Valion Bio, Inc S-1/A, filed Dec 9, 2022
Valion Bio, Inc. (VBIO)
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Delaware |
3845 |
81-4016391 | ||
(State or Other Jurisdiction of Incorporation) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No .) |
Roger C. Rappoport, Esq. Christopher L. Tinen, Esq. Procopio, Cory, Hargreaves & Savitch LLP Five Palo Alto Square 3000 El Camino Real, Suite 400 Palo Alto, CA 94306 |
Leslie Marlow, Esq. Hank Gracin, Esq. Patrick J. Egan, Esq. Blank Rome LLP 1271 Avenue of the Americas New York, New York 10020 (212) 885-5358 |
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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The information contained in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED DECEMBER 9, 2022 |
10,714,285 Shares
Common Stock
Tivic Health Systems, Inc.
This is a firm commitment public offering of 10,714,285 shares of common stock, par value $0.0001 per share (the “Common Stock”) of Tivic Health Systems, Inc., at an assumed public offering price of $1.12 per share (based upon the last reported sale price of our Common Stock on the Nasdaq Capital Market on December 6, 2022).
Our Common Stock is traded on The Nasdaq Capital Market tier of The Nasdaq Stock Market, LLC under the symbol “TIVC.” The last reported sale price of our Common Stock on the Nasdaq Capital Market on December 6, 2022 was $1.12 per share.
The actual public offering price per share of Common Stock in this offering will be determined between us and the representative of the underwriters at the time of pricing, and may be at a discount to the current market price for our Common Stock. Therefore, the assumed public offering price used throughout this preliminary prospectus may not be indicative of the final offering price.
We are an “emerging growth company” and a “smaller reporting company,” each as defined under the federal securities laws and, as such, have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings. See the section of this prospectus entitled “Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”
Investing in our Common Stock involves a high degree of risk. See “Risk Factors” beginning on page 15.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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| Public offering price |
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| Underwriting discounts and commissions (7%)(1) |
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| Proceeds to us, before expenses |
$ | $ | ||||||
| (1) | See the section of this prospectus entitled “Underwriting” for a description of all underwriting compensation payable in connection with this offering. The representative of the underwriter will receive compensation in addition to the discounts and commissions. The registration statement, of which this prospectus is a part, also registers for sale warrants to purchase up to 616,071 shares of Common Stock to be issued to the representative of the underwriter in connection with this offering. We have agreed to issue the warrants to the representative of the underwriter as a portion of the underwriting compensation payable to the underwriter in connection with this offering. See “Underwriting” for a description of compensation payable to the underwriters. |
We have granted the representative of the underwriter an option to purchase up to an additional 1,607,142 shares of Common Stock (15% of the shares of Common Stock sold in this offering) from us at the public offering price, less underwriting discounts and commissions, within 45 days from the date of this prospectus to cover over-allotments, if any.
The underwriters expect to deliver the shares of Common Stock to investors on or about , 2022.
ThinkEquity
The date of this prospectus is , 2022
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| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY |
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| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
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| MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS |
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the U.S. Securities and Exchange Commission, or the SEC. We have not, and the underwriter has not, authorized anyone to provide you with information that is different from that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. When you make a decision about whether to invest in our securities, you should not rely upon any information other than the information in this prospectus or in any free writing prospectus that we may authorize to be delivered or made available to you. Neither the delivery of this prospectus nor the sale of our securities means that the information contained in this prospectus or any free writing prospectus is correct after the date of this prospectus or such free writing prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy our securities in any circumstances under which the offer or solicitation is unlawful.
For investors outside the United States: We have not taken any action that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities covered hereby and the distribution of this prospectus outside the United States.
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from our own management’s estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Management’s estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. Our management’s estimates have not been verified by any independent source, and we have not independently verified any third-party information. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Risk Factors” and “Cautionary Statement on Forward-Looking Statements.”
We further note that the representations, warranties and covenants made by us in any agreement that is filed as an exhibit to the registration statement of which this prospectus is a part were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.
Tivic Health Systems, Inc., the Tivic Health Systems logo, ClearUP and other trademarks or service marks of Tivic Health Systems appearing in this prospectus are the property of Tivic Health Systems, Inc. This prospectus also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this prospectus appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and tradenames.
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PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision in our common stock. Before investing in our common stock, you should carefully read this entire prospectus, including our financial statements and the related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As used in this prospectus, unless the context otherwise requires, references to “we,” “us,” “our,” “Company,” and “Tivic Health” refer to Tivic Health Systems, Inc.
Business Overview
We are a health technology company focused on non-invasive bioelectronic medicine. Our platform-based technology activates the body’s own healing mechanisms and can be programmed to treat various disease conditions. Our products provide a natural alternative to the standard synthetic chemical methods dominated by the pharmaceutical industry.
Bioelectronic medicine treats disease and conditions by modulating the electrical signals carried along various nerve pathways. The field grew out of the neuromodulation industry and relied, historically, on implantable devices (e.g., pacemakers, spinal implants, deep brain stimulators). IDTechEx has identified several fast-growing areas in the bioelectronic medicine field, including peripheral nerve stimulation, which it has indicated is forecasted to grow at a 35% compound annual growth rate (“CAGR”) from 2019 through 2029.
ClearUP® is our first commercial product and has received multiple innovation awards and high customer ratings across multiple sales platforms. It is based on a non-invasive peripheral nerve stimulation platform that combines proprietary algorithms, programmable stimulation parameters, and a patented monopolar delivery. ClearUP has U.S. FDA approval for the treatment of sinus pain and congestion and E.U. CE Mark approval for the treatment of sinus pain, pressure and congestion, which gives us commercial access in the U.S, European Union Member states and certain other countries. We currently sell directly to consumers through our own website, Amazon, and Walmart. We also sell through major and specialty online retailers, such as BestBuy and FSAStore.
This patented handheld device uses ultra-low current electrical waves to relieve sinus pain and congestion symptoms that are prevalent in nasal allergies, sinus infections, chronic sinusitis, cold and flu and other disease conditions. The global treatment markets for each of these disease areas are in the billions, currently dominated by pharmaceuticals, and are projected to grow. According to the Mintel Group Ltd’s 2020 report, the U.S. market size for cough, cold, flu and allergy in 2022 is $11.1 billion. We also conducted a market research study (via an online survey) of 600 individuals with ongoing sinus conditions and noted 90% of the participants reported interest in treatments that reduce the use of medications.
ClearUP is a US FDA Class II and EU Class IIa medical device that has received three regulatory clearances: (US FDA 510(k) number K182025, US FDA De Novo number DEN200006 and EU CE Mark Certificate number CE 704687). We conducted two published clinical studies with leading research institutions. The first clinical study was a randomized controlled double-blind trial conducted by the Stanford University Sinus Center consisting of 71 subjects suffering from sinus pain and congestion, each of whom used either ClearUP or a sham device. The second clinical study was a 30-person study on the use of ClearUP over a period of four weeks conducted by the Allergy and Asthma Associates of Santa Clara Valley Research Center. These studies have substantially demonstrated that ClearUP is highly effective at treating sinus pain from allergic rhinitis and moderate to severe congestion with no substantive side effects.
Our non-invasive bioelectronic platform-based technology enables effective therapeutic solutions with high safety profile and broad application. We plan to grow our product offerings through internal product developments, licensing and external acquisitions. We are currently conducting a sham-controlled clinical trial in
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concert with the Icahn School of Medicine at Mount Sinai, testing a new signal variant designed to reduce pain resulting from functional endoscopic sinus surgery. If successful, a product based on this research would require new regulatory clearances for a novel indication. Similarly, we have completed a market and technology assessment of a potential migraine indication and are developing a clinical protocol related thereto. Given our deep expertise and relationships in the field of bioelectronic medicine, we are continuously monitoring and evaluating options to add complementary product lines into our product portfolio.
Our Innovation
Our products provide a natural alternative to the standard synthetic chemical methods dominated by the pharmaceutical industry. Our market research study, which we paid to have conducted, indicates consumers are interested in non-pharmaceutical treatment alternatives. We combine proprietary algorithms, programmable stimulation parameters, and a patented monopolar delivery mechanism to modulate the nerve signals. ClearUP has proven effective in treating sinus and nasal inflammatory conditions and we are researching the clinical utility of this stimulation approach for other clinical conditions. There are numerous inflammatory conditions associated with peripheral nerve activity of the body, including:
| • | chronic quality-of-life conditions such as migraines (39 million U.S.), temporomandibular joint disorder (31 million U.S.), and tinnitus (50 million U.S.); |
| • | severe, life-altering conditions such as trigeminal neuralgia (150,000 U.S., severe condition); and |
| • | acute conditions such as ear infections (50% of children) and pain and swelling from facial and sinus surgeries (600,000 functional endoscopic surgeries annually, U.S.). |
Each of these applications would involve regulation of pain and inflammation-related mediators like those seen in sinus and nasal inflammation.
Our technology platform has the potential to accelerate new product development by: (i) extending the existing device platform to other clinical areas, thereby reducing research and development time, and (ii) continuing to benefit from low-risk non-invasive device designations and regulatory pathways by the FDA, which typically result in shorter time to approval when compared with invasive devices or new drugs. While it is our intention to bring new products to market, medical device development is inherently uncertain and there is no guarantee that our research and development efforts will lead to approved products for other clinical indications.
Market Opportunity and Regulatory Clearances
In December 2021, Precedence Research noted that the burden of various chronic diseases and infections is growing and so have people’s healthcare expenditures. Consumers are increasing spending on their healthcare. The shift to an increased focus on improving lifestyle, growing geriatric population, rising disposable income, rising penetration of healthcare insurance, and improved access to healthcare facilities are major factors that drive growth of the medical electronics market. In 2018, the per capita healthcare expenditure in the U.S. was over $10,500. This number is expected to increase through at least 2030.
Grand View Research projects that the non-invasive electroceutical devices segment will witness the highest growth through 2030. This is due to technological advancements and rising investments in research and development by companies for innovative product development. Moreover, increasing healthcare awareness and popularity of electroceuticals in developing countries such as India, China, South Africa, and Argentina are expected to propel market growth.
The FDA first provided clearance of ClearUP in 2019 as a treatment for sinus pain from allergic rhinitis, a condition impacting an estimated 45 million U.S. adults.
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In early 2021, the FDA granted our De Novo request to expand the label of ClearUP to treat moderate to severe congestion. The expanded label is not limited to any single cause of congestion, making it possible to market ClearUP for allergies, sinusitis, cold, flu or any other inflammatory condition impacting the sinus and nasal mucosa. With this clearance, the estimated available market for ClearUP expands to over 200 million U.S. adults.
Additionally, we have received a CE Mark for ClearUP that broadly covers sinus pain, pressure and congestion. The CE Mark allows us to market ClearUP in the European Union Member states and certain other countries that recognize the CE Mark.
Additional product development activities are ongoing for two product candidates: (i) npdPP, an at home-use device for treating postoperative pain after sinus surgery, and (ii) npdMI, an at home-use device for treating migraine headaches. These product candidates are still in early stages of development and will require additional studies and regulatory clearances prior to bringing them to market.
Competition
Currently, ClearUP®, which is approved by the FDA for the treatment of sinus pain and congestion, is our only commercial product. Sinus pain and congestion are typically managed with over-the-counter pharmaceuticals and saline irrigation of the sinus and nasal cavities. Analgesic medications (e.g., ibuprofen/Advil, acetaminophen/Tylenol, naproxen sodium/Aleve) are used to treat sinus pain. Congestion is often managed with antihistamines (e.g., loratadine/Claritin), oral (e.g., phenylephrine/Sudafed) and intranasal (e.g., oxymetazoline/Afrin) decongestants, and intranasal glucocorticoids (e.g., fluticasone propionate/Flonase).
Over the counter pharmaceuticals have historically had the greatest market share for sinus pain and congestion treatments; however, according to Mintel Group Ltd.’s 2020 report on Cough, Cold, Flu, and Allergy Remedies, and our own online survey, there is increasing interest among consumers to reduce reliance on drugs and to find non-drug solutions. Non-drug competitors for sinus pain and congestion treatment include nasal irrigation products such as Sinus Rinse and Navage Nasal Care. We believe that other companies selling non-pharmaceutical treatments, specifically nasal irrigation products, represent our closest competitors. ClearUP is a new product offering in the emerging bioelectronic medicine segment, and currently has a small market share.
Barriers to Entry
As a commercial-stage company that has invested our energy into patent protection and regulatory clearances, we believe we have built competitive advantages that include:
| • | Five issued U.S. patents and 18 additional international and U.S. patents pending; |
| • | Three regulatory clearances: (US FDA 510(k) number K182025, US FDA De Novo number DEN200006 and EU CE Mark Certificate number CE 704687) for use of ClearUP to treat sinus pain, pressure and congestion; and |
| • | Published, peer-reviewed studies in high-impact academic journals. |
Obtaining FDA and other regulatory approvals is a high hurdle to entry into the market, and we expect to enhance our patent protections through continuous innovation.
Growth Strategy
Our objective is to become the leading provider of non-invasive bioelectronic treatments for chronic conditions. We plan to grow our product offerings through internal product developments, licensing and external acquisitions. In the near term, key elements of our growth strategy for ClearUP include the following:
Expanding Awareness of ClearUP. ClearUP is currently available for purchase directly from our own website and major on-line retailers, including but not limited to, Amazon, FSAStore, Walmart and BestBuy. Our market research indicates that, among our target market, 74% would expect to purchase on Amazon and 65% from the manufacturer’s website.
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With the sales channels for ClearUP in place, our first growth lever is the expansion of advertising to drive increased awareness of ClearUP. Our second growth lever is the optimization of transaction efficiency and value through our ecommerce infrastructure investments. Our third growth lever is to deepen healthcare practitioner engagement.
Expanded ClearUP product line. We plan to expand our product offerings within the ClearUP brand based on the architecture used in the ClearUP product line.
Additional Research and Development. We intend to continue internal research to expand our neural stimulation technologies into additional product opportunities. In order to aid the expansion of our product portfolio, we anticipate continued investment into further clinical research for new product candidates, continued patent protection of our proprietary technologies and additional regulatory clearances if and when they become viable.
Additional product offerings through licensing or acquisition. We intend to add more product lines to our portfolio through licensing and/or acquisition opportunities.
Government Regulation
Our products are subject to extensive and rigorous regulation by the FDA and other federal, state and local authorities, as well as foreign regulatory authorities. The FDA regulates, among other things, the research, development, testing, design, manufacturing, approval, labeling, storage, recordkeeping, advertising, promotion and marketing, distribution, post approval monitoring and reporting and import and export of medical devices in the United States to assure the safety and effectiveness of medical devices for their intended use. The Federal Trade Commission (“FTC”) also regulates the advertising and labeling of our device in the United States. Further, we are subject to laws directed at preventing fraud and abuse, which subject our sales and marketing, training and other practices to government scrutiny.
Risks Associated with our Business
An investment in our common stock involves a high degree of risk. You should carefully consider the risks summarized below. These risks are discussed more fully in the section entitled “Risk Factors” following this prospectus summary. These risks include, but are not limited to, the following:
| • | our reliance on third parties to supply and manufacture our devices, and recent global supply chain disruptions; |
| • | our limited operating history; |
| • | the volatility of our operating results; |
| • | our ability to manage growth as the business scales; |
| • | our history of net losses; |
| • | our need for additional capital, which may not be available on favorable terms, if at all; |
| • | our ability to continue as a going concern; |
| • | our ability to generate revenues sufficient to achieve profitability and positive cash flow; |
| • | competition in our industry and our ability to compete effectively; |
| • | our ability to attract, recruit, retain and develop key personnel and qualified employees; |
| • | economic uncertainty, capital markets disruption, and impacts on our business and the industry that we operate in as a result of the COVID-19 pandemic, international conflicts, inflation, and a potential recession, among other things; |
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| • | risks related to laws, regulations and industry standards; |
| • | risks related to the medical device industry; |
| • | our ability to successfully identify, consummate or integrate acquisitions, or to successfully manage the impacts of such transactions on our operations; |
| • | reliance on significant third-party service providers; |
| • | reliance on our executive officers, senior management team and key personnel; and |
| • | the other factors described in “Risk Factors.” |
Recent Developments
Nasdaq Initial Public Offering (IPO)
On November 10, 2021, we completed an initial public offering (“IPO”) of 3,450,000 shares of our common stock, at a public offering price of $5.00 per share, including the exercise in full by the underwriters of their option to purchase up to 450,000 additional shares of common stock, for aggregate gross proceeds of $17.3 million. We received approximately $14.9 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by us. Upon consummation of the IPO, our common stock started trading on The NASDAQ Capital Market under the ticker symbol “TIVC.” Additionally, in connection with closing of the IPO, all of our outstanding shares of convertible preferred stock at the time of the IPO automatically converted into an aggregate of 2,227,116 shares of our common stock and outstanding convertible notes payable borrowings of $4.4 million converted into 1,204,160 shares of our common stock.
