0000879682 VIVEVE MEDICAL, INC. false --12-31 Q2 2021 139 124 10,000,000 10,000,000 0.0001 0.0001 38,090 38,090 35,819 35,819 0.0001 0.0001 0 0 0 0 0.0001 0.0001 75,000,000 75,000,000 10,591,716 10,591,716 2,171,316 2,171,316 1 1 1 5 1 1 1 5 1 5 1 1 1 1 1 173,000 0 0 0 0 0 1 3 1 0 1 0 0 1,358,000 1 1 1 1 5 1 1 1 5 10 1 0 0 0 6 22 2.73 4.45 8.60 10.90 380.00 1,000.00 2,020.00 3,110.00 4,360.00 5,010.00 6,000.00 7,140.00 9,920.00 0 0 0 0 3 1.5 0 0 0 0 0 0 As of June 30, 2021 and 2020, a total of 38,090 and 33,685 shares of Series B convertible preferred stock were outstanding and convertible into 2,489,542 and 2,201,634 shares of common stock, respectively. Each share of Series B convertible preferred stock is convertible at the holder's option into shares of common stock at a conversion ratio of 1-for-65.36 per share determined by dividing the Series B liquidation amount of $1,000 per share by the Series B conversion price of $15.30 per share. However, under the terms of the Series B Preferred Stock and Warrant Purchase Agreement, as amended, CRG will not convert the Series B preferred stock or exercise the CRG warrants until the Company's stockholders act to authorize additional number of shares of common stock sufficient to cover the conversion shares. Each share of Series C preferred stock is convertible at any time at the holder's option into one share of common stock. As of June 30, 2021, all Series C convertible preferred stock had been converted into common stock and there are no remaining shares of Series C convertible preferred stock outstanding. Each share of Series A convertible preferred stock was convertible at any time at the holder's option into one share of common stock. As of June 30, 2020, all Series A convertible preferred stock had been converted into common stock and there were no remaining shares outstanding. In December 2020, the Company filed a Certificate of Elimination with the Delaware Secretary of State with respect to the authorized shares of Series A convertible preferred stock. 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021

 

OR

 

TRANSITION REPORT PURSUANT TO 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)

 

(720) 696-8100

(Registrant’s telephone number, including area code)     

 

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock

VIVE

Nasdaq Capital Market

 

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, smaller reporting company or an emerging growth company. See definition of “accelerated filer,” and “large 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 in Rule 12b-2 of the Exchange Act).  Yes   No ☒

 

As of August 11, 2021, the issuer had 10,591,716 shares of common stock, par value $0.0001 per share, outstanding.

 

1

 

 

 

TABLE OF CONTENTS

 

Note About Forward-Looking Statements

 
   

Page 

No.

PART I

FINANCIAL INFORMATION  

 
     

Item 1.

Condensed Consolidated Financial Statements (unaudited)

4

     

Item 2.

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

31

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

     

Item 4.

Controls and Procedures

44

     

PART II

OTHER INFORMATION

 
     

Item 1.

Legal Proceedings

45

     

Item 1A.

Risk Factors

45

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

     

Item 3.

Defaults Upon Senior Securities

45
     

Item 4.

Mine Safety Disclosures

45
     

Item 5.

Other Information

45
     

Item 6.

Exhibits

45
     

SIGNATURES

47

 

2

 

 

NOTE ABOUT FORWARD-LOOKING STATEMENTS 

 

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements that involve substantial risks and uncertainties. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A. "Risk Factors" in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

 

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results, performance or achievements may be materially different from what we expect. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

Unless expressly indicated or the context requires otherwise, the terms "Viveve Medical," the "Company," "we," "us," and "our" in this document refer to Viveve Medical, Inc., a Delaware corporation, and, where appropriate, its wholly owned subsidiaries.     

 

3

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. 

Financial Statements (unaudited)  

 

VIVEVE MEDICAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

  

June 30,

  

December 31,

 
  

2021

  

2020

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $25,391  $6,523 

Accounts receivable, net of allowance for doubtful accounts of $139 and $124 as of June 30, 2021 and December 31, 2020, respectively

  696   770 

Inventory

  2,632   3,254 

Prepaid expenses and other current assets

  1,988   2,296 

Total current assets

  30,707   12,843 

Property and equipment, net

  1,959   2,759 

Investment in limited liability company

  678   833 

Other assets

  684   195 

Total assets

 $34,028  $16,630 

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current liabilities:

        

Accounts payable

 $662  $881 

Accrued liabilities

  2,292   2,416 

Paycheck Protection Program loan, current portion

  -   918 

Total current liabilities

  2,954   4,215 

Note payable, noncurrent portion

  4,809   4,518 

Paycheck Protection Program loan, noncurrent portion

  -   425 

Other noncurrent liabilities

  1,150   498 

Total liabilities

  8,913   9,656 

Commitments and contingences (Note 9)

          

Stockholders’ equity:

        

Convertible preferred stock; 10,000,000 shares authorized as of June 30, 2021 and December 31, 2020; Series B preferred stock, $0.0001 par value; 38,090 and 35,819 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

  -   - 

Series C preferred stock, $0.0001 par value; 0 shares issued and outstanding as of June 30, 2021

  -   - 

Common stock, $0.0001 par value; 75,000,000 shares authorized as of June 30, 2021 and December 31, 2020; 10,591,716 and 2,171,316 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

  1   - 

Additional paid-in capital

  254,781   226,800 

Accumulated deficit

  (229,667)  (219,826)

Total stockholders’ equity

  25,115   6,974 

Total liabilities and stockholders’ equity

 $34,028  $16,630 

 

(1)

The condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited consolidated financial statements as of that date. 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 
 

 

VIVEVE MEDICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2021

   

2020

   

2021

   

