represents the aggregate grant date fair value of stock options granted to our non-employee directors in 2019, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”), excluding the impact of estimated forfeitures related to service-based vesting. See Note 12 of the notes to our consolidated financial statements in this annual report on Form 10-K for a discussion of our assumptions in determining the grant date fair values of equity awards. These amounts do not correspond to the actual value that may be recognized by the directors.

 

(5)

As of December 31, 2019, each of our non-employee directors serving on that date held outstanding stock options to purchase the following shares of common stock: Mr. Basta – 661,400 shares, Ms. Jorn - 332,723 shares, Ms. Morris – 331,223 shares, Ms. Zaderej – 331,050 shares and Mr. Janney – 426 shares.

 

(6)

Mr. Janney resigned from the Board of Directors effective January 16, 2019.

  

60

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The disclosure in Item 5 under the heading “Securities Authorized for Issuance Under Equity Compensation Plans” is hereby incorporated by reference.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth certain information as of March 13, 2020 regarding the beneficial ownership of our common stock by the following persons:

 

 

each person or entity who, to our knowledge, owns more than 5% of our common stock;

 

 

 

 

our executive officers named in the Summary Compensation Table above;

 

 

 

 

each director; and

 

 

 

 

all of our executive officers and directors as a group.

   

Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power over the securities reported and that person’s address is c/o Viveve Medical, Inc., 345 Inverness Drive South, Building B, Suite 250, Englewood, Colorado 80112. Shares of common stock subject to options, warrants, or other rights currently exercisable or exercisable within 60 days of March 13, 2020 are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the stockholder holding the options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other stockholder.

 

Name and Address of Beneficial Owner

 

Amount and

Nature of

Beneficial

Ownership

 

Percent of

Class (1)

 
             

Named Executive Officers and Directors

           
             
Scott Durbin   351,573  (2)   3.50 %
Jim Robbins   36,137  (3)   0.36 %
Sean Shapiro   35,606  (4)   0.36 %
Steven Basta   69,854  (5)   0.70 %
Debora Jorn   37,107  (6)   0.37 %
Arlene Morris   35,230  (7)   0.35 %
Karen Zaderej   35,231  (8)   0.35 %
All executive officers and directors as a group (7 persons)   600,738     5.99 %
             
             

Owners of More than 5% of Our Common Stock

 
None.  

 

(1)

Based on shares of 10,027,883 common stock issued and outstanding as of March 13, 2020.

(2)

Included in this amount are: (i) 115 shares of common stock; and (ii) warrants and options to purchase 351,458 shares of common stock exercisable within 60 days of March 13, 2020.

(3) Included in this amount are: (i) 296 shares of common stock; and (ii) warrants and options to purchase 35,841 shares of common stock exercisable within 60 days of March 13, 2020.
(4) Included in this amount are: (i) 114 shares of common stock; and (ii) options to purchase 35,492 shares of common stock exercisable within 60 days of March 13, 2020.
(5) Included in this amount are: (i) 251 shares of common stock owned by Mr. Basta individually; (ii) 270 shares of common stock owned of record held by Steven Basta, Trustee of the Basta Revocable Trust; and (iii) options to purchase 69,333 shares of common stock exercisable within 60 days of March 13, 2020.
(6) Included in this amount are: (i) 401 shares of common stock; and (ii) options to purchase 36,706 shares of common stock exercisable within 60 days of March 13, 2020.
(7) Included in this amount are: (i) 24 shares of common stock; and (ii) options to purchase 35,206 shares of common stock exercisable within 60 days of March 13, 2020.
(8) Included in this amount are: (i) 623 shares of common stock; and (ii) options to purchase 34,608 shares of common stock exercisable within 60 days of March 13, 2020.

 

Change in Control

 

As of the date of this report, we are not aware of any arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.

 

61

 

Item 13. Certain Relationships and Related Transactions, and Director Independence 

 

The Board of Directors reviews issues involving potential conflicts of interest, and reviews and approves all related party transactions, including those required to be disclosed as a “related party” transaction under applicable federal securities laws. The Board has not adopted any specific procedures for conducting reviews of potential conflicts of interest and considers each transaction in light of the specific facts and circumstances presented. However, to the extent a potential related party transaction is presented to the Board, the Company expects that the Board would become fully informed regarding the potential transaction and the interests of the related party, and would have the opportunity to deliberate outside of the presence of the related party. The Company expects that the Board would only approve a related party transaction that was in the best interests of the Company, and further would seek to ensure that any completed related party transaction was on terms no less favorable to the Company than could be obtained in a transaction with an unaffiliated third party. Other than as described below, no transaction requiring disclosure under applicable federal securities laws occurred from January 1, 2016 through the date of this proxy statement that was submitted to the Board of Directors for approval as a “related party” transaction.