Mutual Termination of Proposed Reliefband Acquisition
On October 7, 2022, we entered into an Asset Purchase Agreement (the “Purchase Agreement”), by and among RB Buyer Co, LLC, a Delaware limited liability company (“Buyer”) and wholly-owned subsidiary of the Company, Reliefband Technologies, LLC, a Delaware limited liability company (“Reliefband”), certain of Reliefband’s beneficial owners (the “Beneficial Owners”), and Shareholder Representative Services LLC, a Colorado limited liability company as representative of Reliefband and its Beneficial Owners.
Pursuant to the Purchase Agreement, Buyer agreed to purchase substantially all of the assets, and certain specified liabilities, of Reliefband that are used in connection with the development, manufacture, distribution, and sale of Reliefband’s electronic nerve stimulation devices (the “Reliefband Acquisition”) for an aggregate cash purchase price of $33.5 million, subject to working capital adjustments as defined in the Purchase Agreement, less Reliefband transaction expenses and any indebtedness of Reliefband at closing (the “Acquisition Consideration”).
On December 7, 2022, the parties to the Purchase Agreement entered into an Agreement of Termination and Release (the “Termination Agreement”), pursuant to which the parties mutually agreed to terminate the Purchase Agreement immediately and abandon the proposed Reliefband Acquisition. As a result of the Termination Agreement, the Purchase Agreement is of no further force or effect.
Operational Developments
On October 21, 2022, we entered into a Manufacturing Agreement (the “Microart Agreement”), with Microart Services Inc. (“Microart”). Pursuant to the Microart Agreement, Microart will manufacture, on a non-exclusive basis, certain components and sub-assemblies (collectively, “Products”) of our current and future products. During the term of the Microart Agreement, we shall order Products from Microart by issuing purchase orders, and Microart shall manufacture and supply Products to us in the quantities specified in the applicable purchase
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orders and in accordance with our specifications. Subject to certain exceptions, Microart will charge us a fixed price for every Product purchased, which fixed price may only be changed by Microart once per each cumulative twelve-month period, and in each case, any increase shall not exceed an amount specified in the Microart Agreement.
The Microart Agreement has a three-year initial term, with automatic annual renewals until terminated by one of the parties in accordance with the terms of the Microart Agreement. The Microart Agreement may be terminated as follows: (i) at any time upon mutual agreement of the parties; (ii) by either party at the end of the initial three year term or any subsequent annual renewal term upon written notice received by the other party not less than 60 calendar days prior to the expiration of the relevant term; (iii) by either party upon 30 calendar days written notice to the other party following a material breach of the agreement if the breaching party fails to cure such breach in a reasonable period of time; or (iv) by either party upon the other party seeking an order for relief under bankruptcy laws, a composition with or assignment for the benefit of creditors, or the dissolution or liquidation.
We expect that this new relationship with Microart will significantly reduce the cost of manufacturing our ClearUP product, and potentially our future products.
On November 25, 2022, we entered into a Fulfillment Services Agreement (the “ALOM Agreement”), with ALOM Technologies Corporation (“ALOM”). Pursuant to the ALOM Agreement, commencing on November 28, 2022 (the “Effective Date”), ALOM will provide, on a non-exclusive basis, certain assembly, procurement, storage, returns, and fulfillment services to our end customers and resellers in the United States. During the term of the ALOM Agreement, ALOM shall provide the services in accordance with purchase orders issued by us from time to time. The consideration payable by us to ALOM for services rendered under the ALOM Agreement will be calculated and invoiced based on fixed hourly rates and fixed unit pricing, as applicable, subject to certain exceptions; provided that, commencing April 1, 2023, we will be subject to certain minimum periodic purchase requirements.
The ALOM Agreement has a three-year initial term, with automatic annual renewals until terminated by one of the parties in accordance with the terms of the agreement. The ALOM Agreement may be terminated as follows: (i) for cause upon sixty calendar days’ written notice describing with particularity the conduct constituting such breach, if such breach is not cured to the reasonable satisfaction of the aggrieved party within such 60-day period; (ii) for failure to pay any invoices when due, if full payment is not made within twenty calendar days after delivery of a written notice; or (iii) for convenience, upon sixty calendar days’ written notice.
Additionally, in 2022, we have invested in our marketing, product design and e-commerce distribution infrastructure as follows:
| • | We broadened our advertising mix and increased marketing spend to drive sales growth. |
| • | We have optimized our sales channel strategy to increase our profit margin, and terminated less profitable resale channels. |
| • | We made infrastructure-level improvements to our website and ecommerce functions, including to enhance mobile access to, and use of, our website and adding payment options. |
| • | We were featured in ABC News Report: “New Bioelectronic Technologies Could Signal the Future Of Medicine” in January 2022. |
| • | ClearUP was named best sinus pain relief solution of 2021 by Global Health & Pharma Magazine in February 2022. |
| • | Our CEO spoke at high-profile events evangelizing bioelectronic medicine as a first-line therapeutic option for chronic disease, including Fortune Brainstorm Health and Neurotech Leaders’ Forum. |
| • | We successfully launched the rebranding of our website and related marketing materials and increased ClearUP sales price from $149.00 to $169.99. |
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| • | We advanced the collaboration with Mount Sinai School of Medicine Division of Rhinology and Skull Base Surgery on the sham-controlled clinical trial to evaluate a new bioelectronic approach to treating postoperative pain after sinus surgery. This is a 60-person randomized sham-controlled clinical trial that is currently in process. |
In 2022, we have also strengthened our management team with key new hires, and we now have a core team of 16 individuals. We have intentionally maintained a small core team at this stage of the Company. We have relied, and continue to rely, heavily on third-party service providers, including marketing agencies, clinical research organizations and academic research partnerships, finance and accounting support, legal support, and contract manufacturing organizations to carry out our operations. In connection with our IPO in November last year, we have upgraded various aspects of the Company to align with public company governance standards.
Corporate Information
We were incorporated in California in September 2016 and reincorporated as a Delaware corporation in June 2021. Our principal executive offices are located at 25821 Industrial Blvd., Suite 100, Hayward, California 94545. Our telephone number is (888) 276-6888 and our corporate website is www.tivichealth.com. Unless expressly noted, none of the information on our corporate website is part of this prospectus or any prospectus supplement.
Risk Factor Summary
Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below and should be carefully considered, together with other information included in this prospectus.
| • | Investors in this offering will experience immediate and substantial dilution. |
| • | We may require additional capital funding subsequent to the completion of this offering, the receipt of which could further dilute the ownership interests of our stockholders. |
| • | We rely on third parties to supply and manufacture our devices, and we expect to continue to rely on third parties to manufacture and supply our devices. Recently, we have encountered disruptions in our supply of various materials and components, and electronic components in particular, due to well- documented shortages and constraints in the global supply chain. The supply or manufacture of our devices could be stopped, delayed or made less profitable if any of these third parties fail to provide us with sufficient quantities at acceptable quality levels or prices, or fail to maintain or achieve satisfactory regulatory compliance. |
| • | We have a relatively limited operating history and may not be able to execute on our business strategy. |
| • | Our cash and financial resources may be insufficient to meet our anticipated needs for the next twelve months, which raises substantial doubt about our ability to continue as a going concern. |
| • | Our operating results may be volatile and may not be a reliable indicator of our future performance. |
| • | If we fail to manage our growth effectively, including with respect to potential acquisitions of other companies, our business could be materially and adversely affected. |
| • | We have a history of net losses, and we may not achieve or maintain profitability in the future. |
| • | We have identified a material weakness in our internal control over financial reporting associated with staffing levels, amongst other things. |
| • | We expect that we will need additional capital in the future, which, if obtainable, could dilute the ownership interest of investors. |
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| • | Our business plan depends heavily on revenues from our core technology, the clinical and consumer acceptance of which is at this time unproven. |
| • | Economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability, could harm our financial condition and results of operations. |
| • | We may be adversely affected by the effects of inflation. |
| • | We depend on our senior management team, and the loss of one or more key personnel or an inability to attract and retain highly skilled personnel may impair our ability to grow our business. |
| • | The guarantees and warranties we provide on our products could have a material adverse effect on our business, financial condition and results of operations. |
| • | Our markets are undergoing continuous change, and our future success will depend on our ability to meet the changing needs of our customers. |
| • | Developing medical technology entails significant technical, regulatory and business risks. |
| • | We may face risks associated with expanding to international markets, including trade disputes that could materially impact our business. |
| • | The size and expected growth of our available market has not been established with precision and may be smaller than we estimate. |
| • | Our insurance may not adequately cover our operating risk. |
| • | Our business could be disrupted by catastrophic occurrences and similar events. |
| • | Changes in the regulatory landscape for our products could render our business model contrary to applicable regulatory requirements, and we may be required to seek additional clearance or approval for our products. Additionally, we have relied on guidance documents from FDA and our EU Notified Body to make determinations about the regulatory pathway for future products, which may be interpreted to a different effect by the governing regulatory bodies. |
| • | We are subject to consumer protection laws that regulate our marketing practices and prohibit unfair or deceptive acts or practices. Our actual or perceived failure to comply with such obligations could harm our business, and changes in such regulations or laws could require us to modify our products or marketing or advertising efforts. |
| • | Our reliance on vendors in foreign countries, including China, subjects us to risks and uncertainties relating to foreign laws and regulations and changes in relations between the United States and such foreign countries. |
| • | We are highly dependent on our intellectual property (“IP”) and our methods of protecting our IP may not be adequate or could be costly. In addition, we may face risks of claims for IP infringement. We may be unable to enforce our intellectual property rights throughout the world. |
| • | Our stock price may fluctuate significantly, and investors may not be able to resell their shares at or above the public offering price. An active trading market for our common stock may not develop or be sustained. |
| • | We do not expect to pay any cash dividends for the foreseeable future. |
| • | Future issuances of stock or other securities could dilute the holdings of our stockholders and could materially affect the price of the shares of common stock being issued in connection with this offering. |
| • | We are an “emerging growth company” and a “smaller reporting company,” and the reduced public company reporting and disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors. |
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| • | If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline. |
| • | If our operating and financial performance in any given period does not meet any guidance that we provide to the public, the market price of our common stock may decline. |
| • | Actual or perceived failures to comply with applicable data privacy and security laws, regulations, policies, standards, contractual obligations and other requirements related to data privacy and security and changes to such laws, regulations, standards, policies and contractual obligations could adversely affect our business, financial condition and results of operations. |
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THE OFFERING
| Common stock offered by us |
10,714,285 shares. |
| Common stock outstanding before this offering |
9,677,734 shares. |
| Common stock to be outstanding after this offering(1) |
20,392,019 shares (or 21,999,161 shares if the underwriter exercises its over-allotment option to purchase additional shares in full). |
| Option to purchase additional shares of our common stock |
We have granted the underwriter an option for a period of 45 days to purchase up to an additional 1,607,142 shares of our common stock (15% of the shares of common stock sold in this offering) at the public offering price, less underwriting discounts and commissions. |
| Use of proceeds |
We estimate that the net proceeds from this offering will be approximately $10.5 million (or approximately $12.2 million if the underwriter exercises in full their option to purchase up to 1,607,142 additional shares of common stock), at an assumed public offering price of $1.12 per share, based on the closing price on December 6, 2022, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. |
| We currently anticipate our use of the net proceeds from this offering, together with our existing resources, will include: (i) costs associated with the continued expansion of sales of ClearUP, including the penetration of healthcare professional networks; (ii) clinical and regulatory costs for the expansion of existing and new product candidates; and (iii) working capital and other general corporate purposes. We will have broad discretion in the way that we use the net proceeds of this offering. |
| For additional information, please refer to the section entitled “Use of Proceeds” on page 36 of this prospectus. |
| Representative’s Warrants |
The registration statement of which this prospectus is a part also registers for sale warrants to purchase up to 616,071 shares of our common stock, which we will issue to the representative of the underwriters as a portion of the underwriting compensation payable to the underwriters in connection with this offering. The warrants will be exercisable for a four year period commencing 180 days following the commencement of sales in this offering at an exercise price equal to 125% of the public offering price of the common stock. Please see “Underwriting – Representative’s Warrants” for a description of these warrants. |
| Risk factors |
You should read the “Risk Factors” section of this prospectus beginning on page 15 and the other information in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock. |
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| Market Symbol and trading |
Our common stock is listed on the Nasdaq Capital Market under the ticker symbol “TIVC.” |
| (1) | The number of shares of our common stock to be outstanding after this offering, as set forth above, is based on 9,677,734 shares of our common stock outstanding as of December 6, 2022. The number of shares of our common stock to be outstanding after this offering, as set forth above, excludes the following: |
| • | 1,268,850 shares of common stock issuable upon exercise of outstanding options to purchase shares of common stock as of December 6, 2022, with a weighted-average exercise price of approximately $2.00 per share; |
| • | 100,000 shares of common stock issuable upon exercise of warrants to purchase shares of common stock, all with an exercise price of approximately $1.04 per share; |
| • | 172,680 shares of common stock issuable upon exercise of warrants to purchase shares of common stock, all with an exercise price of approximately $6.25 per share; |
| • | up to 616,071 shares of common stock issuable upon exercise of warrants to be issued to the representative of the underwriters as compensation in connection with this offering at an exercise price equal to 125% of the public offering price of the common stock; and |
| • | 456,381 shares of common stock reserved for future issuance under our 2021 Equity Incentive Plan (“2021 Plan”). |
Unless otherwise indicated, this prospectus reflects and assumes the following:
| • | no exercise of outstanding options or warrants; |
| • | no exercise by the underwriters of their option to purchase up to 1,607,142 additional shares of our common stock from us to cover over-allotments, if any; |
| • | no exercise of the representative’s warrants to be issued upon consummation of this offering at an exercise price equal to 125% of the public offering price of our common stock; |
| • | an assumed public offering price of $1.12 per share, based on the closing price on December 6, 2022. The actual number of shares we will offer will be determined based on the actual public offering price. |
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SUMMARY FINANCIAL DATA
The following tables summarize our historical financial data for the periods ended on and as of the dates indicated.
We have derived the statements of operations data for the years ended December 31, 2021 and 2020 from our audited financial statements and related notes included elsewhere in this prospectus.
We have derived the unaudited financial data for the nine months ended September 30, 2022 and 2021 and as of September 30, 2022 from our unaudited condensed financial statements included elsewhere in this prospectus, which have been prepared in accordance with generally accepted accounting principles in the United States of America on the same basis as the annual audited financial statements and, in the opinion of management, the unaudited data reflects all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial information in those statements.
Our historical results are not necessarily indicative of results that may be expected in the future, and results for the period ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022.