2020

 
                                 

Revenue

  $ 1,654     $ 704     $ 3,104     $ 2,008  

Cost of revenue

    1,489       1,071       2,557       2,200  

Gross profit (loss)

    165       (367 )     547       (192 )
                                 

Operating expenses:

                               

Research and development

    2,180       1,224       4,110       2,862  

Selling, general and administrative

    2,930       3,350       6,511       7,715  

Total operating expenses

    5,110       4,574       10,621       10,577  

Loss from operations

    (4,945 )     (4,941 )     (10,074 )     (10,769 )

Gain on forgiveness of Paycheck Protection Progam loan

    1,358       -       1,358       -  

Modification of warrants

    (86 )     (1,838 )     (373 )     (1,838 )

Interest expense, net

    (245 )     (223 )     (479 )     (433 )

Other expense, net

    (53 )     (27 )     (118 )     (117 )

Net loss from consolidated companies

    (3,971 )     (7,029 )     (9,686 )     (13,157 )

Loss from minority interest in limited liability company

    (79 )     (86 )     (155 )     (268 )

Comprehensive and net loss

    (4,050 )     (7,115 )     (9,841 )     (13,425 )

Series B convertible preferred stock dividends

    (1,119 )     (1,021 )     (2,273 )     (2,011 )

Net loss attributable to common stockholders

  $ (5,169 )   $ (8,136 )   $ (12,114 )   $ (15,436 )
                                 

Net loss per share of common stock:

                               

Basic and diluted

  $ (0.49 )   $ (5.74 )   $ (1.27 )   $ (13.35 )
                                 

Weighted average shares used in computing net loss per common share:

                               

Basic and diluted

    10,501,057       1,418,630       9,573,740       1,155,854  

 

Note: All share and per share data has been adjusted to reflect the 1-for-10 reverse stock split which became effective after market close on December 1, 2020, as discussed in Note 2.

 

The accompanying notes are an integral part of these condensed consolidated financial statements. 

 

5

 

 

 

VIVEVE MEDICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(in thousands, except share and per share data)

(unaudited)

 

 

   

Series A Convertible Preferred Stock, $0.0001 par value

   

Series B Convertible Preferred Stock, $0.0001 par value

    Common Stock, $0.0001 par value    

Additional

Paid-In

    Accumulated    

Total

Stockholders

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Equity

 
                                                                         

Balances as of January 1, 2021

    -     $ -       35,819     $ -       2,171,316     $ -     $ 226,800     $ (219,826 )   $ 6,974  

January 2021 Offering, net issuance costs

    -       -       -       -       5,666,760       1       25,121       -       25,122  

Conversion of Series C convertible preferred stock into common stock

    -       -       -       -       2,450,880       -       -       -       -  

Issuance of common shares in connection with common warrant exercises

    -       -       -       -       52,760       -       179       -       179  

Modification of exercise price of warrants in connection with January 2021 Offering

    -       -       -       -       -       -       287       -       287  

Transaction costs in connection with Purchase Agreement with LPC

    -       -       -       -       -       -       (40 )     -       (40 )

Dividend on Series B convertible preferred stock

    -       -       -       -       -       -       (1,119 )     -       (1,119 )

Dividend on Series B convertible preferred stock paid in PIK shares

    -       -       1,118       -       -       -       1,118       -       1,118  

Stock-based compensation expense

    -       -       -       -       -       -       810       -       810  

Net loss

    -       -       -       -       -       -       -       (5,791 )     (5,791 )

Balances as of March 31, 2021

    -     $ -       36,937     $ -       10,341,716     $ 1     $ 253,156     $ (225,617 )   $ 27,540  

Issuance of purchased common shares under the Purchase Agreement with LPC

    -       -       -       -       250,000     $ -       704       -       704  

Transaction costs in connection with First Amendment to Purchase Agreement with LPC

    -       -       -       -       -       -       (31 )     -       (31 )

Modification of exercise price of warrants in connection with First Amendment to Purchase Agreement with LPC

    -       -       -       -       -       -       86       -       86  

Dividend on Series B convertible preferred stock

    -       -       -       -       -       -       (1,154 )     -       (1,154 )

Dividend on Series B convertible preferred stock paid in PIK shares

    -       -       1,153       -       -       -       1,153       -       1,153  

Stock-based compensation expense

    -       -       -       -       -       -       867       -       867  

Net loss

    -       -       -       -       -       -       -       (4,050 )     (4,050 )

Balances as of June 30, 2021

    -     $ -       38,090     $ -       10,591,716     $ 1     $ 254,781     $ (229,667 )   $ 25,115  

 

6

 

   

Series A Convertible Preferred Stock, $0.0001 par value

   

Series B Convertible Preferred Stock, $0.0001 par value

    Common Stock, $0.0001 par value    

Additional

Paid-In

    Accumulated    

Total

Stockholders
 
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Equity

 
                                                                         

Balances as of January 1, 2020

    185,218     $ -       31,678     $ -       707,571     $ -     $ 214,431     $ (197,911 )   $ 16,521  

Issuance costs in connection with November 2019 Offering

    -       -       -       -       -       -       (30 )     -       (30 )

Conversion of Series A convertible preferred stock into common stock

    (185,218 )     -       -       -       185,218       -       -       -       -  

Issuance of common shares in connection with common warrant exercises

    -       -       -       -       107,172       -       1,661       -       1,661  

Series B convertible preferred stock dividends

    -       -       -       -       -       -       (990 )     -       (990 )

Series B convertible preferred stock dividends paid in PIK shares

    -       -       989       -       -       -       989       -       989  

Stock-based compensation expense

    -       -       -       -       -       -       686       -       686  

Issuance of common shares from employee stock purchase plan

    -       -       -       -       32       -       -       -       -  

Issuance of restricted common shares in connection with consulting agreement

    -       -       -       -       2,832       -       24       -       24  

Net loss

    -       -       -       -       -       -       -       (6,310 )     (6,310 )