 

Related Party Transactions

 

Securities and Exchange Commission regulations define the related person transactions that require disclosure to include any transaction, arrangement or relationship, or any proposed transaction, in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years in which we were or are to be a participant and in which a related person had or will have a direct or indirect material interest. A related person is: (i) an executive officer, director or director nominee, (ii) a beneficial owner of more than 5% of our common stock, (iii) an immediate family member of an executive officer, director or director nominee or beneficial owner of more than 5% of our common stock, or (iv) any entity that is owned or controlled by any of the foregoing persons or in which any of the foregoing persons has a substantial ownership interest or control.

 

For the period from January 1, 2018, through the date of this proxy statement (the “Reporting Period”), described below are certain transactions or series of transactions between us and certain related persons.

 

Employment and Consulting Agreements

 

Refer to the discussion under the heading “Employment Agreements, Severance and Change-in Control Arrangements” of this Form 10-K, which is incorporated herein by reference.

   

Item 14. Principal Accounting Fees and Services

 

The following table sets forth fees billed and to be billed to us by our independent registered public accounting firm for the years ended December 31, 2019 and 2018 for (i) services rendered for the audit of our annual consolidated financial statements and the review of our quarterly condensed consolidated financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our consolidated financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.

 

   

Year Ended
December 31,

 
   

2019

   

2018

 

Audit fees

  $ 363,000     $ 440,000  

Audit-related fees

    4,000       25,000  

Tax fees

    53,000       34,000  

All other fees

    -       -  

Total fees

  $ 420,000     $ 499,000  

 

Audit Fees: Represents fees for professional services provided for the audit of our annual consolidated financial statements, review of our condensed consolidated financial statements included in our quarterly reports and services in connection with statutory and regulatory filings.

 

Audit-Related Fees: Represents the fees for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements.

 

The audit committee of the Board approves all auditing services and the terms thereof and non-audit services (other than non-audit services published under Section 10A(g) of the Exchange Act or the applicable rules of the SEC or the Pubic Company Accounting Oversight Board) to be provided to us by the independent auditor; provided, however, the pre-approval requirement is waived with respect to the provisions of non-audit services for us if the "de minimis" provisions of Section 10A(i)(1)(B) of the Exchange Act are satisfied.

 

Tax Fees: Represents professional services rendered for tax compliance, tax advice and tax planning.

 

62

 

All Other Fees: Our independent registered public accounting firm was not paid any other fees for professional services during the fiscal years ended December 31, 2019 and 2018.

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules

 

Financial Statements

 

See Index to Consolidated Financial Statements at Item 8 herein.

 

Financial Statement Schedules have been omitted as they are either not required, not applicable, or the information is otherwise included.

 

Exhibit Index

 

Exhibit

No.

Description

 

 

2.1

Agreement and Plan of Merger dated May 9, 2014 by and among Viveve, Inc., PLC Systems, Inc. and PLC Systems Acquisition Corporation (1)

2.1.1

Amendment to Agreement and Plan of Merger (1)

2.2

RenalGuard Reorganization Agreement (2)

3.1

Certificate of Conversion for Delaware (3)

3.2

Amended and Restated Certificate of Incorporation (4)

3.3

Articles of Amendment to the Articles of Continuance of Viveve Medical, Inc. (5)

3.4

Certificate of Amendment to the Amended and Restated Certificate of Incorporation (6)

3.5

Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock (7)

3.6

Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock (7)

3.7

Amended and Restated Bylaws (4)

4.1

Common Stock Purchase Warrant issued on February 17, 2015 to Scott Durbin (8)+

4.2

Common Stock Purchase Warrant issued on February 17, 2015 to Jim Robbins (8)+

4.3

Common Stock Purchase Warrant issued on February 17, 2015 to Patricia Scheller (8)+

4.4

Common Stock Purchase Warrant issued on May 12, 2015 to James Atkinson (8)+

4.5

Common Stock Purchase Warrant issued on December 16, 2015 to James Atkinson (8)+

4.6

Common Stock Purchase Warrant issued on December 16, 2015 to Jim Robbins (8)+

4.7

Common Stock Purchase Warrant issued on April 1, 2016 to Dynamic Medical Technologies (Hong Kong) Limited (3)