You should read the following summary financial data together with our financial statements and the related notes appearing elsewhere in this prospectus, as well as with the information in the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
| (in thousands, except per share data) |
Year ended December 31, |
Nine Months Ended September 30, |
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| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Revenue |
$ | 1,166 | $ | 860 | $ | 1,432 | $ | 868 | ||||||||
| Cost of sales |
$ | 1,295 | $ | 1,085 | $ | 1,176 | $ | 904 | ||||||||
| Operating expenses: |
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| Research and development |
$ | 878 | $ | 659 | $ | 1,295 | $ | 565 | ||||||||
| Sales and marketing |
$ | 1,696 | $ | 1,306 | $ | 2,291 | $ | 1,095 | ||||||||
| General and administrative |
$ | 2,929 | $ | 1,014 | $ | 4,512 | $ | 1,645 | ||||||||
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| Total operating expenses |
$ | 5,503 | $ | 2,979 | $ | 8,098 | $ | 3,305 | ||||||||
| Interest income (expense) |
$ | (1,823 | ) | $ | (423 | ) | $ | 1 | $ | (1,668 | ) | |||||
| Change in fair value of derivative liabilities |
$ | 436 | $ | (27 | ) | $ | — | $ | 81 | |||||||
| Loss on extinguishment of debt |
$ | (1,636 | ) | $ | — | $ | — | $ | — | |||||||
| Other income (expense) |
$ | 162 | $ | 15 | $ | (1 | ) | $ | 158 | |||||||
| Provision for income taxes |
$ | 1 | $ | — | $ | — | $ | — | ||||||||
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| Net loss |
$ | (8,494 | ) | $ | (3,639 | ) | $ | (7,842 | ) | $ | (4,770 | ) | ||||
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| Net loss per share – basic and diluted
|
$ | (2.43 | ) | $ | (1.58 | ) | $ | (0.81 | ) | $ | (1.96 | ) | ||||
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| (in thousands) |
As of September 30, 2022 | |||||||
| Actual | As Adjusted (1) |
|||||||
| (unaudited) | (unaudited) |
|||||||
| Balance Sheet Data: |
||||||||
| Cash and cash equivalents |
$ | 6,328 | $ | 16,818 | ||||
| Current Assets |
$ | 7,594 | $ | 18,084 | ||||
| Total assets |
$ | 8,208 | $ | 18,699 | ||||
| Current Liabilities |
$ | 2,023 | $ | 2,023 | ||||
| Total liabilities |
$ | 2,436 | $ | 2,436 | ||||
| Working capital |
$ | 5,571 | $ | 16,061 | ||||
| Accumulated deficit |
$ | (27,388 | ) | $ | (27,388 | ) | ||
| Total stockholders’ equity |
$ | 5,772 | $ | 16,262 | ||||
| (1) | As adjusted balance sheet data gives effect to our sale of 10,714,285 of common stock in this offering at an assumed public offering price of $1.12 per share, which was the last reported sale price of our common stock on the Nasdaq Capital Market on December 6, 2022, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. As adjusted balance sheet data is illustrative only and will change based on the actual public offering price and other terms of this offering determined at pricing. Each $0.25 increase (decrease) in the assumed public offering price per share of common stock would increase (decrease) the amount of cash and cash equivalents, working capital, total assets, and total stockholders’ equity by approximately $ 2.5 million, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions, estimated offering expenses payable by us. We may also increase or decrease the number of shares of common stock to be issued in this offering. Each increase (decrease) of 0.5 million shares of common stock offered by us would increase (decrease) the as adjusted amount of cash and cash equivalents, working capital, total assets and total stockholders’ deficit by approximately $0.5 million, assuming the assumed public offering price per share of common stock remains the same, and after deducting underwriting discounts and commissions, and estimated offering expenses payable by us. |
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, operating results, and/or growth prospects. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as competition, labor relations, general economic conditions, inflation, supply chain constraints, geopolitical changes, and international operations. We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and our liquidity. The risks described below could cause our actual results to differ materially from those contained in the forward-looking statements we have made in this prospectus, the information incorporated herein by reference, and those forward-looking statements we may make from time to time. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties
Risks Related to Our Financial Condition and Business Model
We rely on third parties to supply and manufacture our devices which could cause supply shortages, and we expect to continue to rely on third parties to manufacture and supply our devices.
Recently, we have encountered disruptions in our supply of various materials and components, and electronic components in particular, due to well-documented shortages and constraints in the global supply chain. The supply or manufacture of our devices could be stopped, delayed or made less profitable if any of these third parties fail to provide us with sufficient quantities at acceptable quality levels or prices, or fail to maintain or achieve satisfactory regulatory compliance.
We rely on, and expect to continue to rely on, third-party providers for the supply and manufacturing of our devices, including components and electronic parts. The circumstances relating to the COVID-19 pandemic, as well as other disasters, have caused significant shortages in the supply of the electronic parts and certain other components used in our products. Lead times for ordered components may vary significantly, and some components used to manufacture our products are provided by a limited number of sources. We have experienced lengthened lead times throughout our supply chain as a result of supply chain constraints and material shortages that have occurred in the recent months, which may continue or worsen in the near future. This was exacerbated by the recent resurgence of the COVID-19 pandemic in certain parts of China, which resulted in the temporary closure of manufacturing facilities, including those that make electronic parts like those that we included in our products, in certain parts of China.
We are continuously evaluating alternative and secondary source suppliers in order to ensure that we are able to source sufficient components and materials to manufacture our products. In the event that we are unable source sufficient components and materials from our current suppliers, or to develop relationships with additional suppliers, to manufacture enough of our products to satisfy demand, we may have to cease or slow down production of our products. To the extent our current manufacturers or suppliers, or any manufacturers and suppliers that we engage in the future, are unable to meet our requirements in a timely and cost-effective manner, including as a result of circumstances relating to the COVID-19 pandemic, we may not be able to obtain an adequate supply of electronic parts or components for our products. Any shortage of materials caused by any disruption or unavailability of supply or an increase in the demand for our products, could harm our ability to satisfy customer demand, delay deliveries of our products to customers, lead to customer cancellations and returns, delay the development and launch of new products, or increase our costs and decrease our revenue. Any such impacts or delays could adversely affect our sales, customer satisfaction, profitability, cash flows and
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financial condition. and our business may be adversely affected. Our efforts to mitigate supply chain weaknesses may not be successful or may have unfavorable effects.
We do not control the operational processes of the contract manufacturing organizations with whom we contract and are dependent on these third parties for the production of our devices in accordance with relevant regulations, which include, among other things, quality control, quality assurance and the maintenance of records and documentation.
We have a relatively limited operating history and may not be able to execute on our business strategy.
We were originally incorporated in 2016 and began selling our first product in 2019. Accordingly, we have a limited operating history, which makes an evaluation of our future prospects and execution ability difficult. Our revenue and income-producing potential is unproven, and our business model and strategy may continue to evolve. Future revenues are contingent upon several factors, including, without limitation, our ability to successfully develop and scale-up sales the ClearUP product line and future products, our ability to develop relationships with channel partners and customers, as well as the market acceptance of our technology. We may need to make business decisions that could adversely affect our operating results, such as modifications to our pricing strategy, business structure or operations.
Our operating results will likely be volatile and may not be a reliable indicator of our future performance.
Our future expenses, revenues and operating results may vary significantly from quarter to quarter due to a number of factors, including, without limitation:
| • | receptiveness of the market to a fundamentally new way of treating target conditions; |
| • | intrinsic variability in spending patterns associated with the conduct of clinical trials; |
| • | disruptions to the global supply chain and inflationary pressures; |
| • | fluctuations in demand for our technology, including seasonal variations; and |
| • | delays in introducing new technology to market, including product design, manufacturing, marketing cycles, sales and distribution related delays. |
We expect that our revenues may be volatile as we develop new technology and obtain new customers in the future. The volume and timing of commercial outcomes are difficult to estimate, as the adoption of bioelectronic treatments is immature, and the sales cycle may vary substantially from forecasts.
If we fail to manage our growth effectively, our business could be materially and adversely affected.
We will not be successful unless we are able to generate additional revenues and grow our business, which will likely require us to hire additional employees and expand our technology, product, development and sales and marketing divisions in order to achieve our business plan. Our management systems are emergent. The continued growth of our business may place demands on our management, financial, operational, technological and other resources, and we expect that our growth will require us to continue developing and improving our operational, financial and other internal controls. We may not be able to address these challenges in a cost-effective manner, or at all. If we do not effectively manage our growth, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy customer requirements or maintain high-quality product offerings, which could have a material adverse effect on our business, financial condition and results of operations.
We have a history of net losses and we may not achieve or maintain profitability in the future.
We have incurred net losses since inception. For the years ended December 31, 2021 and 2020, we incurred net losses of $8.5 million and $3.6 million, respectively, and at December 31, 2021, we had working capital of
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$13.1 million and an accumulated deficit of $19.5 million. For the nine months ended September 30, 2022, we incurred a net loss of $7.8 million, and at September 30, 2022, we had cash and cash equivalents of $6.3 million, an accumulated deficit of $27.4 million, and working capital of $5.6 million. Since inception through September 30, 2022, we have generated $4.0 million in revenue from product sales and have incurred operating losses and negative cash flows from our operations. Based on our current cash levels and burn rate, amongst other things, we believe our cash and financial resources may be insufficient to meet our anticipated needs for the twelve months, which raises substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance date of the condensed financial statements included elsewhere in this prospectus. The net losses we incur may fluctuate significantly from quarter to quarter and may increase as a result of a continuation of the COVID-19 pandemic or other macroeconomic forces. Additionally, future costs relating to product development and operating activities may be significantly higher than our historical costs.
Management expects to incur substantial additional operating losses for at least the next two years to expand our markets, complete development of new products, obtain regulatory approvals, launch and commercialize our products and continue research and development programs.
Our future capital requirements will depend upon many factors, including, without limitation, progress with developing, manufacturing and marketing our technologies; the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights; our ability to successfully execute our acquisition strategy, including the closing of potential acquisitions and integrating new business into our own; our ability to establish collaborative arrangements; marketing activities; and competing technological and market developments. Our ability to generate revenue and achieve profitability requires us to successfully market and secure purchase orders for our products and services from customers currently identified in our sales pipeline as well as new customers. We also will be required to efficiently manufacture and deliver equipment on those purchase orders. These activities, including our planned research and development efforts, will require significant uses of working capital. There can be no assurance that we will generate revenue and cash as expected in our current business plan. We expect that we will need to raise additional capital to continue operating our business and fund our planned operations, including to execute on our acquisition strategy, research and development, clinical trials and, if regulatory approval is obtained, commercialization of future product candidates. We may seek additional funds through equity or debt offerings and/or borrowings under notes payable, lines of credit or other sources. We do not know whether additional financing will be available on commercially acceptable terms, or at all, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to fund our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or limited, which could materially and adversely affect our business, financial conditions, or results of operations.
Our long-term success is dependent upon our ability to successfully develop, commercialize and market our products, earn revenue, obtain additional capital when needed and, ultimately, to achieve profitable operations. We will need to generate significant additional revenue to achieve profitability. Future products may require substantially higher levels of investment than initial products, including investments in research, development, regulatory and/or marketing and sales. It is possible that we will not achieve profitability or that, even if we do achieve profitability, we may not maintain or increase profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our common stock.
There is substantial doubt about our ability to continue as a going concern.
Because we have incurred operating losses since inception, and based on our current cash levels and burn rate, amongst other things, we believe our cash and financial resources may be insufficient to meet our anticipated needs for the twelve months, which raises substantial doubt about our ability to continue as a going concern within one year from the issuance date of the condensed financial statements included elsewhere in this prospectus. These losses are expected to continue for at least a period of time. The financial statements included
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elsewhere in this prospectus have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should we be unable to continue as a going concern within one year after the date the financial statements are issued.
Our ability to obtain additional financing will depend on a number of factors, including, among others, the condition of the capital markets and the other risks described in these risk factors. If any one of these factors is unfavorable, we may not be able to obtain additional funding, in which case, our business could be jeopardized and we may not be able to continue our operations or pursue our strategic plans. If we are forced to scale down, limit or cease operations, our shareholders could lose all or part of their investment in our Company.
We have identified a material weakness in our internal control over financial reporting.
Prior to our initial public offering, we were a private company and had limited accounting and financial reporting personnel and other resources with which to address our internal controls and related procedures. In connection with the audit of our financial statements for the years ended December 31, 2021 and 2020, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness in our case arose from an accumulation of significant deficiencies, which amounted to a material weakness in internal controls. Such significant deficiencies identified included insufficient accounting and financial reporting personnel, inadequate segregation of duties, and inadequate application of inventory cost accounting procedures. If we are unable to remedy our material weakness, or if we generally fail to establish and maintain effective internal controls appropriate for a public company, we may be unable to produce timely and accurate financial statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and our stock price.
Our current stockholders will experience significant dilution as a result of the issuance of shares in this offering.
We intend to raise $12.0 million in this offering. If the full value of the offering is raised, then it would result in approximately 10,714,285 additional shares of our common stock being issued and outstanding, which represents approximately 111% of the total number of shares of common stock currently issued and outstanding. Accordingly, upon closing of this offering, the percentage ownership and voting power held by our existing stockholders will be significantly reduced and our stockholders will experience significant dilution.
We may require additional capital funding subsequent to the completion of this offering, the receipt of which could further dilute the ownership interests of our stockholders.
If we expand more rapidly than currently anticipated or if our working capital needs exceed our current expectations, we may need to raise additional capital through public or private equity offerings or debt financings. Our future capital requirements depend on many factors including our need to market our products, acquire or develop additional products and fund our operations. We cannot be certain that additional financing will be available to us on acceptable terms when required, or at all.
If we issue additional equity securities or securities convertible into equity securities, our existing stockholders will be subject to dilution. Additionally, sales of substantial amounts of our equity securities could have an adverse effect on the value of our equity and our ability to raise additional capital through future capital increases.
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Our business plan depends heavily on revenues from our initial products, the clinical and consumer acceptance of which is unproven at this time.
Our future growth depends on the commercial success of our technology and initial products. It is not certain that our target customers will choose our technology for technical, cost, support or commercial reasons. If our target customers do not widely adopt and purchase our technology, our future growth will be limited. Further, our resources and investments may not be adequate to achieve the targeted level of manufacturing and sales set out in our business plan.
We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. Our business, financial condition and results of operations could be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. We are continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business.
Additionally, the recent military conflict in Ukraine has led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds.
Although our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine to date, it is impossible to predict the extent to which our operations, or those of our suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact our business. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this prospectus.
We may be adversely affected by the effects of inflation.
Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor, weakening exchange rates and other similar effects. As a result of inflation, we have experienced and may continue to experience, cost increases. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred.
We depend on our senior management team and the loss of one or more key personnel or an inability to attract and retain highly skilled personnel may impair our ability to grow our business.
Our future success depends heavily upon the continued services of our executive officers and key personnel. The Company is headquartered in California, which is an at will employment state. Accordingly, the employment
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agreements that we have entered into with our executive officers and other key personnel do not require them to continue to work for us for any specified period and, therefore, they may terminate employment with us at any time, for any reason and with no advance notice. The replacement of members of our senior management team or other key personnel would likely involve significant time and costs, and the loss of these employees may significantly delay or prevent the achievement of our business objectives.
In addition, our ability to recruit and retain talent in all areas of the business, including but not limited to skilled hires in marketing, product development, regulatory, clinical, quality, logistics, and finance, faces significant competition. We may not be able to hire or retain the type and number of managerial, sales and technical personnel necessary for future success. We will need to devote considerable resources to ensure that we retain our employees in the face of a highly competitive market for talented personnel. If we fail to attract and retain the skilled employees required, this could harm our business and hamper future expansion of our business operations.
We rely on third parties for sales, marketing, manufacturing, distribution, and other business operations.
For us to be successful, third parties providing us with sales, marketing, manufacturing, distribution and other business operations services must be able to provide us with such services in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptable costs, and on a timely basis. While our service providers have generally met our expectations in the past, their ability and willingness to continue to do so going forward, and the ability and willingness of any new service provider to meet our expectations in the future, may be limited for several reasons, including our relative importance as a customer or disruptions caused by the COVID-19 pandemic. Additionally, we rely on third-party online retailers such as Amazon, BestBuy, Walmart, FSAStore and other specialty online retailers, to sell our products. We do not have long-term agreements in place with certain of these third parties and there is no guarantee that such third parties will continue to allow us to sell our products through their platforms. Accordingly, we may be exposed to disruptions or reduced qualify of services, including access to distribution channels, due to factors beyond our direct control, which may impact our ability to operate successfully.
We may not be able to successfully identify, consummate or integrate acquisitions, or to successfully manage the impacts of such transactions on our operations.
Part of our business strategy includes investigating growth through acquisitions. We may expand our business by making strategic acquisitions and seeking suitable acquisition targets to enhance our growth. Material acquisitions, dispositions and other strategic transactions involve a number of risks, including: (i) the potential disruption of our ongoing business; (ii) the distraction of management away from the ongoing oversight of our existing business activities; (iii) incurring additional indebtedness; (iv) the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; (v) an increase in the scope and complexity of our operations; (vi) exposure to unknown liabilities, and (vii) the loss or reduction of control over certain of our assets.
The pursuit of acquisitions may pose certain risks to us. We may not be able to identify acquisition candidates that fit our criteria for growth and profitability. Even if we are able to identify such candidates, we may not be able to acquire them on terms or financing satisfactory to us. We may incur expenses and dedicate attention and resources associated with the review of acquisition opportunities, whether or not we consummate such acquisitions, which may divert management’s attention from our day-to-day business.