Balances as of March 31, 2020

    -     $ -       32,667     $ -       1,002,825     $ -     $ 216,771     $ (204,221 )   $ 12,551  

Issuance costs in connection with November 2019 Offering

    -       -       -       -       -       -       (3 )     -       (3 )

Issuance of common shares in connection with Series A and B warrant exercises

    -       -       -       -       514,578       -       3,139       -       3,139  

Modification of exercise price of warrants in connection with 2020 Warrant Offering

    -       -       -       -       -       -       1,838       -       1,838  

Issuance of Series A-2 and B-2 warrants in connection with 2020 Warrant Offering

    -       -       -       -       -       -       1,838       -       1,838  

Issuance costs for Series A-2 and B-2 warrants in connection with 2020 Warrant Offering

    -       -       -       -       -       -       (1,838 )     -       (1,838 )

Transaction costs in connection with 2020 Warrant Offering

    -       -       -       -       -       -       (326 )     -       (326 )

Issuance of initial purchase common shares under the Purchase Agreement with LPC

    -       -       -       -       52,500       -       341       -       341  

Issuance costs in connection with Purchase Agreement with LPC

    -       -       -       -       -       -       (452 )     -       (452 )

Series B convertible preferred stock dividends

    -       -       -       -       -       -       (1,021 )     -       (1,021 )

Series B convertible preferred stock dividends paid in PIK shares

    -       -       1,018       -       -       -       1,018       -       1,018  

Stock-based compensation expense

    -       -       -       -       -       -       632       -       632  

Issuance of common shares from employee stock purchase plan

    -       -       -       -       30       -       -       -       -  

Issuance of common shares for vesting of restricted stock award granted to consultant

    -       -       -       -       25       -       -       -       -  

Issuance of restricted common shares in connection with consulting agreement

    -       -       -       -       3,454       -       25       -       25  

Net loss

    -       -       -       -       -       -       -       (7,115 )     (7,115 )

Balances as of June 30, 2020

    -     $ -       33,685     $ -       1,573,412     $ -     $ 221,962     $ (211,336 )   $ 10,627  

 

Note: All share and per share data has been adjusted to reflect the 1-for-10 reverse stock split which became effective after market close on December 1, 2020, as discussed in Note 2.

 

The accompanying notes are an integral part of these condensed consolidated financial statements. 

 

7

 

 

 

VIVEVE MEDICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

   

Six Months Ended

 
   

June 30,

 
   

2021

   

2020

 
                 

Cash flows from operating activities:

               

Net loss

  $ (9,841 )   $ (13,425 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Provision for doubtful accounts

    89       229  

Depreciation and amortization

    636       651  

Stock-based compensation

    1,677       1,367  

Non-cash interest expense

    291       258  

Amortization of operating lease right-of-use assets and accretion of operating lease liabilities

    17       5  

Loss from minority interest in limited liability company

    155       268  

Loss on disposal of property and equipment

    9       -  

Modification of warrants

    373       1,838  

Gain on forgiveness of Paycheck Protection Program loan

    (1,358 )     -  

Changes in assets and liabilities:

               

Accounts receivable

    (15 )     327  

Inventory

    855       (222 )

Prepaid expenses and other current assets

    308       526  

Other noncurrent assets

    141       417  

Accounts payable

    (219 )     (351 )

Accrued and other liabilities

    (317 )     (2,132 )

Other noncurrent liabilities

    211       55  

Net cash used in operating activities

    (6,988 )     (10,189 )
                 

Cash flows from investing activities:

               

Purchase of property and equipment

    (78 )     (292 )

Net cash used in investing activities

    (78 )     (292 )
                 

Cash flows from financing activities:

               

Proceeds from January 2021 Offering, net of issuance costs

    25,122       -  

Proceeds from exercise of common warrants

    179       4,800  

Transaction costs in connection with 2020 Warrant Offering

    -       (326 )

Proceeds from purchase of common shares under Purchase Agreement with LPC

    704       341  

Transaction costs in connection with Purchase Agreement with LPC

    (71 )     (452 )

Proceeds from Paycheck Protection loan

    -       1,343  

Transaction costs in connection with November 2019 Offering

    -       (33 )

Net cash provided by financing activities

    25,934       5,673  

Net increase (decrease) in cash and cash equivalents

    18,868       (4,808 )
                 

Cash and cash equivalents - beginning of period

    6,523       13,308  

Cash and cash equivalents - end of period

  $ 25,391     $ 8,500  
                 

Supplemental disclosure:

               

Cash paid for interest

  $ -     $ -  

Cash paid for income taxes

  $ -     $ -  
                 
                 

Supplemental disclosure of cash flow information as of end of period:

               

Forgiveness of Paycheck Protection Program loan

  $ 1,358     $ -  

Issuance of Series B convertible preferred stock in settlement of dividends

  $ 2,271     $ 2,007  

Issuance of note payable in settlement of accrued interest

  $ 289     $ 256  

Net transfer of equipment between inventory and property and equipment

  $ (233 )   $ 166  

Supplemental cash flow information related to leases was as follows:

               

Operating cash outflows from operating leases

  $ 126     $ 150  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8

 

 

VIVEVE MEDICAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

1.

The Company and Basis of Presentation

 

Viveve Medical, Inc. (“Viveve Medical”, the “Company”, “we”, “our”, or “us”) 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, which collectively, we refer to as the Viveve® System. Viveve Medical competes in the women’s intimate health industry in some countries by marketing the Viveve System as a way to improve the overall well-being and quality of life of women suffering from vaginal introital laxity, for improved sexual function, or stress urinary incontinence, depending on the relevant country-specific clearance or approval.  In the United States, the Viveve System is currently indicated for use in general surgical procedures for electrocoagulation and hemostasis.