4.8

Common Stock Purchase Warrant issued on May 11, 2016 to Theresa Stern (9)

4.9

Common Stock Purchase Warrant issued on May 11, 2016 to Chris Rowan (9)

4.10

Common Stock Purchase Warrant issued on June 20, 2016 to Western Alliance Bank (10)

4.11

Common Stock Purchase Warrant, dated May 25, 2017, by and between the Registrant and CRG Partners III - Parallel Fund "A" L.P. (11)

4.12

Common Stock Purchase Warrant, dated May 25, 2017, by and between the Registrant and CRG Partners III L.P. (11)

4.13

Form of Series A/B Common Stock Purchase Warrant issued on November 26, 2019 (7)

4.14

Form of Common Stock Purchase Warrant issued to affiliates of CRG LP on November 26, 2019 (7)

4.15

Warrant Agent Agreement by and between VStock Transfer LLC and the Registrant (7)

4.16

Specimen Common Stock Certificate (12)

4.17

Description of Securities*

10.1

Intellectual Property Assignment and License Agreement dated February 10, 2006, as amended, between Dr. Edward Knowlton and TivaMed, Inc (13)

10.2

Amended and Restated Development and Manufacturing Agreement dated October 4, 2007 between TivaMed, Inc. and Stellartech Research Corporation (13)

10.3

Sublease Agreement, entered into on February 1, 2017 and effective as of January 26, 2017, between the Registrant and Ingredion Incorporated (16)

10.4

Settlement and License Agreement by and among the Registrant, ThermiGen LLC and ThermiAesthetics LLC, dated June 3, 2018. (24)†

10.5

Membership Subscription Agreement, dated August 1, 2017, by and between the Registrant and InControl Medical, LLC (18)

10.6

Employment Agreement by and between the Registrant and James G. Atkinson, dated February 27, 2018 (14)+

10.7

Amended and Restated Employment Agreement by and between the Registrant and Scott C. Durbin, dated May 11, 2018. (23) +

10.8

Amended and Restated Employment Agreement by and between the Registrant and Jim Robbins, dated May 11, 2018. (23) +

10.9

Amended and Restated Independent Director Compensation Policy (15) +

 

63

 

10.10

Amended and Restated 2013 Stock Option and Incentive Plan and amendment thereto (20) +

10.11

2017 Employee Stock Purchase Plan (21) +

10.12

Forms of Indemnification Agreement (28) +

10.13

Security Agreement, dated May 25, 2017, by and among the Registrant, Viveve, Inc. and CRG Servicing LLC (11)

10.14

Patent and Trademark Security Agreement, dated May 25, 2017, by and among the Registrant, Viveve, Inc. and CRG Servicing LLC (11)

10.15

Term Loan Agreement, dated May 22, 2017, among the Registrant, Viveve, Inc., CRG Servicing LLC, as administrative agent, and certain lenders (17)

10.16

Waiver No. 2 to Loan Agreement, dated December 12, 2017, among the Registrant, CRG Servicing LLC and the lenders party thereto (19)

10.17

Amendment No. 2 to Loan Agreement, dated November 29, 2018, among the Registrant, CRG Servicing LLC, as administrative agent and collateral agent, the lenders from time to time party thereto and Viveve, Inc., as subsidiary guarantor (25)

10.18

Amendment No. 3 to the Loan Agreement, dated as of November 12, 2019, by and between the Registrant and CRG LP (26)

10.19

Form of Registration Rights Agreement by and between the Registrant and CRG LP entered into on November 26, 2019 (26)

10.20

Series B Preferred Stock and Warrant Purchase Agreement, dated as of November 12, 2019, by and between the Registrant and affiliates of CRG LP (26)

10.21

Amendment No. 1 to the Series B Preferred Stock and Warrant Purchase Agreement, dated as of November 20, 2019, by and between the Registrant and affiliates of CRG LP (7)

10.22

Lock-Up Agreement between affiliates of CRG LP and Ladenburg Thalmann & Co. Inc., dated as of November 12, 2019 (26)

14.1

Code of Conduct, adopted September 23, 2014 (27)

21

List of the Registrant’s Subsidiaries (22)

23.1

Consent of BPM LLP, independent registered public accounting firm*

24.1

Power of Attorney* (included on signature page hereto)

31.1