Additionally, even if we are able to acquire suitable targets on agreeable terms, we may not be able to successfully integrate their operations with ours. Achieving the anticipated benefits of any acquisition will depend in significant part upon whether we integrate such acquired businesses in an efficient and effective manner. We may not be able to achieve the anticipated operating and cost synergies or long-term strategic benefits of our acquisitions within the anticipated timing, or at all. The benefits from any acquisition will be offset by the costs incurred in integrating the businesses and operations. We may also assume liabilities in
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connection with acquisitions to which we would not otherwise be exposed. An inability to realize any or all of the anticipated synergies or other benefits of an acquisition as well as any delays that may be encountered in the integration process, which may delay the timing of such synergies or other benefits, could have an adverse effect on our business, results of operations and financial condition.
The product guarantees and warranties we provide on our products could have a material adverse effect on our business, financial condition and results of operations.
We provide product guarantees to our customers, pursuant to which we allow for the return of products from customers within 60 days after the original sale. We also provide a one-year warranty for any defective product. Existing and future product guarantees and warranties place us at the risk of incurring future returns and repair and/or replacement costs. While we engage in product quality programs and processes, including monitoring and evaluating the quality of our components sourced from our suppliers, our guaranty and warranty obligation is affected by actual product defect rates, parts and equipment costs and service labor costs incurred in correcting a product defect. Since launching in late 2019 and through the date hereof, we have accrued return and warranty reserves equal to approximately 10.3% of gross revenue and believe our reserve is adequate. However, our reserves set aside to cover warranty returns and customer returns may be inadequate due to an unanticipated number of customer returns, undetected product defects, unanticipated component failures or changes in estimates for material, labor and other costs we may incur to replace projected product defects. As a result, if actual customer returns, product defect rates, parts and equipment costs or service labor costs exceed our estimates, it could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Business and Markets
Our ability to compete in our target markets is unproven.
We currently compete in the sinus, cold and allergy market segment, a segment with large, entrenched players. We expect to experience competition from current and potential new competitors, some of which may be better established and have significantly greater financial, technical, marketing and distribution resources. We encounter competition from larger, well-established and well-financed entities that may continue to acquire, invest in, or form joint ventures with producers of alternate sinus care technologies.
Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements than we can. Our market position could erode rapidly as a result of the development of new, superior products and technology by competitors. In addition, current and potential competitors may have greater name recognition, broader physician reach and more extensive customer bases. Increased competition could result in price reductions, lower volume sales, and reduced gross margins. There can be no assurance that we will be able to compete successfully against our current or future competitors or that competitive pressures will not have a material adverse effect on our business, financial condition and results of operations.
Our markets are undergoing continuous change, and our future success will depend on our ability to meet the changing needs of our customers.
For our business to survive and grow, we must continue to enhance and improve our products and technology to address a broader range of customers’ needs. If customer behavior and new industry standards or practices emerge, our existing technology may become obsolete. Our future success will depend upon, among other things, our ability to:
| • | develop or license new technologies that address the increasingly sophisticated and varied needs of prospective customers; |
| • | stay ahead of technological advances and emerging industry standards and practices on a cost-effective and timely basis; and |
| • | monitor and stay ahead of shifts in the competitive landscape. |
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Developing medical technology entails significant technical, regulatory and business risks.
We may fail to adapt our technology to user requirements or emerging treatment standards. Microcurrent and other neuromodulation therapies are not currently considered standard of care for inflammation and may not ever be considered standard of care. Treatment standards may not evolve to incorporate our product. New industry standards for the development, manufacture and marketing of medical devices may evolve and we may not be able to conform to the changes, meet new standards in a timely fashion or maintain a competitive position in the market. In particular, regulatory standards for bioelectronic treatments of medical conditions are evolving. If we face material delays in introducing our products and new technology, we may fail to attract new customers.
Customer or third-party complaints or negative reviews or publicity about our company or our products could harm our reputation and brand.
We are heavily dependent on customers who use our ClearUP device to provide good reviews and word-of-mouth recommendations to contribute to our growth. Customers who are dissatisfied with their experiences with our products or services may post negative reviews. We may also be the subject of blog, forum or other media postings that include inaccurate statements and/or create negative publicity. In addition, any negative news regarding bioelectronic medicine may adversely impact our business. Any negative reviews or publicity, whether real or perceived, disseminated by word-of-mouth, by the general media, by electronic or social networking means or by other methods, could harm our reputation and brand and could severely diminish consumer confidence in our products.
We may face risks associated with expanding to international markets.
We intend to pursue marketing and selling our products internationally, primarily through e-commerce accelerators, distribution arrangements and out-bound regional licensing. We have limited experience operating outside the United States, and we will likely need to rely heavily on distributors and licensees. Expansion into international markets may expose us to, among other things, the following additional risks:
| • | strain on our managerial resources; |
| • | pricing pressure that we may experience internationally; |
| • | a shortage of high-quality e-commerce accelerators, distributors, and licensees; |
| • | competitive disadvantage to competition with established business and customer relationships; |
| • | foreign currency exchange rate fluctuations; |
| • | the imposition of additional U.S. and foreign governmental controls or regulations; |
| • | economic instability; |
| • | changes in duties and tariffs, license obligations and other non-tariff barriers to trade; |
| • | the imposition of restrictions on the activities of foreign agents, representatives and distributors; |
| • | scrutiny of foreign tax authorities which could result in significant fines, penalties and additional taxes being imposed on us; |
| • | laws and business practices favoring local companies; |
| • | difficulties in maintaining consistency with our internal guidelines; |
| • | difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; |
| • | the imposition of costly and lengthy new export licensing requirements; |
| • | the imposition of U.S. or international sanctions against a country, company, person or entity with whom we do business that would restrict or prohibit continued business with the sanctioned country, company, person or entity; and |
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| • | the imposition of new trade restrictions. |
The size and expected growth of our available market has not been established with precision and may be smaller than we estimate.
Our data on the available market for our current products and future products is based on a number of internal and third-party research reports, estimates and assumptions. While we believe that such research, our assumptions and the data underlying our estimates are reasonable, these assumptions and estimates may not be correct. In addition, the statements in this prospectus relating to, among other things, the expected growth in the market for our ClearUP device are based on a number of internal and third-party data, estimates and assumptions, and may prove to be inaccurate. If the actual number of consumers who would benefit from our products, the price at which we can sell future products or the available market for our products is smaller than we estimate, it could have a material adverse effect on our business, financial condition and results of operations.
Our insurance may not adequately cover our operating risk or litigation exposure.
We have insurance to protect our assets, operations and employees. While we believe our insurance coverage addresses the material risks to which we are exposed and is adequate and customary in our current state of operations, such insurance is subject to coverage limits and exclusions and may not be available for the risks and hazards to which we are exposed. Also, our insurance may be insufficient to cover the costs of any securities-related or other lawsuits or litigation, regardless of the merits of any such lawsuits or litigation. In addition, no assurance can be given that such insurance will be adequate to cover our liabilities or will be generally available in the future or, if available, that premiums will be commercially justifiable or affordable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur such liability at a time when we are not able to obtain liability insurance, our business, results of operations and financial condition could be materially adversely affected.
Our business could be disrupted by catastrophic occurrences and similar events.
Our headquarters are located in the San Francisco Bay Area, and we are vulnerable to interruption from catastrophic occurrences, such as earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks, criminal acts, sabotage, other intentional acts of vandalism and misconduct, geopolitical events, disease, such as the COVID-19 pandemic, and similar events. The San Francisco Bay Area is a region known for seismic activity. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our facilities or the facilities of our suppliers and vendors could result in disruptions and other performance and quality problems. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster and/or to execute successfully on those plans in the event of a disaster or emergency, our business would be seriously harmed.
Risks Related to Legal and Regulatory Matters
Changes in the regulatory landscape for our products could render our business model contrary to applicable regulatory requirements, and we may be required to seek additional clearance or approval for our products.
Our ClearUP device is a US FDA Class II device with FDA clearance for over-the-counter purchase. We continue to expand our product offerings within the ClearUP brand based on the architecture used in the ClearUP product line. Such expansions may include design modifications of the ClearUP device. Given that current improvements to the ClearUP product line are a line extension of the ClearUP device, and based on the approval by our designated EU Notified Body and our assessment of relevant FDA guidance (Guidance for Industry and Food and Drug Administration Staff “Deciding When to Submit a 510(k) for a Change to and Existing Device” October 25, 2017), we have determined that such current expansions of the ClearUP product line are covered under the same regulatory clearances as ClearUP. If the FDA were to determine that our products or product
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candidates do not properly satisfy the conditions for FDA clearance as Class II devices, or that our ClearUP product line expansion is not covered by the same regulatory clearances as our existing ClearUP device, we could be required to cease distribution of our products until we obtain regulatory clearance or approval, abandon new product launch plans, and/or we could be subject to additional enforcement action by the FDA. All existing FDA clearances, including those covering our ClearUP device, could be subject to change based on subsequent FDA review or changes in FDA regulations. In addition, many states have laws regarding the provision of medical devices, and if we are found to be in violation of the laws of any state in which our devices are sold, we could be subject to further sanctions at the state level.
The laws and regulations applicable to the industries in which we operate are continuously evolving. Changes in our regulatory and legal landscape could substantially increase the costs of compliance, increase the time and resources required to bring new products to market, or otherwise negatively impact our business. There can be no assurance that new legislation or regulations will not impose significant additional costs or burdens on our business or subject us to additional liabilities. We may be or become subject to claims that our operations violate these laws or regulations.
Our business is subject to risks arising from epidemic diseases, such as the recent outbreak of the COVID 19 illness.
The occurrence of regional epidemics or a global pandemic such as COVID 19 may adversely affect our operations, financial condition, and results of operations. The COVID 19 pandemic has had widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices over the last two and a half years, and may continue to have impacts in the future. The extent to which global pandemics, including COVID-19, impact our business going forward will depend on various factors such as the duration and scope of the pandemic; governmental, business, and individuals’ actions in response to the pandemic; and the impact on economic activity including the possibility of recession or financial market instability.
Measures taken by the governments of countries affected by COVID-19 and/or future pandemics could adversely impact our business, financial condition, or results of operations. Potential disruptions may include, without limitations, delays in processing registrations or approvals by applicable state or federal regulatory bodies, delays in product development efforts, and additional government requirements or other incremental mitigation efforts that may further impact our capacity to manufacture, sell and support the use of our ClearUP device or other products.
We are subject to consumer protection laws that regulate our marketing practices and prohibit unfair or deceptive acts or practices. Our actual or perceived failure to comply with such obligations could harm our business, and changes in such regulations or laws could require us to modify our products or marketing or advertising efforts.
In connection with the marketing or advertisement of our products, we could be the target of claims relating to false, misleading, deceptive or otherwise noncompliant advertising or marketing practices, including under the auspices of the FTC and state consumer protection statutes. If we rely on third parties to provide any marketing and advertising of our products, we could be liable for, or face reputational harm as a result of, their marketing practices if, for example, they fail to comply with applicable statutory and regulatory requirements.
If we are found to have breached any consumer protection, advertising, unfair competition or other laws or regulations, we may be subject to enforcement actions that require us to change our marketing and business practices in a manner that may negatively impact us. This could also result in litigation, fines, penalties and adverse publicity that could cause reputational harm and loss of customer trust, which could have a material adverse effect on our business, financial condition and results of operations.
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Our reliance on vendors in foreign countries, including China, subjects us to risks and uncertainties relating to foreign laws and regulations and changes in relations between the United States and such foreign countries.
Electronic components for our ClearUP devices are sourced primarily from China, and we may in the future source components from vendors located in other foreign countries. Under its current leadership, the government of China has been pursuing economic reform policies, including by encouraging foreign trade and investment. However, there is no assurance that the Chinese government will continue to pursue such policies, that such policies will be successfully implemented, that such policies will not be significantly altered, or that such policies will be beneficial to our partnerships in China. China’s system of laws, as well as the laws of other foreign countries where we may source components, can be unpredictable, especially with respect to foreign investment and foreign trade. The United States government has called for substantial changes to foreign trade policy with China and has raised tariffs on several Chinese goods. China has retaliated with increased tariffs on United States goods. Any further changes in United States trade policy could trigger retaliatory actions by affected countries, including China, resulting in trade wars. Changes to Chinese regulations affecting the manufacture of electronic components may also be unpredictable. In addition, there was a recent resurgence of COVID-19 in certain parts of China, which resulted in manufacturing plants being temporarily closed in some areas; if a similar resurgence and lockdown occurs again, it could further impact our ability to source the electronic components necessary for our products at favorable prices, if at all. Changes to regulations in any other country where we may source components in the future may also be unpredictable and could affect the manufacture of electronic components in such countries and our ability to purchase components on a cost-effective basis. Any regulatory changes and changes in United States and China relations, or changes in relations with the United States any other country where we may source components in the future, may have a material adverse effect on our vendors in China and other such countries which could materially harm our business and financial condition.
International trade disputes could result in tariffs and other protectionist measures that could have a material adverse effect on our business, financial condition and results of operations.
Tariffs could increase the cost of our products and raw materials that go into making them. These increased costs could adversely impact the gross margin that we earn on our products. Tariffs could also make our products more expensive for customers, which could make our products less competitive and reduce consumer demand. Countries may also adopt other protectionist measures that could limit our ability to offer our products. Political uncertainty surrounding international trade disputes and protectionist measures could also have a negative effect on consumer confidence and spending, which could have a material adverse effect on our business, financial condition and results of operations.
We may in the future become subject to the requirements of the Sunshine Act.
We are not currently subject to the Physician Payment Sunshine Act (“Sunshine Act”), which was enacted as part of the Affordable Care Act. However, if we begin selling our products directly to governmental entities or our products become reimbursable by Medicare or Medicaid, then we may become subject to the Sunshine Act, which will require us to report annually to the Secretary of Health and Human Services: (i) payments or other transfers of value made by us, or by a third-party as directed by us, to physicians and teaching hospitals or to third parties on behalf of physicians or teaching hospitals; and (ii) physician ownership and investment interests in our company. The payments required to be reported include the cost of meals provided to a physician, travel reimbursements and other transfers of value, including those provided as part of contracted services such as speaker programs, advisory boards, consultation services and clinical trial services. Failure to comply with the reporting requirements can result in significant civil monetary penalties ranging from $1,000 to $10,000 for each payment or other transfer of value that is not reported (up to a maximum per annual report of $150,000) and from $10,000 to $100,000 for each knowing failure to report (up to a maximum per annual report of $1.0 million). Additionally, becoming subject to the Sunshine Act and the information we disclose could lead to greater scrutiny, which could result in modifications to established practices and additional costs. Additionally, similar
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reporting requirements have also been enacted on the state level domestically, and an increasing number of countries worldwide have either adopted or are considering adopting similar laws requiring transparency of interactions with healthcare professionals.
Risks Related to Our Intellectual Property
We are highly dependent on intellectual property (“IP”), and our methods of protecting our IP may not be adequate or could be costly.
We rely on a combination of patent and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our IP rights. We are building our IP portfolio, and may not be able to secure sufficient protection to prevent competition from entering the market or from creating competing products.
We cannot be certain that we will be able to obtain patent protection on the key components of our technology or that we will be able to obtain patents in key jurisdictions, such as the United States, Europe and Asia. We cannot give assurances that we will develop new products or technologies that are patentable or (to the extent applicable) that any new products will be covered by existing patents, that any issued patent will provide us with any competitive advantages or will not be challenged by third parties, or that the patents of others will not impair our ability to do business.
We cannot guarantee that the applicable governmental authorities will approve any of our future trademark applications. Even if the applications are approved, third parties may seek to oppose or challenge these registrations. A failure to obtain trademark registrations in key jurisdictions could limit our ability to use our trademarks and impede our marketing efforts in those jurisdictions.
Despite our efforts to protect our IP, unauthorized parties may attempt to copy or obtain and use our technology. Policing the unauthorized use of our technology on a global basis is difficult, and there can be no assurance that the steps taken by us will prevent misappropriation of our technology.
We cannot give assurances that our measures for preserving the secrecy of our trade secrets and confidential information will be sufficient to prevent others from obtaining our trade secrets.
We generally require our employees, consultants and corporate partners to sign confidentiality and non-disclosure agreements prohibiting them from disclosing any of our trade secrets. Our employment agreements and consulting agreements also contain confidentiality undertakings, as well as non-compete provisions, which prohibit employees, advisors and consultants from acting contrary to our interests during the period of their relationship with us.