 

Purchase Agreement with LPC Reduction of Warrant Exercise Price

 

On May 4, 2021, pursuant to the provisions under the Purchase Agreement as amended, LPC purchased 250,000 shares at $2.817 per share of the Company’s common stock. As a result, the per share exercise price of our previously issued Series B, A-2 and B-2 common stock warrants was automatically reduced from $3.40 to $2.817 pursuant to the terms of the warrants. There was no change to the quantity of warrant shares. As a result of this reduction of warrant exercise price, the Company recognized a modification charge of $86,000.

 

2021 Public Offering

 

On January 19, 2021, the Company closed an upsized underwritten public offering of units (the “January 2021 Offering”) for gross proceeds of approximately $27,600,000, which included the exercise of the underwriter’s over-allotment option to purchase additional shares and warrants, prior to deducting underwriting discounts and commissions and offering expenses payable by Viveve.

 

The offering comprised of: (1) 4,607,940 Class A Units, priced at a public offering price of $3.40 per Class A Unit, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock, at an exercise price of $3.40 per share that expires on the fifth anniversary of the date of issuance; and (22,450,880 Class B Units, priced at a public offering price of $3.40 per Class B Unit, with each unit consisting of one share of Series C convertible preferred stock and one warrant to purchase one share of common stock, at an exercise price of $3.40 per share that expires on the fifth anniversary of the date of issuance. The underwriter exercised an over-allotment option to purchase an additional 1,058,820 shares of common stock and warrants to purchase 1,058,820 shares of common stock in the offering. The net proceeds to the Company, after deducting underwriting discounts and commissions and offering expenses payable by the Company, were approximately $25,122,000.

 

A total of 2,450,880 shares of Series C convertible preferred stock were issued in the January 2021 Offering. In January 2021, all Series C convertible preferred stock were converted into common stock and there are no remaining shares of Series C convertible preferred stock outstanding.

 

Warrants to purchase a total of 8,117,640 shares of common stock were issued in the January 2021 Offering. In February and March 2021, holders exercised January 2021 warrants to purchase 12,760 shares of common stock for aggregate exercise proceeds to the Company of approximately $43,000. As of June 30, 2021, there were January 2021 warrants to purchase a total of 8,104,880 shares of common stock still remaining and outstanding.

 

Series C Convertible Preferred Stock

 

In connection with the closing of the January 2021 Offering, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series C convertible preferred stock (the “Series C Certificate of Designation”) with the Secretary of State of the State of Delaware. The Series C Certificate of Designation provides for the issuance of the shares of Series C convertible preferred stock. The shares of Series C convertible preferred stock rank on par with the shares of the common stock, in each case, as to dividend rights and distributions of assets upon liquidation, dissolution or winding up of the Company.

 

9

 

With certain exceptions, as described in the Series C Certificate of Designation, the shares of Series C convertible preferred stock have no voting rights.

 

Each share of Series C convertible preferred stock is convertible at any time at the holder’s option into one share of common stock, which conversion ratio will be subject to adjustment for stock splits, stock dividends, distributions, subdivisions and combinations and other similar transactions as specified in the Series C Certificate of Designation.

 

All Series C convertible preferred stock have been converted into common stock and there are no remaining shares outstanding.

 

November 2019 Offering Reduction of Warrant Exercise Price

 

On January 19, 2021, the Company closed a public offering at an effective price of $3.40 per share of its common stock. As a result, the per share exercise price of our previously issued Series B, A-2 and B-2 common stock warrants was automatically reduced pursuant to the terms of the warrants. The exercise price for Series B warrants was reduced from $6.10 per share to $3.40 per share. The exercise price for Series A-2 and B-2 warrants was reduced from $6.371 per share to $3.40 per share. There was no change to the quantity of warrant shares. As a result of this reduction of warrant exercise price, the Company recognized a modification charge of $287,000.

 

Elimination of Series A Convertible Preferred Stock

 

On December 16, 2020, the Company filed a Certificate of Elimination (the “Certificate of Elimination”) with the Delaware Secretary of State with respect to 547,345 authorized shares of Series A convertible preferred stock, par value $0.0001 per share. The Series A convertible preferred stock had been designated pursuant to the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock filed with the Delaware Secretary of State on November 25, 2019. As of the date of the filing of the Certificate of Elimination, no shares of Series A convertible preferred stock were outstanding. Upon filing the Certificate of Elimination, the 547,345 authorized shares of Series A convertible preferred stock were returned to the status of authorized but unissued shares of preferred stock of the Company, without designation as to series or rights, preferences, privileges or limitations.

 

Purchase Agreement with Lincoln Park Capital, LLC

 

The Company previously entered into a purchase agreement on June 8, 2020 (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), which provided that the Company had the right, in its sole discretion, to sell to LPC, and LPC has committed to purchase from us, up to $10,000,000 of our common stock, subject to certain limitations, from time to time over a 30-month period pursuant to the terms of the Purchase Agreement. The Purchase Agreement limited the Company’s sale of shares of common stock to LPC to 301,762 shares of common stock (after giving effect to the Company’s reverse stock split in December 2020), representing 19.99% of the shares of the common stock outstanding on the date of the Purchase Agreement unless (i) shareholder approval was obtained to issue more than such amount or (ii) the average price of all applicable sales of common stock to LPC under the Purchase Agreement equaled or exceeded $6.46 per share (after giving effect to the Company’s reverse stock split). On June 9, 2020, LPC purchased 52,500 shares of common stock at a price per share of $6.50 (the “Initial Purchase Shares”) under the Purchase Agreement for gross proceeds of approximately $341,000.