Despite our efforts to preserve the secrecy of our trade secrets and confidential information, we may not have adequate remedies to preserve our trade secrets or to compensate us fully for our loss if employees, consultants or corporate partners breach confidentiality agreements with us. We cannot give assurances that our trade secrets will provide any competitive advantage, as they may become known to, or be independently developed by, competitors, regardless of the success of any measures we may take to try to preserve their confidentiality.
Any failure or inability to protect any of our IP or confidential information, or to enforce our rights against any infringement or misappropriation of our IP or confidential information, could have a material adverse effect on our business, financial condition and results of operations. Additionally, we may be forced to litigate to enforce or defend our IP, to protect our trade secrets or to determine the validity and scope of other parties’ proprietary rights. Any such litigation could be very costly and could distract our management from focusing on operating our business. The existence and/or outcome of any such litigation could harm our business.
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We may face risks of claims for IP infringement.
Our competitors or other persons may have already obtained or may in the future obtain patents or other rights relating to one or more aspects of our technology. Because we have not conducted a formal freedom to operate analysis for patents related to our technology, we may not be aware of issued patents that a third party might assert are infringed by our current or any future technology, which could materially impair our ability to commercialize our current or any future technology. Even if we diligently search third-party patents for potential infringement by our current or any future technology, we may not successfully find patents that our current or any future technology may infringe. If we are unable to secure and maintain freedom to operate, others could preclude us from commercializing our current or future technology. We may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our current and any future technology, whether or not we are actually infringing, misappropriating or otherwise violating the rights of third parties. If we are sued for patent or other intellectual property right infringement, we may be forced to incur substantial costs in defending our self.
If litigation were to result in a judgment that we infringed a valid and enforceable patent or other intellectual property right, a court may order us to pay substantial damages to the owner of the patent or other intellectual property right and to stop using any infringing technology or products. This could cause a significant disruption in our business and force us to incur substantial costs to develop and implement alternative, non-infringing technology or products, or to obtain a license from the patent or other intellectual property right owner.
We cannot give assurance that we would be able to develop non-infringing alternatives at a reasonable cost that would be commercially acceptable, or that we would be able to obtain a license from any patent or other intellectual property right owner on commercially reasonable terms, if at all.
We may be unable to enforce our intellectual property rights throughout the world.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. The area of bioelectronic medicine, specifically, is a nascent and emerging industry. To the extent we demonstrate novel means to manage physiological functions, the nature and degree of intellectual property protection we can obtain throughout the world may vary. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop infringement of our foreign patents, if obtained, or the misappropriation of our other intellectual property rights. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the enforceability of patents against certain third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of our intellectual property.
Risks Related to Our Common Stock and this Offering
Our stock price may fluctuate significantly and investors may not be able to resell their shares at or above the public offering price. An active trading market for our common stock may not develop or be sustained.
Prior to our initial public offering, you could not buy or sell our common stock publicly. Even though our common stock is now listed on the Nasdaq Capital Market, an active trading market for our shares may not
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develop or be sustained. If an active market for our common stock does not develop or is not maintained, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares, or at all. An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling additional shares of our common stock and may impair our ability to acquire other companies or technologies by using shares of our common stock as consideration.
The public offering price of our common stock in this offering will be determined through negotiations with the underwriters. This determined price may not reflect the price at which investors in the market will be willing to buy and sell our shares following this offering. You may be unable to sell your shares of common stock at or above the public offering price of this offering. The market price of shares of our common stock following this offering could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:
| • | the effect of the COVID-19 pandemic and/or macroeconomic factors on our business and operations and on market conditions generally; |
| • | the success of our products and of competitive products or technologies; |
| • | regulatory or legal developments in the United States and other countries; |
| • | the level of expenses related to our products or development programs; |
| • | announcements by us, our partners or our competitors of new products or therapies, significant contracts, strategic partnerships, joint ventures, collaborations, commercial relationships or capital commitments; |
| • | failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public; |
| • | issuance of new or updated research or reports by securities analysts or recommendations for our stock; |
| • | disputes or other developments related to proprietary rights (including patents), litigation matters, and our ability to obtain patent protection for our technologies; |
| • | commencement of, or our involvement in, litigation; |
| • | fluctuations in the valuation of companies perceived by investors to be comparable to us; |
| • | manufacturing disputes or delays; |
| • | any future sales of our common stock or other securities; |
| • | any change to the composition of the board of directors or key personnel; |
| • | general economic conditions, rising inflation and slow or negative growth of our markets; |
| • | share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; |
| • | announcement or expectation of additional debt or equity financing efforts; and |
| • | other factors described in this section of the prospectus. |
These and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless of our actual operating performance. In addition, the stock market in general, and medical device companies in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. In the past, when the market price of a stock has been volatile, holders of that stock have on occasion instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.
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We do not expect to pay any cash dividends for the foreseeable future.
We do not expect to pay dividends to our stockholders at any time in the foreseeable future. Anyone considering investing in our stock should not rely on such investment to provide dividend income. Instead, we plan to retain any earnings to establish, maintain and expand our operations and product offerings. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our stock. Accordingly, investors must rely on sales of their shares after price appreciation, which may never occur, as the only way to realize any return on their investment.
We are an “emerging growth company” and a “smaller reporting company,” and the reduced public company reporting and disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.
We qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to public companies that are not emerging growth companies. These provisions include, but are not limited to: being permitted to have only two years of audited financial statements and only two years of management’s discussion and analysis of financial condition and results of operations disclosure; an exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley Act”); not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; reduced disclosure obligations regarding executive compensation arrangements in our periodic reports, registration statements and proxy statements; and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, the JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We intend to take advantage of certain of the exemptions discussed above.
In addition, we are currently a “smaller reporting company,” as defined in the Securities Exchange Act of 1934, as amended (“Exchange Act”), and have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies. To the extent that we continue to qualify as a “smaller reporting company” as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an “emerging growth company” may continue to be available to us as a “smaller reporting company,” including exemption from compliance with the auditor attestation requirements pursuant to the Sarbanes-Oxley Act and reduced disclosure about our executive compensation arrangements. We will continue to be a “smaller reporting company” until we have more than $250 million in public float (based on our common stock) measured as of the last business day of our most recently completed second fiscal quarter or, in the event we have no public float (based on our common stock), annual revenues of more than $100 million during the most recently completed fiscal year.
As a result, the information we provide will be different than the information that is available with respect to other public companies. In this prospectus, we have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and the market price of our common stock may be more volatile.
If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. In addition, beginning with our second annual report on
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Form 10-K, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act. The process of designing, implementing and testing the internal control over financial reporting required to comply with this obligation is time consuming, costly and complicated. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to assert that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decline, and we could also become subject to investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
A sizable portion of our total outstanding shares of common stock are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
Subject to certain exceptions, without the prior written consent of ThinkEquity LLC, as representative of the underwriters, our current officers and directors during the period ending three months after the date of this prospectus, have agreed not to: (i) offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into, exchangeable for or that represent the right to receive shares of common stock; (ii) file any registration statement with the Securities and Exchange Commission (“SEC”) relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or (iii) enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of common stock, subject to certain exceptions. ThinkEquity, in its sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice. See the section of this prospectus entitled “Underwriting.”
The market price of our common stock may decline significantly when the restrictions on resale lapse. A decline in the market price of our common stock might impede our ability to raise capital through the issuance of additional shares of common stock or other equity securities.
If our operating and financial performance in any given period does not meet any guidance that we provide to the public, the market price of our common stock may decline.
We may, but are not obligated to, provide public guidance on our expected operating and financial results for future periods. Any such guidance will be comprised of forward-looking statements subject to the risks and uncertainties described in this prospectus and in our other public filings and public statements. Our actual results may not always be in line with or exceed any guidance we have provided, especially in times of economic uncertainty. If, in the future, our operating or financial results for a particular period do not meet any guidance we provide or the expectations of investment analysts, or if we reduce our guidance for future periods, the market price of our common stock may decline. Even if we do issue public guidance, there can be no assurance that we will continue to do so in the future.
Investors in this offering will experience immediate and substantial dilution
The public offering price of our common stock is substantially higher than the as adjusted net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our as adjusted net tangible book value per share after this offering. Based on the at an assumed public offering price of $1.12 per share, based on the closing price on December 6, 2022 , 2022, you will experience immediate dilution of $0.32 per share, representing the difference between our as adjusted net tangible book value per share after giving effect to this offering and the public offering price. In addition, if the underwriters exercise their option to purchase additional shares, or outstanding
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options and warrants are exercised, you could experience further dilution. For a further description of the dilution that you will experience immediately after this offering, see the section of this prospectus entitled “Dilution.”
Participation in this offering by our existing stockholders and/or their affiliated entities may reduce the public float of our common stock.
To the extent certain of our existing stockholders and their affiliated entities participate in this offering, such purchases would reduce the non-affiliate public float of our shares, meaning the number of shares of our common stock that are not held by officers, directors and controlling stockholders. A reduction in the public float could reduce the number of shares that are available to be traded at any given time, thereby adversely impacting the liquidity of our common stock and depressing the price at which you may be able to sell shares of common stock purchased in this offering.
We will have broad discretion in the use of the net proceeds to us from this offering, and we may not use them effectively.
We will have broad discretion in the application of the net proceeds to us from this offering, including for any of the purposes described in the section of this prospectus entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variety of factors that will determine our use of the net proceeds from this offering, our ultimate use may vary substantially from our currently intended use. Investors will need to rely upon the judgment of our management with respect to the use of proceeds. Pending use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities, such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government that may not generate a high yield for our stockholders. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition, results of operations, and prospects could be harmed, and the market price of our common stock could decline.
Anti-takeover provisions in our charter documents and under Delaware law, could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:
| • | authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock; |
| • | require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; |
| • | specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, our Chief Executive Officer or our President (in the absence of a Chief Executive Officer); |
| • | establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; |
| • | prohibit cumulative voting in the election of directors; |
| • | establish that our board of directors will be divided into three classes—Class I, Class II, and Class III—with each class serving staggered three-year terms; |
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| • | provide that, so long as our board of directors is classified, directors may only be removed for cause; |
| • | provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and |
| • | require the approval of our board of directors or the holders of two-thirds of our outstanding shares of voting stock to amend our bylaws and certain provisions of our certificate of incorporation. |
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. Any of the foregoing provisions could limit the price that investors might be willing to pay in the future for shares of our common stock, and they could deter potential acquirers of our company, thereby reducing the likelihood that you would receive a premium for your shares of our common stock in an acquisition.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that the Court of Chancery of the State of Delaware or the federal district court for the District of Delaware will be the exclusive forum for certain disputes between us and our stockholders, which could result in increased costs for our stockholders to bring a claim and could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, in the event that the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) is the exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of fiduciary duty owed by, or other wrongdoing by, any director, officer, employee or agent of the Company to the Company or our stockholders, creditors or other constituents; (iii) any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; (iv) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws; or (v) or any action asserting a claim against us that is governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Act, Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, or the Company consents in writing to the selection of an alternative forum, such action may be brought in another state or federal court sitting in the State of Delaware. Our amended and restated certificate of incorporation and amended and restated bylaws also provide that the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action against us or any of our directors, officers, employees or agents and arising under the Securities Act or Exchange Act. Nothing in our amended and restated certificate of incorporation or amended and restated bylaws preclude stockholders that assert claims under the Exchange Act from bringing such claims in state or federal court, subject to applicable law.
We believe these provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, this choice of forum provision could result in increased costs for our stockholders to bring a claim and could may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder.
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Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions. If a court were to find the choice of forum provision that will be contained in our amended and restated certificate of incorporation and amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
General Risk Factors
If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, the market price and trading volume of our common stock could decline.
The market price and trading volume of our common stock is heavily influenced by the way analysts interpret our financial information and other disclosures. We do not have control over these analysts. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, our stock price would be negatively affected. If securities or industry analysts do not publish research or reports about our business, downgrade our common stock, or publish negative reports about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price to decline and could decrease the trading volume of our common stock.
We have and will continue to incur increased costs and are subject to heightened regulations and requirements as a result of becoming a public company, which could lower our profits or make it more difficult to run our business.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We also have incurred and will continue to incur costs associated with the Sarbanes-Oxley Act, and related rules implemented by the SEC, and the Nasdaq Capital Market. The expenses generally incurred by public companies for reporting and corporate governance purposes have been increasing. These rules and regulations have increased and will continue to increase our legal and financial compliance costs and to make some activities more time-consuming and costlier, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations may also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on our board committees or as our executive officers. Furthermore, if we are unable to satisfy our ongoing obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions, other regulatory action and potentially civil litigation.
Actual or perceived failures to comply with applicable data privacy and security laws, regulations, policies, standards, contractual obligations and other requirements related to data privacy and security and changes to such laws, regulations, standards, policies and contractual obligations could adversely affect our business, financial condition and results of operations.
The global data protection landscape is rapidly evolving, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. We are subject to numerous state, federal and foreign laws, requirements and regulations governing the collection, transmission, use, disclosure, storage, retention and security of personal and personally-identifying information, such as information that we may collect in connection with conducting our business in the United States and abroad. Implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine
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the impact future laws, regulations, standards or perception of their requirements may have on our business. This evolution may create uncertainty in our business; affect our ability to operate in certain jurisdictions; or to collect, store, transfer use and share personal information; necessitate the acceptance of more onerous obligations in our contracts; result in liability or impose additional costs on us. The cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any failure or perceived failure by us to comply with federal, state or foreign laws or regulation, our internal policies and procedures, or our contracts governing our processing of personal information could result in negative publicity, government investigations and enforcement actions, fines, imprisonment of company officials and public censure, claims by third parties, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition and results of operations.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.
U.S. generally accepted accounting principles (“GAAP”) and related pronouncements, implementation guidelines and interpretations with regard to a wide variety of matters that are relevant to our business, such as, but not limited to, revenue recognition, stock-based compensation, trade promotions and income taxes are highly complex and involve many subjective assumptions, estimates and judgments by our management. Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported results.
We are subject to anti-corruption, anti-bribery, anti-money laundering, and similar laws, and non-compliance with such laws could subject us to criminal or civil liability and harm our business, financial condition, and results of operations.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), U.S. domestic bribery laws, the UK Bribery Act 2010, and other anti-corruption and anti-money laundering laws in the countries in which we conduct business. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, and their third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. As we increase our international sales and business and sales to the public sector, we may engage with business partners and third-party intermediaries to market our products and to obtain necessary permits, licenses, and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with such laws, there is a risk that our employees and agents will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. As we expand internationally, our risks under these laws may increase.
Detecting, investigating, and resolving actual or alleged violations of anti-corruption laws can require a significant diversion of time, resources, and attention from senior management. In addition, noncompliance with anti-corruption, anti-bribery, or anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties or injunctions, suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our business, financial condition, and results of operations could be harmed.
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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This prospectus may contain certain “forward-looking” statements as such term is defined by the SEC in its rules, regulations and releases, which represent our expectations or beliefs, including but not limited to, statements concerning our operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors, including uncertainty related to acquisitions, governmental regulation, managing and maintaining growth, the operations of the Company and its subsidiaries, volatility of stock price, commercial viability of our product candidates and any other factors discussed in this and other registrant filings with the SEC.
These risks and uncertainties and other factors include, but are not limited to those set forth under “Risk Factors” of this prospectus. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Except as otherwise required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this prospectus or in the documents we incorporate by reference, whether as a result of new information, future events, changed circumstances or any other reason after the date of this prospectus.
This prospectus contains forward-looking statements, including statements regarding, among other things:
| • | our anticipated needs for working capital; |
| • | our ability to secure additional financing; |
| • | our ability to continue as a going concern; |
| • | we have incurred significant losses since our inception and anticipate that we will continue to incur losses in the future; |
| • | regulatory or legal developments in the United States and other countries; |
| • | developments or disputes concerning patent applications, issued patents or other proprietary rights; |
| • | the level of expenses related to our product development and operations; and |
| • | our efforts to expand our products and our business. |
Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this prospectus will in fact occur. We caution you not to place undue reliance on these forward-looking statements. In addition to the information expressly required to be included in this prospectus, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.
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USE OF PROCEEDS
Assuming a public offering price of $1.12 per share (the last reported sale price of our common stock on the Nasdaq Capital Market on December 6, 2022), we estimate that the net proceeds to us from this offering will be approximately $10.5 million (or $12.2 million if the representative of the underwriters exercises its over-allotment option in full), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each $0.25 increase (decrease) in the assumed public offering price would increase (decrease) the net proceeds to us from this offering by approximately $2.5 million (or $2.8 million if the representative of the underwriters exercises its over-allotment option in full), assuming the number of shares we sell, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. Similarly, an increase (decrease) of 0.5 million shares offered would increase (decrease) the net proceeds to us from this offering by approximately $0.5 million, assuming the assumed public offering price remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
We currently estimate that we will use the net proceeds from this offering, together with our existing cash and cash equivalents, as follows:
| Proceeds: |
||||
| Gross Proceeds |
$ | 12,000,000 | ||
| Underwriting Discounts and Commissions (1) |
960,000 | |||
| Estimated Fees and Expenses |
(550,000 | ) | ||
|
|
|
|||
| Net Proceeds |
$10,490,000 | |||
|
|
|
|||
| Uses: |
||||
| Costs associated with the continued expansion of sales of our ClearUP product, including the penetration of healthcare professional networks |
1,372,000 | |||
| Clinical and regulatory costs for the expansion of existing and new product candidates |
6,061,000 | |||
| Working Capital and other general corporate purposes |
3,057,000 | |||
|
|
|
|||
| Total Uses |
$10,490,000 | |||
|
|
|
|||
| (1) | Includes a non-accountable expense allowance to ThinkEquity equal to 1.0% of the gross proceeds received in this offering. |
Although we may, from time to time, evaluate potential strategic investments and acquisitions, we do not have any definitive agreements in place to make any such acquisitions at this current time.
Our expected use of net proceeds from this offering and our existing cash and cash equivalents represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. As a result, we cannot predict with any certainty our use of the net proceeds from this offering or the amounts that we will actually spend on each area of use set forth above. Our management will retain broad discretion over the allocation of the net proceeds from this offering. Accordingly, we will have discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the proceeds of this offering. See “Risk Factors—Risks Related to our Common Stock and this Offering.”
Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.
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MARKET FOR OUR COMMON STOCK
Market Information
Our common stock, par value $0.0001 per share, is listed on the Nasdaq Capital Market under the ticker symbol “TIVC.”
Holders
As of December 6, 2022, there were approximately 115 shareholders of record of our common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers, and other financial institutions.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We currently intend to retain our future earnings, if any, for use in our business and therefore do not anticipate paying cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, and current and anticipated cash needs. Investors should not purchase our common stock with the expectation of receiving cash dividends.
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CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2022:
| • | on an actual basis; and |
| • | on an adjusted basis, after giving effect to our sale of 10,714,285 shares of common stock in this offering at an assumed public offering price of $1.12 per share, which was the last reported sale price of our common stock on the Nasdaq Capital Market on December 6, 2022, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. |
The as adjusted information below is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should consider this table in conjunction with “Use of Proceeds” above as well as our “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company,” and our audited and unaudited financial statements and the notes to those financial statements included elsewhere in this prospectus.
| As of September 30, 2022 |
||||||||
| Actual | As Adjusted (1) | |||||||
| (unaudited) | (unaudited) | |||||||
| (in thousands, except share and per share amounts) |
||||||||
| Cash and Cash Equivalents |
$ | 6,328 | $ | 16,818 | ||||
|
|
|
|
|
|||||
| Total Current Liabilities |
$ | 2,023 | $ | 2,023 | ||||
|
|
|
|
|
|||||
| Total Long-Term Liabilities |
$ | 413 | $ | 413 | ||||
|
|
|
|
|
|||||
| Stockholders’ Equity (Deficit): |
||||||||
| Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding, actual and as adjusted |
$ | — | $ | — | ||||
| Common stock, $0.0001 par value, 200,000,000 shares authorized; 9,677,734 shares issued and outstanding, actual; 20,392,019 issued and outstanding, as adjusted |
$ | 1 | $ | 2 | ||||
| Additional Paid-in Capital |
$ | 33,159 | $ | 43,648 | ||||
| Accumulated Deficit |
$ | (27,388 | ) | $ | (27,388 | ) | ||
|
|
|
|
|
|||||
| Total Stockholders’ Equity |
$ | 5,772 | $ | 16,262 | ||||
|
|
|
|
|
|||||
| (1) | This as adjusted information is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing. |
| (2) | Each $0.25 increase (decrease) in the assumed public offering price of $1.12 per share of common stock would increase (decrease) cash and cash equivalents, working capital, total assets, and total stockholders’ (deficit) equity by approximately $2.5 million, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, an increase (decrease) of 0.5 million shares offered would increase (decrease) the as adjusted amounts of each of our cash, cash equivalents, and short-term investments, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $0.5 million, assuming the assumed public offering price remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. |
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The above discussion and table are based on 9,677,734 shares outstanding as of September 30, 2022. The discussion and table do not include, as of that date:
| • | 1,248,850 shares of common stock issuable upon exercise of options to purchase shares of common stock outstanding as of September 30, 2022, with a weighted-average exercise price of approximately $2.01 per share; |
| • | 100,000 shares of common stock issuable upon exercise of warrants to purchase shares of common stock, all with an exercise price of approximately $1.04 per share; |
| • | 172,680 shares of common stock issuable upon exercise of warrants to purchase shares of common stock, all with an exercise price of approximately $6.25 per share; |
| • | up to 616,071 shares of common stock issuable upon exercise of warrants to be issued to the representative of the underwriters as compensation in connection with this offering at an exercise price equal to 125% of the public offering price of the common stock; and |
| • | 476,381 shares of common stock reserved for future issuance under our 2021 Plan. |
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DILUTION
If you invest in our common stock, your ownership interest will be diluted immediately to the extent of the difference between the assumed public offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock immediately after this offering.
Net tangible book value per share represents the book value of our total tangible assets less the book value of our total liabilities divided by the number of shares of common stock then issued and outstanding.
Our historical net tangible book value of our common stock as of September 30, 2022 was $5.8 million, or $0.60 per share.
As adjusted net tangible book value is our net tangible book value after taking into account the issuance and sale by us of 10,714,285 shares of common stock in this offering at the assumed public offering price of $1.12 per share of common stock, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the receipt by us of the proceeds of such sale. Our as adjusted net tangible book value as of September 30, 2022 would have been approximately $16.3 million, or $0.80 per share. This amount represents an immediate increase in as adjusted net tangible book value of approximately $0.20 per share to our existing stockholders, and an immediate dilution of $0.32 per share to new investors participating in this offering. Dilution per share to new investors is determined by subtracting as adjusted net tangible book value per share after this offering from the public offering price per share paid by new investors.
We calculate dilution per share to new investors by subtracting the as adjusted net tangible book value per share from the public offering price paid by the new investors. The following table illustrates the dilution to new investors on a per share basis:
| Assumed public offering price per share |
$ | 1.12 | ||||||
| Historical net tangible book value per share as of September 30, 2022 |
$ | 0.60 | ||||||
| Increase in net tangible book value per share attributable to this offering |
$ | 0.20 | ||||||
| As adjusted net tangible book value per share after giving effect to this offering |
$ | 0.80 | ||||||
| Dilution in as adjusted net tangible book value per share to new investors in this offering |
$ | 0.32 |
A $0.25 increase (decrease) in the assumed public offering price of $1.12 per share of common stock would increase (decrease) the as adjusted net tangible book value per share by $0.12, and the dilution per share to new investors in this offering by $0.13 assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, an increase (decrease) of 0.5 million shares offered would increase (decrease) the as adjusted net tangible book value by $0.01 per share and the dilution to new investors by $0.01 per share, assuming the assumed public offering price remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The information above assumes that the underwriter does not exercise its over-allotment option. If the underwriter exercises its over-allotment option in full, the as adjusted net tangible book value will increase to $0.82 per share, representing an immediate increase to existing stockholders of $0.22 per share and an immediate dilution of $0.30 per share to new investors.
We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
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The above discussion and table are based on 9,677,734 shares outstanding as of September 30, 2022. The discussion and table do not include, as of that date:
| • | 1,248,850 shares of common stock issuable upon exercise of outstanding options to purchase shares of common stock as of September 30, 2022, with a weighted-average exercise price of approximately $2.01 per share; |
| • | 100,000 shares of common stock issuable upon exercise of warrants to purchase shares of common stock, all with an exercise price of approximately $1.04 per share; |
| • | 172,680 shares of common stock issuable upon exercise of warrants to purchase shares of common stock, all with an exercise price of approximately $6.25 per share; |
| • | up to 616,071 shares of common stock issuable upon exercise of warrants to be issued to the representative of the underwriters as compensation in connection with this offering at an exercise price equal to 125% of the public offering price of the common stock; and |
| • | 476,381 shares of common stock reserved for future issuance under our 2021 Plan. |
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OUR BUSINESS
Business Overview of Tivic Health
We are a health technology company focused on non-invasive bioelectronic medicine. Our platform-based technology activates the body’s own healing mechanisms and can be programmed to treat various disease conditions. Our products provide a natural alternative to the standard synthetic chemical methods dominated by the pharmaceutical industry.
Bioelectronic medicine treats disease and conditions by modulating the electrical signals carried along various nerve pathways. The field grew out of the neuromodulation industry and relied, historically, on implantable devices (e.g., pacemakers, spinal implants, deep brain stimulators). IDTechEx has identified several fast-growing areas in the bioelectronic medicine field, including peripheral nerve stimulation, which it has indicated is forecasted to grow at a 35% CAGR from 2019 through 2029.
ClearUP® is our first commercial product and has received multiple innovation awards and high customer ratings across multiple sales platforms. It is based on a non-invasive peripheral nerve stimulation platform that combines proprietary algorithms, programmable stimulation parameters, and a patented monopolar delivery. ClearUP has U.S. FDA approval for the treatment of sinus pain and congestion and E.U. CE Mark approval for the treatment of sinus pain, pressure and congestion, which gives us commercial access in the U.S., European Union Member states and certain other countries.
The patented handled device uses ultra-low current electrical waves to relieve sinus pain and congestion symptoms that are prevalent in nasal allergies, sinus infections, chronic sinusitis, cold and flu and other disease conditions. The global treatment markets for each of these disease areas are in the billions, currently dominated by pharmaceuticals, and are projected to grow. According to the Mintel Group Ltd’s 2020 report, the U.S. market size for cough, cold, flu and allergy in 2022 is $11.1 billion. We also conducted a market research study (via an online survey) of 600 individuals with ongoing sinus conditions and noted 90% of the participants reported interest in treatments that reduce the use of medications.
ClearUP is a US FDA Class II and EU Class IIa medical device that has received three regulatory clearances: (US FDA 510(k) number K182025, US FDA De Novo number DEN200006 and EU CE Mark Certificate number CE 704687). We conducted two published clinical studies with leading research institutions. The first clinical study was a randomized controlled double-blind trial conducted by the Stanford University Sinus Center consisting of 71 subjects suffering from sinus pain and congestion, each of whom used either ClearUP or a sham device. The second clinical study was a 30-person study on the use of ClearUP over a period of four weeks conducted by the Allergy and Asthma Associates of Santa Clara Valley Research Center. These studies have substantially demonstrated that ClearUP is highly effective at treating sinus pain from allergic rhinitis and moderate to severe congestion with no substantive side effects.
Our non-invasive bioelectronic platform-based technology enables effective therapeutic solutions with high safety profile and broad application. We are currently conducting a sham-controlled clinical trial in concert with the Icahn School of Medicine at Mount Sinai, testing a new signal variant designed to reduce pain resulting from functional endoscopic sinus surgery. If successful, a product based on this research would require new regulatory clearances for a novel indication. Similarly, we have completed a market and technology assessment of a potential migraine indication and are developing a clinical protocol related thereto. Given our deep expertise and relationships in the field of bioelectronic medicine, we are continuously monitoring and evaluating options to add complementary product lines into our product portfolio.
Recent Developments
Mutual Termination of Proposed Reliefband Acquisition
On October 7, 2022, we entered into an Asset Purchase Agreement (the “Purchase Agreement”), by and among RB Buyer Co, LLC, a Delaware limited liability company (“Buyer”) and wholly-owned subsidiary of the
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Company, Reliefband Technologies, LLC, a Delaware limited liability company (“Reliefband”), certain of Reliefband’s beneficial owners (the “Beneficial Owners”), and Shareholder Representative Services LLC, a Colorado limited liability company as representative of Reliefband and its Beneficial Owners.
Pursuant to the Purchase Agreement, Buyer agreed to purchase substantially all of the assets, and certain specified liabilities, of Reliefband that are used in connection with the development, manufacture, distribution, and sale of Reliefband’s electronic nerve stimulation devices (the “Reliefband Acquisition”) for an aggregate cash purchase price of $33.5 million, subject to working capital adjustments as defined in the Purchase Agreement, less Reliefband transaction expenses and any indebtedness of Reliefband at closing (the “Acquisition Consideration”).
On December 7, 2022, the parties to the Purchase Agreement entered into an Agreement of Termination and Release (the “Termination Agreement”), pursuant to which the parties mutually agreed to terminate the Purchase Agreement immediately and abandon the proposed Reliefband Acquisition. As a result of the Termination Agreement, the Purchase Agreement is of no further force or effect.
Microart Agreement
On October 21, 2022, we entered into the Manufacturing Agreement, with Microart. Pursuant to the Microart Agreement, Microart will manufacture, on a non-exclusive basis, certain components and sub-assemblies of our current and future products. During the term of the Microart Agreement, we shall order Products from Microart by issuing purchase orders, and Microart shall manufacture and supply Products to us in the quantities specified in the applicable purchase orders and in accordance with our specifications. Subject to certain exceptions, Microart will charge us a fixed price for every Product purchased, which fixed price may only be changed by Microart once per each cumulative twelve-month period, and in each case, any increase shall not exceed an amount specified in the Microart Agreement.
The Microart Agreement has a three-year initial term, with automatic annual renewals until terminated by one of the parties in accordance with the terms of the Microart Agreement. The Microart Agreement may be terminated as follows: (i) at any time upon mutual agreement of the parties; (ii) by either party at the end of the initial three year term or any subsequent annual renewal term upon written notice received by the other party not less than 60 calendar days prior to the expiration of the relevant term; (iii) by either party upon 30 calendar days written notice to the other party following a material breach of the agreement if the breaching party fails to cure such breach in a reasonable period of time; or (iv) by either party upon the other party seeking an order for relief under bankruptcy laws, a composition with or assignment for the benefit of creditors, or the dissolution or liquidation.
We expect that this new relationship with Microart will significantly reduce the cost of manufacturing our ClearUP product, and potentially our future products as well.
ALOM Agreement
On November 25, 2022, we entered into a Fulfillment Services Agreement (the “ALOM Agreement”), with ALOM Technologies Corporation (“ALOM”). Pursuant to the ALOM Agreement, commencing on November 28, 2022 (the “Effective Date”), ALOM will provide, on a non-exclusive basis, certain assembly, procurement, storage, returns, and fulfillment services to our end customers and resellers in the United States. During the term of the ALOM Agreement, ALOM shall provide the services in accordance with purchase orders issued by us from time to time. The consideration payable by us to ALOM for services rendered under the ALOM Agreement will be calculated and invoiced based on fixed hourly rates and fixed unit pricing, as applicable, subject to certain exceptions; provided that, commencing April 1, 2023, we will be subject to certain minimum periodic purchase requirements.
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The ALOM Agreement has a three-year initial term, with automatic annual renewals until terminated by one of the parties in accordance with the terms of the agreement. The ALOM Agreement may be terminated as follows: (i) for cause upon sixty calendar days’ written notice describing with particularity the conduct constituting such breach, if such breach is not cured to the reasonable satisfaction of the aggrieved party within such 60-day period; (ii) for failure to pay any invoices when due, if full payment is not made within twenty calendar days after delivery of a written notice; or (iii) for convenience, upon sixty calendar days’ written notice.
First Product in Market
Tivic Health’s first product in market, based on our core technology, is ClearUP® Sinus Relief. ClearUP has received FDA clearance for treating various symptoms of allergic rhinitis (nasal allergies), sinusitis and cold and flu. It is available without prescription.
Market Opportunity
In December 2021, Precedence Research noted that the burden of various chronic diseases and infections is growing and so have people’s healthcare expenditures. Consumers are increasing spending on their healthcare. The shift to an increased focus on improving lifestyle, growing geriatric population, rising disposable income, rising penetration of healthcare insurance, and improved access to healthcare facilities are major factors that drive growth of the medical electronics market. In 2018, the per capita healthcare expenditure in the U.S. was over $10,500. This number is expected to increase.