 

On March 31, 2021, the Company and LPC entered into a First Amendment to the Purchase Agreement. The amendment limited the Company’s sale of shares of common stock to LPC from the date thereof to 2,068,342 shares of shares of common stock, representing 19.99% of the shares of the common stock outstanding on the date of amendment unless (i) shareholder approval is obtained to issue more than such amount or (ii) the average price of all applicable sales of common stock to LPC under the Purchase Agreement, as amended equals or exceeds $2.99 per share. On May 4, 2021, LPC purchased 250,000 shares of common stock at price per share of $2.817 under the Purchase Agreement for gross proceeds of approximately $704,000.

 

As of June 30, 2021, the equity facility with LPC has a remaining financing commitment of approximately $9,000,000.

 

10

 

2020 Warrant Offering

 

On April 15, 2020, the Company reduced the exercise price of the outstanding Series A warrants and Series B warrants from $15.50 per share to $6.10 per share. On April 16, 2020, the Company entered into inducement letter agreements with certain institutional and accredited holders of Series A warrants and Series B warrants pursuant to which such holders agreed to exercise Series A warrants to purchase 482,059 shares of common stock and Series B warrants to purchase 24,279 shares of common stock for aggregate exercise proceeds to the Company of approximately $3,089,000. In conjunction, the Company also agreed to issue new Series A-2 warrants to purchase up to 482,059 shares of common stock as an inducement for the exercise of Series A warrants, and new Series B-2 warrants to purchase up to 24,279 shares of common stock as an inducement for the exercise of Series B warrants, in each case at an exercise price of $6.371 per share and for a term of five years. The transaction closed on April 20, 2020. Transaction costs in connection with the 2020 Warrant Offering totaled approximately $326,000. (See Note 11 – Common Stock for the calculation of the modification expense for the Series A and B warrants and the issuance of Series A-2 and B-2 warrants.) As of June 30, 2021, there were Series A-2 warrants to purchase a total of 392,830 shares of common stock and Series B-2 warrants to purchase a total of 20,380 shares of common stock still remaining and outstanding. 

 

Interim Unaudited Financial Information

 

The accompanying unaudited condensed consolidated financial statements of Viveve Medical have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the condensed consolidated financial statements have been included. 

 

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on March 18, 2021. The results of operations for the six months ended June 30, 2021 are not necessarily indicative of the results for the year ending December 31, 2021 or any future interim period.

 

Liquidity and Management Plans

 

The Company has adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 205-40, Presentation of Financial Statements – Going Concern, which requires that management evaluate whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. However, since inception, the Company has sustained significant operating losses and such losses are expected to continue for the foreseeable future. The Company had an accumulated deficit of $229,667,000 as of June 30, 2021. Additionally, the Company used $6,988,000 in cash for operations in the six months ended June 30, 2021. However, the Company's financing activities provided cash of $25,934,000 during the six months ended June 30, 2021 including $25,122,000 in net proceeds from the January 2021 Offering, $633,000 in net proceeds from purchase of common shares under the Purchase Agreement with LPC and $179,000 in proceeds from the exercise of common warrants. As of June 30, 2021, the Company had cash and cash equivalents of $25,391,000 and working capital of $27,753,000. Accordingly, management expects that our cash along with the remaining equity financing commitment from LPC of approximately $9,000,000 will be sufficient to fund our activities for at least the next twelve months through August 2022; however, we may require additional funds to fully implement our plan of operation.

 

To fund further operations, the Company may need to raise additional capital. The Company may obtain additional financing in the future through the issuance of its common stock, or through other equity or debt financings. The Company’s ability to continue as a going concern or meet the minimum liquidity requirements in the future is dependent on its ability to raise significant additional capital, of which there can be no assurance. If the necessary financing is not obtained or achieved, the Company will likely be required to reduce its planned expenditures, which could have an adverse impact on the results of operations, financial condition and the Company’s ability to achieve its strategic objective. There can be no assurance that financing will be available on acceptable terms, or at all. 

 

11

 
 

2.

Summary of Significant Accounting Policies

 

Financial Statement Presentation

 

The condensed consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries, Viveve, Inc. and Viveve BV. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Reverse Stock Split - December 2020

 

The Company effected a 1-for-10 reverse stock split of its common stock that became effective after market close on December 1, 2020. The reverse stock split uniformly affected all issued and outstanding shares of the Company’s common stock. The reverse stock split provided that every ten shares of the Company’s issued and outstanding common stock was automatically combined into one issued and outstanding share of common stock, without any change in par value per share. The number of authorized shares of common stock remained at 75,000,000 shares. 

 

As a result of the reverse stock split, proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all then outstanding stock options, deferred restricted stock awards and warrants, which will result in a proportional decrease in the number of shares of the Company’s common stock reserved for issuance upon exercise or vesting of such stock options, deferred restricted stock awards and warrants, and, in the case of stock options and warrants, a proportional increase in the exercise price of all such stock options and warrants. In addition, the number of shares reserved for issuance under the Company’s equity compensation plans immediately prior to the effective date will be reduced proportionately. The Company issued 5,931 shares of common stock as a result of this adjustment.

 

No fractional shares were issued as a result of the reverse stock split. Stockholders of record who would otherwise have been entitled to receive a fractional share were rounded up to the nearest whole number.

 

All of the share numbers, share prices, and exercise prices have been adjusted, on a retroactive basis, to reflect this 1-for-10 reverse stock split.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. In addition, any change in these estimates or their related assumptions could have an adverse effect on our operating results. 

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less, at the time of purchase, to be cash equivalents. The Company’s cash and cash equivalents are deposited in demand accounts primarily at one financial institution. Deposits in this institution may, from time to time, exceed the federally insured amounts.