Grand View Research projects that the non-invasive electroceutical devices segment will witness the highest growth through 2030. This is due to technological advancements and rising investments in research and development by companies for innovative product development. Moreover, increasing healthcare awareness and popularity of electroceuticals in developing countries such as India, China, South Africa, and Argentina are expected to propel market growth.
The FDA initially provided clearance to the ClearUP product under a 510(k) as an allergy treatment in January 2019. As a treatment for allergy-related sinus pain, we believe that the available market for ClearUP is approximately 45 million U.S. adults.
Factors such as industrialization, climate change, and changing lifestyles are increasing the prevalence of allergic rhinitis, making this a large and growing segment.
The FDA granted ClearUP a subsequent De Novo clearance in March 2021, which expanded ClearUP’s label, enabling marketing of ClearUP for allergies, sinusitis, cold, flu, and any inflammatory condition involving congestion. With this De Novo clearance, we believe that the available market for ClearUP expands to over 200 million U.S. adults. Our market research indicates that, among our target consumers, 74% would expect to purchase on Amazon and 65% from the manufacturer’s website.
According to Mintel Group Ltd., over-the-counter allergy, cough, cold and flu treatments are projected to be an $11.1 billion market in 2022 in the U.S. alone. According to our research, among recurring sufferers (those who reported having an ongoing chronic sinus condition), 90% are interested in treatments that reduce use of medications, 66% are concerned about the side effects of pharmaceutical choices, and over 43% are concerned about addiction. We commissioned this research, and it was conducted by a national sampling company, which electronically surveyed 600 individuals reporting ongoing sinus conditions. Only subjects who reported having an ongoing chronic sinus condition were eligible to participate in the study.
In clinical research studies pertaining to ClearUP:
| • | 82% of participants indicated that they prefer it to their current treatments;(1) and |
| • | 77% of participants indicated that they would recommend ClearUP.(2) |
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| (1) | Data from a 71-person randomized controlled study conducted by a third-party academic research center. |
| (2) | Data from a 30-person open label trial conducted by a third-party clinical research organization. |
Additionally, we have received a CE Mark for international marketing. The CE Mark for ClearUP covers an equally broad set of conditions related to sinonasal inflammation with the symptoms pain, pressure and congestion. The CE Mark allows sales in European Union Member states and certain other countries that recognize the CE Mark for regulatory governance. We believe that ClearUP is an international opportunity.
Customers
We sell our products direct-to-consumer through our own website and major online retailers, including, Amazon and Walmart, and also sell to major U.S. online retailers such as BestBuy and FSAStore.
Sales and Marketing
Purchase Motivation
ClearUP’s main consumer benefits, as supported by our clinical studies, include the following:
| • | Efficacious drug-free alternative with no significant side effects. |
| • | Efficacy for 74% of trial subjects within ten minutes of first treatment. |
| • | Efficacy for 88% of trial subjects with use over four-weeks. |
| • | Continued reduction of sinus pain and congestion with regular use. |
| • | Portable, go anywhere, use anytime solution with no recommendation to discontinue use after a specified period of time or limit the number of times per day used. |
| • | Average product useful life of approximately 3.5 years. |
| • | More environmentally friendly than synthetic chemical treatments. |
Sales Channels
ClearUP is sold directly to consumers through our own website, Amazon, and Walmart. We also sell to major online retailers such as BestBuy and FSAStore.
Expansion of our ClearUP sales channels has been gradual and measured to maintain pricing integrity, cultivate consumer acceptance and establish strong channel relationships. With this foundation in place, we believe we are poised to accelerate sales through the expansion of our advertising and marketing efforts.
Current sales represent a very small percentile of the available market. We project that there is a significant growth opportunity for ClearUP with expanded advertising and product variants to reach new customers and medical professionals.
Marketing and Advertising Strategies
We utilize omnichannel marketing to raise consumer awareness of ClearUP and convert consumers to purchasers. We participate in press and media to raise general awareness of both ClearUP and the bioelectronic medicine more generally. Since our IPO in November 2021, we have seen a steady increase in direct-to-consumer sales volume as we continue to expand and optimize marketing and advertising tactics.
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Core Technology
Our technology provides a natural alternative to the standard synthetic chemical methods dominated by the pharmaceutical industry. Our market research study indicates consumers are interested in non-pharmaceutical treatment alternatives. We combine proprietary algorithms, programmable stimulation parameters, and a patented monopolar delivery mechanism to modulate the nerve signals. We are researching the clinical utility of this stimulation approach for other clinical conditions. This platform has the potential to accelerate new product development by: (i) extending the existing device platform to other clinical areas, thereby reducing research and development time, and (ii) continuing to benefit from low-risk non-invasive device designations and regulatory pathways by the FDA, which typically result in shorter time to approval when compared with invasive devices or new drugs. While it is our intention to bring new products to market, medical device development is inherently uncertain and there is no guarantee that our research and development efforts will lead to approved products for other clinical indications.
Key elements of our platform include:
| • | a proprietary algorithmic means of detecting areas of dense nerve innervation and blood vessels, which help guide a user to the optimal treatment locations; |
| • | a proprietary algorithmic means of adapting treatment currents and detection to the unique physiological attributes of the technology’s user at the time of use; |
| • | a proprietary algorithmic means of dynamically adjusting treatment levels to maintain both efficacy and comfort; |
| • | programmability of the stimulation protocols via firmware to deliver varied stimulation protocols for different physical and disease targets, providing accelerated opportunities for new product applications; and |
| • | a unique monopolar design that enables ultra-low currents to pass through skin and tissue while maintaining nearly imperceptible current levels. |
This combination creates a platform for non-invasively influencing peripheral activity with an ultra-low current level.
Numerous inflammatory conditions are associated with trigeminal and peripheral nerve activity of the face, including:
| • | chronic quality-of-life conditions such as migraines (39 million U.S.), temporomandibular joint disorder (31 million U.S.), and tinnitus (50 million U.S.); |
| • | severe, life-altering conditions such as trigeminal neuralgia (150,000 U.S., severe condition); and |
| • | acute conditions such as ear infections (50% of children) and pain and swelling from facial and sinus surgeries (600,000 functional endoscopic surgeries annually, U.S.). |
Each of these applications would involve regulation of pain and inflammation-related mediators like those seen in sinus and nasal inflammation.
Competitive Landscape
Pharmaceutical Treatments
Sinus pain and congestion can be caused by allergic rhinitis (allergies), rhinosinusitis, sinus infections, cold and flu and are most often treated with over-the-counter products targeted symptomatically.
| • | Sinus pain/pressure is usually managed with analgesic medications (e.g., ibuprofen/Advil, acetaminophen/Tylenol, naproxen sodium/Aleve). Analgesic medications provide short periods of relief and can be associated with side effects including stomach pain, bleeding, ulcers, constipation, diarrhea, gas, bloating, heartburn, nausea, vomiting, dizziness, headache, nervousness, and rash. |
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| • | Congestion is treated with a variety of approaches: |
| ○ | Antihistamine medications are often a first-line therapy for allergy-related symptoms and research indicates that they are effective for treating allergy symptoms such as itchiness, but are less effective for congestion. Antihistamine medications (e.g., loratadine/Claritin) are generally well-tolerated but may have side-effects including headache, sleepiness, fatigue, dry mouth, and sore throat. |
| ○ | Oral decongestants (e.g., phenylephrine/Sudafed) used to treat congestion have been demonstrated to exert poor to moderate efficacy, and are associated with nervousness, restlessness, insomnia, dizziness, tachycardia, heart palpitations, syncope, headache, sweating, nausea or vomiting, trembling, paleness, and weakness. |
| ○ | Intranasal decongestants (e.g., oxymetazoline/Afrin) are more effective than oral decongestants. However, they have reduced effectiveness and rebound effects after three days of use and can lead to the development of a serious condition, rhinitis medicamentosa. Additionally, intranasal decongestants cause side effects including nose irritation or burning, sneezing, dizziness, increased blood pressure, tachycardia, heart palpitations, restlessness and insomnia. |
| ○ | Intranasal glucocorticoids (e.g., fluticasone propionate/Flonase) have been shown to have the most significant benefits, with some studies showing a 34% reduction in congestion severity after one week of use. Intranasal glucocorticoids have several side effects including epistaxis, dryness, stinging, burning in nose, headache, nausea, vomiting, diarrhea, dizziness, sore throat, and cough. |
Examples of companies developing drugs for sinus pain and congestion include GlaxoSmithKline, Bayer, and Johnson & Johnson.
Limitations on Use of Pharmaceutical Treatments
Due to the side effect profiles of pharmaceuticals, many of the above-mentioned treatments carry warnings to discontinue use after two weeks or less according to the U.S. National Library of Medicine. Additionally, some carry warnings regarding use with certain medications or diseases such as high blood pressure.
Non-pharmaceutical Treatments
According to Mintel Group Ltd., consumers are increasingly seeking natural, non-pharmaceutical treatment options.
| • | Nasal irrigation with saline, rinsing the nasal passages with saline solution, is the most common non-pharmaceutical treatment, representing approximately $706 million in sales (based on sales of both nasal irrigation products and related accessories) in the U.S. in 2020. Example products include Sinus Rinse and Navage Nasal Care. Nasal irrigation is understudied, but there is some evidence of improved quality of life and clearance of mucus. However, saline can irritate an already inflamed sinonasal tissue and nasal irrigation using tap water has been found to carry risk of parasite-driven encephalitis. |
| • | Bioelectronic devices. ClearUP is the first device globally to have been cleared by the FDA under a de novo classification for the intended use for temporary relief of moderate to severe congestion. The Company also received FDA clearance for the intended use in treatment of sinus pain associated with allergic rhinitis. |
Examples of companies developing non-drug products for sinus pain and congestion include NeilMed, Rhinosystems Inc., and Vapore LLC.
Principal Competitors
Over the counter pharmaceuticals have historically had the greatest market share for sinus pain and congestion treatments; however, according to Mintel Group Ltd.’s 2020 report on Cough, Cold, Flu, and Allergy Remedies,
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and our own online survey, there is increasing interest among consumers to reduce reliance on drugs and to find non-drug solutions. For this reason, other companies selling non-pharmaceutical treatments, specifically nasal irrigation products, represent our closest competitors.
Currently, ClearUP is our only commercial product, which is approved by the FDA for the treatment of sinus pain and congestion. It is also a CE-Marked medical device for the treatment of sinus pain, pressure and congestion. ClearUP is a new product offering in the non-drug category, an emerging bioelectronic medicine segment, and currently has small market share.
Clinical Research on ClearUP
Allergic rhinitis is an inflammatory disease driven by IgE-mediated reactions to inhaled indoor or seasonal outdoor allergens. The resulting sinus and nasal inflammation may cause symptoms including sinus pain and pressure, nasal congestion, runny nose, sneezing, and nasal itching. Allergic rhinitis affects a significant number of U.S. adults, of which a vast majority experience sinus pain, pressure and congestion as a result of inflammation of the nasal and sinus mucosa.
Key Technical Features
| • | Treatment Point Detection. ClearUP employs an advanced treatment point detection algorithm that dynamically personalizes to each user. Haptic vibration indicates to the user to hold the device over these points to facilitate stimulation in areas that maximize therapeutic benefit. We have innovated by integrating dynamic measurement with neuromodulation technology to create this novel therapy. (Issued patents: US10625076, US10537738; 10 patents pending) |
| • | Monopolar Circuit. ClearUP delivers microcurrent stimulation via a monopolar circuit in which the rounded tip of the device is the active electrode and the conductive housing of the device serves as the return electrode. The monopolar design of ClearUP is a significant improvement over typical bipolar approaches to neuromodulation engineering and facilitates deeper delivery of current and sensitive treatment point detection. (Issued patents: US10625076, US10596374; 7 patents pending) |
| • | Proprietary Waveform Delivery. ClearUP delivers a specific frequency, waveform shape, and amplitude of microcurrent that was empirically determined to have fast-acting therapeutic effects on users with common sinonasal symptoms like pain and congestion. Additionally, we have developed an adaptive algorithm that ensures consistent and comfortable delivery of microcurrent treatment on different parts of the face that can have varying electrical properties. (Issued patents: US10625076, US10537738; 10 patents pending) |
| • | Ergonomic Design and Ease of Use. ClearUP’s design ensures the product is comfortable to hold and that the hand will always be in contact with the conductive housing of the monopolar circuit. The device shape has also been refined so that the user can navigate the treatment path with ease. Additionally, the single-button control and intuitive indicators make ClearUP Sinus Relief simple to use. Greater than 95% of users report that applying ClearUP Sinus Relief treatment is easy. (Issued patents: US10596374, US10576280; 3 patents pending) |
Two separate clinical trials have demonstrated the safety and efficacy of ClearUP Sinus Relief in treating sinus pain from allergic rhinitis and moderate to severe congestion.
Pivotal Study: randomized, placebo-controlled, double-blinded clinical trial
In July 2018, the Stanford University Sinus Center conducted a double-blind randomized controlled clinical trial using the ClearUP bioelectronic device. 71 subjects suffering from sinus pain and congestion used either ClearUP or a sham device. The sham device was identical to ClearUP in every way except that it used a continuous DC output instead of the pulsed AC stimulation used by ClearUP.
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Each subject used the real or sham device for a single five-minute treatment. Before and ten minutes after treatment, subjects completed questionnaires to quantify their symptoms. Subjects treated with ClearUP reported a rapid and clinically meaningful reduction in sinus pain (-29.6%) and congestion (-35%) at ten minutes after treatment.
This magnitude of change was significantly greater than that observed in sham device-treated subjects.
PUBLICATION: Maul, X. A., Borchard, N. A., Hwang, P. H., & Nayak, J. V. (2019, April). Microcurrent technology for rapid relief of sinus pain: a randomized, placebo-controlled, double-blinded clinical trial. In International forum of allergy & rhinology (Vol. 9, No. 4, pp. 352-356).
Open-label Prospective Trial
The Allergy and Asthma Associates of Santa Clara Valley Research Center conducted a 30-person study on the use of ClearUP over four weeks. Subjects with sinus pain and congestion used the ClearUP device for five minutes during the study visit and then took the device home with them with instructions to use the device one to four times daily for five minutes per treatment as needed for four weeks. Subjects rated their symptoms weekly using a questionnaire. After the first five-minute treatment with ClearUP, subjects reported reduced sinus pain that remained six hours later, the longest time interval tested in the study. Additionally, subjects reported that after four weeks of use, they experienced an average of 43% reduction in sinus pain and 44% reduction in congestion. This magnitude of change was equivalent to efficacy seen in studies of fluticasone propionate after two-weeks of use.
PUBLICATION: Goldsobel, A. B., Prabhakar, N., & Gurfein, B. T. (2019). Prospective trial examining safety and efficacy of microcurrent stimulation for the treatment of sinus pain and congestion. Bioelectronic medicine, 5(1), 1-9.
Safety
In the clinical studies and post-market surveillance, there have been no reports of any significant side effects and very few reports of minor side effects. Minor side effects have included reddening of skin (0.02%), eyelid twitch (0.01%), and headache (0.01%), all of which resolved without intervention.
New Product Introductions
We are currently preparing improvements and extensions to our ClearUP product line. Covered by the same patents, our new product offerings under the ClearUP design architecture are expected to decrease the cost of products by decreasing manufacturing, fulfillment and shipping costs.
Based on our analysis of regulatory guidance issued by the FDA and approval by our designated EU Notified Body (an organization designated by an EU member state to assess the conformity of certain products prior to their release in the EU market), we expect the expansion of our ClearUP product offerings to be covered by the same regulatory clearances as ClearUP.
Research Initiatives: Product Candidates
We combine proprietary algorithms, programmable stimulation parameters, and a patented monopolar delivery mechanism to modulate the nerve signals that control inflammation-driven symptoms like pain and congestion. This design has proven effective in treating sinus and nasal inflammatory conditions and we are researching the clinical utility of this stimulation approach for other clinical conditions. This platform has the potential to accelerate new product development by: (i) extending the existing device platform to other clinical areas, thereby
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reducing research and development time, and (ii) continuing to benefit from low-risk non-invasive device designations and regulatory pathways by the FDA, which typically result in shorter time to approval when compared with invasive devices or new drugs.