 

Concentration of Credit Risk and Other Risks and Uncertainties

 

To achieve profitable operations, the Company must successfully develop, manufacture, and market its products. There can be no assurance that any such products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed. These factors could have a material adverse effect upon the Company’s financial results, financial position, and future cash flows.

 

Most of the Company’s products to date require clearance or approvals from the U.S. Food and Drug Administration (“FDA”) or other international regulatory agencies prior to commencing commercial sales. There can be no assurance that the Company’s products will receive any of these required clearances or approvals or for the indications requested. If the Company was denied such clearances or approvals or if such clearances or approvals were delayed, it would have a material adverse effect on the Company’s financial results, financial position and future cash flows.

 

The Company is subject to risks common to companies in the medical device industry including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products, product liability, and the need to obtain additional financing. The Company’s ultimate success is dependent upon its ability to raise additional capital and to successfully develop and market its products. 

 

12

 

The Company designs, develops, manufactures and markets a medical device that it refers to as the Viveve System, which is intended for the non-invasive treatment of vaginal introital laxity, for improved sexual function, for vaginal rejuvenation, for use in general surgical procedures for electrocoagulation and hemostasis, and stress urinary incontinence, depending on the relevant country-specific clearance or approval. The Viveve System consists of three main components: a radiofrequency 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. The Company outsources the manufacture and repair of the Viveve System to a single contract manufacturer. Also, certain other components and materials that comprise the device are currently manufactured by a single supplier or a limited number of suppliers. A significant supply interruption or disruption in the operations of the contract manufacturer or these third-party suppliers would adversely impact the production of our products for a substantial period of time, which could have a material adverse effect on our business, financial condition, operating results and cash flows. 

 

In North America, the Company sells its products primarily through a direct sales force to health care practitioners. Outside North America, the Company sells through an extensive network of distribution partners. During the three months ended June 30, 2021, one distributor accounted for 34% of the Company’s revenue. During the three months ended June 30, 2020, three distributors, collectively, accounted for 74% of the Company’s revenue. During the six months ended June 30, 2021, one distributor accounted for 26% of the Company’s revenue. During the six months ended June 30, 2020, one distributor accounted for 49% of the Company’s revenue.

 

There were no direct sales customers that accounted for more than 10% of the Company’s revenue during the three and six months ended June 30, 2021 and 2020.

 

As of June 30, 2021, one distributor accounted for 50% of total accounts receivable, net. As of December 31, 2020, one distributor accounted for 37% of total accounts receivable, net.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at the invoiced amount and are not interest bearing. Our typical payment terms vary by region and type of customer (distributor or physician). Occasionally, payment terms of up to six months may be granted to customers with an established history of collections without concessions. Should we grant payment terms greater than six months or terms that are not in accordance with established history for similar arrangements, revenue would be recognized as payments become due and payable assuming all other criteria for revenue recognition have been met. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing assumptions relating to the collectability of its accounts receivable in its calculation of the allowance for doubtful accounts. In determining the amount of the allowance, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations and assesses current economic trends affecting its customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. The Company also considers its historical level of credit losses. The allowance for doubtful accounts was $139,000 as of June 30, 2021 and $124,000 as of December 31, 2020.

 

During the three month and six months ended June 30, 2021, the Company wrote-off accounts receivable totaling approximately $64,000 and $74,000, respectively, primarily related to U.S. customers. During the three and six months ended June 30, 2020, the Company wrote-off accounts receivable totaling approximately $173,000 primarily related to Latin America distributors in connection with the Company’s shift in its international business model and the withdrawal from certain countries in Latin America.

 

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.

 

13

 

Rental revenue is generated through the lease of the Viveve System. The Company’s operating leases for the Viveve System generally have a rental period of six to nine months and can be extended or terminated by the customer after that time or the Viveve System could 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. For the three and six months ended June 30, 2021, rental revenue recognized during the period was $323,000 and $689,000, respectively. For the three and six months ended June 30, 2020, rental revenue recognized during the period was $6,000 and $427,000, respectively. As of June 30, 2021 and December 31, 2020, the Company had deferred revenue in the amounts of $355,000 and $345,000, respectively, related to its rental program, which is included in accrued liabilities on the condensed consolidated balance sheets. During the three and six months ended June 30, 2021, the Company recognized revenue of $66,000 and $296,000 which was deferred revenue as of December 31, 2020.

 

Late in the first quarter of 2020, the negative impact of the COVID-19 pandemic on medical facilities and practitioners was in full effect in the United States. Federal, regional, and local government and public health agencies issued directives halting performance of non-essential medical treatments and elective procedures in an effort to combat the spread of the coronavirus and protect public health and safety. As a result, a large percentage of Viveve’s U.S. customers either temporarily closed their medical practices or dramatically reduced services and staff. The consequence has been both a public health and economic crisis that is continuing for existing and prospective Viveve customers. In a supportive partnership response, Viveve contacted all of its subscription customers and provided them with a three-month deferral of the rental payment. Although clinics in various regions are beginning to re-open and provide limited services, we anticipate that until the COVID-19 pandemic abates, more practices begin to re-open and elective patient’s safety concerns are reduced, that we will continue to experience reduced revenue from existing subscription customers, as well as a greatly reduced number of new and prospective customers. 

 

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, Asia Pacific, Europe, the Middle East and Latin America. 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.

 

Customer Advance Payments

 

From time to time, customers will pay for a portion of the products ordered in advance.  Upon receipt of such payments, the Company records the customer advance payment as a component of accrued liabilities.  The Company will remove the customer advance payment from accrued liabilities when revenue is recognized upon shipment of the products.  

 

Contract Assets and Liabilities

 

The Company continually evaluates whether the revenue generating activities and advanced payment arrangements with customers result in the recognition of contract assets or liabilities. No such assets existed as of  June 30, 2021 or  December 31, 2020. The Company had customer contract liabilities in the amount of $3,000 and $17,000 that performance had not yet been delivered to its customers as of June 30, 2021 and December 31, 2020, respectively. Contract liabilities are recorded in accrued liabilities on the condensed consolidated balance sheet.  

 

Separately, accounts receivable, net represents receivables from contracts with customers.

 

Significant Financing Component

 

The Company applies the practical expedient to not make any adjustment for a significant financing component if, at contract inception, the Company does not expect the period between customer payment and transfer of control of the promised goods or services to the customer to exceed one year. During the three and six months ended June 30, 2021 and 2020, the Company did not have any contracts for the sale of its products with its customers with a significant financing component. 

 

14

 

Contract Costs 

 

The Company began its rental program in the quarter ended June 30, 2019. The Company expects that commissions paid to obtain subscriptions are recoverable and has therefore capitalized them as a contract costs in the amount of $38,000 and $32,000 at June 30, 2021 and December 31, 2020, respectively. Capitalized commissions are amortized based on the subscription periods to which the assets relate and are included in selling, general and administrative expenses. For the three months ended June 30, 2021 and 2020, the amount of amortization was $20,000 and $133,000, respectively. For the six months ended June 30, 2021 and 2020, the amount of amortization was $34,000 and $331,000, respectively. There was no impairment loss in relation to the costs capitalized. The Company has elected the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less.

 

Shipping and Handling

 

Shipping costs billed to customers are recorded as revenue. Shipping and handling expense related to costs incurred to deliver product are recognized within cost of goods sold. The Company accounts for shipping and handling activities that occur after control has transferred as a fulfillment cost as opposed to a separate performance obligation, and the costs of shipping and handling are recognized concurrently with the related revenue.  

 

Revenue by Geographic Area

 

Management has determined that the sales by geography is a key indicator for understanding the Company’s financials because of the different sales and business models that are required in the various regions of the world (including regulatory, selling channels, pricing, customers and marketing efforts). The following table presents the revenue from unaffiliated customers disaggregated by geographic area for the three and six months ended June 30, 2021 and 2020 (in thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2021

  

2020

  

2021

  

2020

 
                 

North America

 $994  $116  $1,919  $804 

Asia Pacific

  658   588   1,177   1,185 

Europe and Middle East

  2   -   8   5 

Latin America

  -   -   -   14 

Total

 $1,654  $704  $3,104  $2,008 

 

The Company determines geographic location of its revenue based upon the destination of the shipments of its products.

 

Investments in Unconsolidated Affiliates

 

The Company uses the equity method to account for its investments in entities that it does not control but have the ability to exercise significant influence over the investee. Equity method investments are recorded at original cost and adjusted periodically to recognize (1) the proportionate share of the investees’ net income or losses after the date of investment, (2) additional contributions made and dividends or distributions received, and (3) impairment losses resulting from adjustments to net realizable value. The Company eliminates all intercompany transactions in accounting for equity method investments. The Company records the proportionate share of the investees’ net income or losses in equity in earnings of unconsolidated affiliates on the condensed consolidated statements of operations. The Company utilizes a three-month lag in reporting equity income from its investments, adjusted for known amounts and events, when the investee’s financial information is not available timely or when the investee’s reporting period differs from our reporting period. 

 

The Company assesses the potential impairment of the equity method investments when indicators such as a history of operating losses, a negative earnings and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate a loss in value. The carrying value of the investments is reviewed annually for changes in circumstances or the occurrence of events that suggest the investment may not be recoverable. No impairment charges have been recorded in the condensed consolidated statements of operations during the three and six months ended June 30, 2021 and 2020. 

 

15

 

Product Warranty

 

The Company’s products sold to customers are generally subject to warranties between one and three years, which provides for the repair, rework or replacement of products (at the Company’s option) that fail to perform within stated specifications. The Company has assessed the historical claims and, to date, product warranty claims have not been significant.

 

Accounting for Stock-Based Compensation

 

Share-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.

 

The Company 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 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. 

 

Comprehensive Loss

 

Comprehensive loss represents the changes in equity of an enterprise, other than those resulting from stockholder transactions. Accordingly, comprehensive loss may include certain changes in equity that are excluded from net loss. For the three and six months ended June 30, 2021 and 2020, the Company’s comprehensive loss is the same as its net loss. 

 

Net Loss per Share

 

The Company’s basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. The diluted net loss per share is computed by giving effect to all potentially dilutive common stock equivalents outstanding during the period. For purposes of this calculation, stock options and warrants to purchase common stock and restricted common stock awards are considered common stock equivalents. For periods in which the Company has reported net losses, diluted net loss per share is the same as basic net loss per share since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

 

The following securities were excluded from the calculation of net loss per share because the inclusion would be anti-dilutive: 

 

   

Six Months Ended

 
   

June 30,

 
   

2021

  

2020

 
          

Convertible preferred stock:

         

Series A convertible preferred stock

(a)

  -   - 

Series B convertible preferred stock

(b)

  2,489,542   2,201,634 

Series C convertible preferred stock

(c)

  -   - 

Warrants to purchase common stock

  9,793,599   2,358,329 

Stock options to purchase common stock

  3,188,628   1,002,400 

Deferred restricted common stock units

  684,000   - 

Deferred restricted common stock awards

  232   249 

 

 

(a) 

Each share of Series A convertible preferred stock was convertible at any time at the holder's option into one share of common stock. As of June 30, 2020, all Series A convertible preferred stock had been converted into common stock and there were no remaining shares outstanding. In December 2020, the Company filed a Certificate of Elimination with the Delaware Secretary of State with respect to the authorized shares of Series A convertible preferred stock.

 

16

 
 

(b) 

As of June 30, 2021 and 2020, a total of 38,090 and 33,685 shares of Series B convertible preferred stock were outstanding and convertible into 2,489,542 and 2,201,634 shares of common stock, respectively. Each share of Series B convertible preferred stock is convertible at the holder's option into shares of common stock at a conversion ratio of 1-for-65.36 per share determined by dividing the Series B liquidation amount of $1,000 per share by the Series B conversion price of $15.30 per share. However, under the terms of the Series B Preferred Stock and Warrant Purchase Agreement, as amended, CRG will not convert the Series B preferred stock or exercise the CRG warrants until the Company’s stockholders act to authorize additional number of shares of common stock sufficient to cover the conversion shares.

 

 

(c) 

Each share of Series C preferred stock is convertible at any time at the holder's option into one share of common stock. As of June 30, 2021, all Series C convertible preferred stock had been converted into common stock and there are no remaining shares of Series C convertible preferred stock outstanding.

 

Recently Issued and Adopted Accounting Standards

 

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 adopted this guidance as of January 1, 2021, and the adoption of the guidance did not have a significant impact on the condensed consolidated financial statements. 

 

We have reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material effect is expected on the condensed consolidated financial statements as a result of future adoption.

 

 

 

3.

Fair Value Measurements

 

The Company recognizes and discloses the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). Each level of input has different levels of subjectivity and difficulty involved in determining fair value.

 

 

Level 1

Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date. Therefore, determining fair value for Level 1 investments generally does not require significant judgment, and the estimation is not difficult.

 

 

Level 2

Pricing is provided by third party sources of market information obtained through investment advisors. The Company does not adjust for or apply any additional assumptions or estimates to the pricing information received from its advisors.

 

 

Level 3

Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 instruments involves the most management judgment and subjectivity.

 

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. 

 

There were no financial instruments that were measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020.

 

The carrying amounts of the Company’s financial assets and liabilities, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses as of June 30, 2021, and December 31, 2020 approximate fair value because of the short maturity of these instruments. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of the note payable approximates fair value. 

 

There were no changes in valuation techniques from prior periods.    

 

17

 
 

4.

Investment in Limited Liability Company

 

On August 8, 2017, the Company entered into an exclusive Distributorship Agreement (the “Distributorship Agreement”) with InControl Medical, LLC (“ICM”), a Wisconsin limited liability company focused on women’s health, pursuant to which the Company will directly market, promote, distribute and sell ICM’s products to licensed medical professional offices and hospitals in North America.

 

Under the terms of the Distributorship Agreement, ICM agreed to not directly or indirectly appoint or authorize any third party to market, promote, distribute or sell any of the licensed products to any licensed medical professional offices and hospitals in the United States. In exchange, the Company agreed to not market, promote, distribute or sell (or contract to do so) any product which substantially replicates all or almost all of the key features of the licensed products. The terms of the Distribution Agreement also included a minimum purchase requirement to purchase a certain quantity of ICM products per month. In addition, the parties agreed to certain mutual marketing obligations to promote sales of the licensed products. During the three months ended June 30, 2021 and 2020, the Company has purchased 100 and 120 units of ICM products for approximately $12,000 and $10,000, respectively. During the six months ended June 30, 2021 and 2020, the Company has purchased 100 and 240 units of ICM products for approximately $12,000 and $20,000, respectively. As of June 30, 2021, the Company has purchased approximately 5,385 units of ICM products. The Company paid ICM approximately $10,000 and $10,000 for product related costs during the three months ended June 30, 2021 and 2020, respectively. The Company paid ICM approximately $10,000 and $20,000 for product-related costs during the six months ended June 30, 2021 and 2020, respectively. There were no amounts due to ICM for the accounts payable as of June 30, 2021 and December 31, 2020.

 

In connection with the Distributorship Agreement, the Company also entered into a Membership Unit Subscription Agreement with ICM and the associated limited liability company operating agreement of ICM, pursuant to which the Company invested $2,500,000 in, and acquired membership units of, ICM. This investment has been recorded in investment in a limited liability company in the condensed consolidated balance sheets. The Company used the equity method to account for the investment in ICM because the Company does not control it but has the ability to exercise significant influence over it. As of June 30, 2021, the Company owned approximately 7% ownership interest in ICM. The Company recognizes its allocated portion of ICM’s results of operations on a three-month lag due to the timing of financial information. For the three months ended June 30, 2021 and 2020, the allocated net loss from ICM’s operations was $79,000 and $86,000, respectively. For the six months ended June 30, 2021 and 2020, the allocated net loss from ICM’s operations was $155,000 and $268,000, respectively. The allocated net loss from ICM’s operations was recorded as loss from minority interest in limited liability company in the condensed consolidated statements of operations. 

 

In February 2019, the Company executed a mutual termination of the Distributorship Agreement with ICM. As a result, the Company no longer has a minimum purchase requirement to purchase a certain quantity of ICM products per month.       

 

18

 
 

5.

Accrued Liabilities

 

Accrued liabilities consisted of the following as of June 30, 2021 and December 31, 2020 (in thousands): 

 

   

June 30,

   

December 31,

 
   

2021

   

2020

 
                 

Accrued bonuses

    528       744  

Accrued payroll and other related expenses

    463       473  

Accrued clinical trial costs

    382       91  

Deferred revenue - subscription rental program

    355       345  

Current operating lease liabilities

    206       132  

Accrued professional fees

    193       290  

Accrued sales commission

    50       37  

Accrued inventory

    -       87  

Other accruals

    115       217  

Total accrued liabilities

  $ 2,292     $ 2,416  

 

 

 

6.

Note Payable

 

On May 22, 2017, the Company entered into a Term Loan Agreement as amended on December 12, 2017 and November 29, 2018 (collectively the “2017 Loan Agreement”) with affiliates of CRG LP (“CRG”). The