Numerous inflammatory conditions are associated with peripheral nerve activity of the face, including:
| • | chronic quality-of-life conditions such as migraines (39 million U.S.), temporomandibular joint disorder (31 million U.S.), and tinnitus (50 million U.S.); |
| • | severe, life-altering conditions such as trigeminal neuralgia (150,000 U.S., severe condition); and |
| • | acute conditions such as ear infections (50% of children) and pain and swelling from facial and sinus surgeries (600,000 functional endoscopic surgeries annually, U.S.). |
Each of these applications would involve regulation of pain and inflammation-related mediators like those seen in sinus and nasal inflammation. Firmware programming of ClearUP allows various stimulation protocols to be used for different disease and neural targets, providing accelerated opportunities for new product candidates at varying price points.
Activities are ongoing for two product candidates: (i) npdPP, an at home-use device for treating postoperative pain after sinus surgery, and (ii) npdMI, an at home-use device for treating migraine headaches. These product candidates are still in early stages of research and development and will require additional studies and regulatory clearances prior to bringing them to market.
npdPP: We completed a ten-person pilot study with the U.S. Institute for Advanced Sinus Care and Research (Cleveland, OH) to evaluate a new device for the treatment of postoperative pain after functional endoscopic sinus surgery (“FESS”). The pilot study was conducted to establish clinical feasibility and we subsequently began a double-blind randomized controlled trial with the Icahn School of Medicine at Mt. Sinai to further test this application. Enrollment in this study began in the first quarter of 2022.
npdMI: We are in the process of investigating the area of migraine headaches, which impacts approximately 1 billion people worldwide and 39 million people in the U.S. As part of our research and development activities for migraine, we have been in communication with the FDA to determine the next steps and an appropriate regulatory pathway for expanding our indications.
We believe our commitment to non-invasive bioelectronic medicine simplifies clinical trial approaches, improves the safety profile important in regulatory matters, and lowers barriers to adoption once in the market. These factors could afford us a unique opportunity for a rapid pace of innovation relative to other medical product companies. While it is our intention to bring new products to market, medical device development is inherently uncertain and there is no guarantee that our research and development efforts will lead to approved products for other clinical indications.
Manufacturing
The ClearUP device uses conventional, off-the-shelf electronic components. Our products require no specialty manufacturing capabilities.
Certain of our electronic components are sourced primarily from China. To increase predictability in sourcing and pricing of electronic components used in our products, we maintain an agreement with Future Electronics, Inc., one of the largest global electronic components distributors. The contract has an initial term of 12 months that automatically renews for additional 12-month periods, subject to annual review, and provides for extended payment terms. Future Electronics may terminate the agreement upon 30 days prior written notice if it determines, in its sole discretion, that we are not meeting our minimum purchase requirement or we are otherwise not performing our obligations under the agreement.
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Packaging production is divided between North America and China. The plastic enclosure components and sub-assemblies are produced in China. Materials for both packaging and plastics are commonly available and can be sourced from multiple vendors. Lead times may vary due to COVID-related shortages, customs and port management issues.
We have encountered disruptions in our supply of various materials and components, and electronic components in particular, due to well-documented shortages and constraints in the global supply chain. We are currently evaluating alternative and secondary source suppliers in order to ensure that we are able to source sufficient components and materials to manufacture our products. In the event that we are unable to source sufficient components and materials from our current suppliers, or to develop relationships with additional suppliers, to manufacture enough of our products to satisfy demand, we may have to cease or slow down production and our business operations and financial condition may be materially harmed.
Electronic components are assembled onto printed circuit boards in the San Francisco Bay Area, near our final assembly and test house. ClearUP is assembled, tested, and warehoused at, and distributed from the San Francisco Bay Area.
We continue investing in development of the expansion of our ClearUP product line, which is expected to lower product, fulfillment and shipping costs and increase flexibility for line extensions. In order to allow the Company to capitalize on cost-saving opportunities while managing global supply chain risks, elements of the expansion of the ClearUP product line program have and will continue to be introduced on a rolling basis in stages.
Intellectual Property / Barriers to Entry
Intellectual Property
Our success depends in part on our ability to obtain and maintain proprietary protection for our product candidates and other discoveries, inventions, trade secrets and know-how that are critical to our business operations. Our success also depends in part on our ability to operate without infringing the proprietary rights of others, and in part, on our ability to prevent others from infringing our proprietary rights. A comprehensive discussion on risks relating to intellectual property is provided under the section of this prospectus titled “Risk Factors—Risks Related to Our Intellectual Property.”
We rely primarily on a combination of patent, copyright, trademark, and trade secret laws, as well as contractual provisions with employees and third parties, to establish and protect our intellectual property rights. Our patent strategy is to pursue broad protection for key technologies, supplemented by additional patent filings covering conceptual methods, specific aspects of current and proposed products, and forward-looking applications and technological developments. We also engage in strategic analysis of our owned patent assets, and pursue additional patent claims from our existing portfolio that may provide us with market advantages. We do not rely heavily on trade secret protection, but do maintain a certain amount of in-house know-how that is not disclosed publicly.
Our intellectual property portfolio currently consists of:
| • | 5 issued U.S. patents. |
| • | 18 patents pending in the U.S. and abroad. |
| • | 4 provisional patent applications have been filed in the U.S. |
| • | 7 trademarks granted in the U.S. and China. |
Our intellectual property portfolio includes a large number of disclosures that cover enhanced cost and manufacturability, performance, ergonomics, comfort, ease of use, system expansion, and treatments performed. Identity is protected by way of trademarks. Various aspects of design and function that cannot be readily reverse engineered are held as trade secrets.
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In most jurisdictions in which we file, the patent term is 20 years from the earliest date of filing of a non-provisional patent application. However, the term of U.S. patents may be extended for delays incurred due to compliance with FDA requirements or by delays encountered during prosecution that are caused by the United States Patent and Trademark Office (“USPTO”). We intend to seek patent term extensions in any jurisdiction where these are available and where we also have a patent that may be eligible; however, there is no guarantee that the applicable authorities will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions.
Other Barriers to Entry
We have published high-quality clinical research in high-impact peer reviewed journals, establishing Tivic Health as an evidence-based company. Our first-to-market position has secured a high volume and proportion of positive reviews on our websites and other ecommerce channels. We believe that each of these assets, in addition to our intellectual property and regulatory clearances, will create barriers to entry for competitors.
Government Regulation
Regulation by the FDA
In the United States, the Federal Food, Drug, and Cosmetic Act (“FD&C Act”), as well as FDA regulations and other federal and state statutes and regulations, govern medical device design and development, preclinical and clinical testing, device safety, premarket clearance, grant, and approval, establishment registration and device listing, manufacturing, labeling, storage, record-keeping, advertising and promotion, sales and distribution, export and import, recalls and field safety corrective actions, and post-market surveillance, including complaint handling and medical device reporting of adverse events.
The FDA classifies medical devices into three classes (Class I, II or III) based on the degree of risk associated with a device and the level of regulatory control deemed necessary to ensure its safety and effectiveness. Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA’s general controls for medical devices. Class II devices are subject to the FDA’s general controls and any other special controls the FDA deems necessary to ensure the safety and effectiveness of the device. Class III devices are those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury.
De Novo classification is a risk-based classification process. The De Novo process provides a pathway to classify novel medical devices for which general controls alone, or general and special controls, provide reasonable assurance of safety and effectiveness for the intended use, but for which there is no legally marketed predicate device. De Novo classified devices fall either into Class I or Class II and may be marketed and used as predicates for future premarket notification 510(k) submissions.
The FDA classifies our peripheral nerve stimulation platform as a Transcutaneous Electrical Nerve Stimulator (“TENS”) regulated as a Class II medical device.
ClearUP sinus relief was cleared under 510(k) number K182025 based on clinical data supporting its safety and efficacy for the temporary relief of sinus pain associated with allergic rhinitis. We were subsequently granted the rights to market ClearUP for the temporary relief of moderate to severe congestion under De Novo number DEN200006.
Labeling
All medical devices commercially distributed in the U.S. must comply with specific FDA labeling requirements. These requirements address the labeling (e.g., device label, Instruction for Use, package label, etc.) that must be
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affixed to the device or packaging and, in the case of devices used by the consumer, provided to all users of the device. Our ClearUP labeling has been reviewed by the FDA as part of our regulatory clearances and our quality management system provides for control of documents to prevent changes that might invalidate FDA’s review.
Quality System Regulation
The devices that we commercially distribute in the U.S. are subject to pervasive and continuing regulation by the FDA and certain state agencies. This includes product listing and establishment registration requirements, which facilitate FDA inspections and other regulatory actions. We adhere to applicable current good manufacturing practice, or cGMP, requirements, as set forth in the 21 CFR 820 QSR, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all phases of the design and manufacturing process. We are also required to verify that our suppliers maintain facilities, procedures and operations that comply with applicable quality and regulatory requirements. The FDA enforces the QSR through periodic announced or unannounced inspections of medical device manufacturing facilities, which may include the facilities of contractors. FDA regulations also require investigation and correction of any deviations from the QSR and impose reporting and documentation requirements upon us and our third-party manufacturers.
Post-market surveillance
We must also comply with post-market surveillance regulations, including medical device reporting (“MDR”), requirements which require that we review and report to the FDA any incident in which our products may have caused or contributed to a death or serious injury, and any incident in which our device has malfunctioned if that malfunction would likely cause or contribute to a death or serious injury if it were to recur. We must also comply with medical device correction and removal reporting regulations, which require manufacturers to report to the FDA corrections and removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FD&C Act that may present a risk to health. Although we may undertake recall actions voluntarily, we must submit detailed information on any recall action to the FDA, and the FDA can order a medical device recall in certain circumstances.
In addition to post-market quality and safety actions, labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the FTC. Medical devices approved, cleared, or granted by the FDA may not be promoted for outside their respective Indication for Use, otherwise known as “off-label” promotion.
Other healthcare laws and regulations
The healthcare industry is also subject to federal and state fraud and abuse laws, including anti-kickback, self-referral, false claims and physician payment transparency laws, as well as patient data privacy and security and consumer protection and unfair competition laws and regulations. Our operations are also subject to certain state and local laws, including manufacturing license, sales and marketing practices, interactions with consumers, consumer incentive and other promotional programs, and state corporate practice and fee-splitting prohibitions.
Currently, ClearUP is not reimbursed by any government or private healthcare program, limiting our exposure under certain laws such as the Sunshine Act.
CE Mark – European Union and other jurisdictions that recognize the CE Mark
In 2020 we secured the CE Mark CE 704687 allowing sales and marketing of ClearUP in the European Union, United Kingdom and in any country that recognizes CE Mark certificate for relief of sinus pain, pressure and congestion, without regard to the cause of pain, pressure and congestion. Sales in such jurisdictions will expose our operations to additional regulations.
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To the extent that any of our products are sold in a foreign country, we may become subject to foreign laws, which may include, for example, applicable post-marketing requirements, including post-market clinical follow up, safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals. We must operate our business within the requirements of these laws.
Coverage and reimbursement
Our current product is purchased on a cash-pay basis and is not covered by government healthcare programs and other third-party payors. However, we monitor federal and state legislations and regulatory changes that could affect our results of operations.
Privacy and security
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their implementing regulations, imposes privacy, security and breach reporting obligations with respect to individually identifiable health information upon “covered entities” (health care providers, health plans and health care clearinghouses), and their respective business associates, individuals or entities that create, received, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity.
Even when HIPAA does not apply, according to the FTC, failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards.
In addition, certain states and non-U.S. laws, such as the GDPR govern the privacy and security of health information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. For example, California recently enacted the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020. The CCPA, among other things, creates new data privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures of their information.
Environmental Matters
Our operations, properties and products are subject to a variety of U.S. and foreign environmental laws and regulations governing, among other things, use of manufacturing components containing substances below established threshold, air emissions, wastewater discharges, management and disposal of hazardous and non-hazardous materials and waste and remediation of releases of hazardous materials. We believe, based on current information that we are in material compliance with environmental laws and regulations applicable to us and rely heavily on our outsourced design and manufacturing partners to assist in maintaining compliance.
Facilities
Our principal executive office is located at 25821 Industrial Blvd., Suite 100, Hayward, California 94545. On November 17, 2021, we entered into a sublease agreement for approximately 9,091 square feet of office and warehouse space. The term of the sublease will expire on October 31, 2025. Monthly rent for the premises is $12,273 per month, plus the Company’s pro rata share of operating, which are currently approximately $4,500 per month.
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Human Capital Resources
As of September 30, 2022, we had sixteen full-time employees and four contractors. None of our employees are represented by a labor union, and we consider our employee relations to be good. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees. The principal purposes of our equity incentive plans are to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards and cash-based performance bonus awards.
Legal Proceedings
We are not currently a party to any material legal proceedings. We may, however, in the ordinary course of business face various claims brought by third parties, and we may, from time to time, make claims or take legal actions to assert our rights, including intellectual property rights as well as claims relating to employment matters and the safety or efficacy of our products. Any of these claims could subject us to costly litigation. If this were to happen, the payment of any such awards could have a material adverse effect on our business, financial condition and results of operations. Additionally, any such claims, whether or not successful, could damage our reputation and business.
Corporate Information
The Company was incorporated in California in September 2016 and reincorporated as a Delaware corporation in June 2021. Our principal executive offices are located at 25821 Industrial Blvd., Suite 100, Hayward, California 94545. Our telephone number is (888) 276-6888. Our website address is www.tivichealth.com. Information contained on, or that can be accessible through, our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
You should read the following discussion and analysis of our financial condition and results of operations together with “Summary Financial Data” and the financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section of this prospectus entitled “Risk Factors” or in other parts of this prospectus. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
We are a bioelectronic medicine company developing and commercializing non-invasive, drug-free treatments for various diseases and conditions. Bioelectronic medicine, also referred to as electroceuticals or neuromodulation, is the treatment of disease and conditions by preferentially activating electrical functions of the body to modify central or peripheral nerve activity. ClearUP is our first commercial product, and is FDA- approved for the treatment of sinus pain and congestion. It is also a CE-Marked medical device for the treatment of sinus pain, pressure and congestion. ClearUP is currently sold in the U.S. directly to consumers on various e-commerce platforms and through reseller channels.
Business Developments
Bioelectronic medicine is an emerging, multiple billion-dollar market. Since our formation in September 2016, we have devoted substantially all of our efforts to the development of our proprietary technology platform to provide noninvasive, drug free treatments and treatment candidates for various diseases and conditions. In 2019, we launched ClearUP in the U.S. market. ClearUP is approved by the FDA for sale in the U.S. for the two FDA-approved indications noted above and has a CE Mark, which covers a third indication (sinus pressure) and gives us commercial access to European Union Member states and certain other countries. We currently sell directly to consumers through our own website, Amazon, and Walmart. We also sell through major and specialty online retailers, such as BestBuy and FSAStore.
Recent Developments
IPO
In November 2021, we completed our IPO of 3,450,000 shares of common stock, at a public offering price of $5.00 per share, including the exercise in full by the underwriters of their option to purchase 450,000 additional shares of common stock, for aggregate gross proceeds of $17.3 million and our shares started trading on The Nasdaq Capital Market under the ticker symbol “TIVC.” We received approximately $14.9 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by the Company. In connection with the closing of the IPO, all of our outstanding shares of convertible preferred stock at the time of the IPO automatically converted into an aggregate of 2,227,116 shares of common stock and outstanding convertible notes payable borrowings of $4.4 million outstanding at the time of the IPO converted into an aggregate of 1,204,160 shares of common stock.
We recognize that we will need to raise additional capital to continue operating our business and fund our planned operations, including research and development, clinical trials and, if regulatory approval is obtained, commercialization of future product candidates. We may seek additional funds through equity or debt offerings and/or borrowings under notes payable, lines of credit or other sources. We do not know whether additional financing will be available on commercially acceptable terms, or at all, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to fund our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or limited, which could materially adversely affect our business, financial conditions, or results of operations.
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Mutual Termination of Proposed Reliefband Acquisition
On October 7, 2022, we entered into the Purchase Agreement, by Buyer, a Delaware limited liability company and wholly-owned subsidiary of the Company, Reliefband, Reliefband’s Beneficial Owners, and Shareholder Representative Services LLC, a Colorado limited liability company as representative of Reliefband and its Beneficial Owners. Pursuant to the Purchase Agreement, Buyer agreed to purchase substantially all of the assets, and certain specified liabilities, of Reliefband that are used in connection with the development, manufacture, distribution, and sale of Reliefband’s electronic nerve stimulation devices for an aggregate cash purchase price of $33.5 million, subject to working capital adjustments as defined in the Purchase Agreement, less Reliefband transaction expenses and any indebtedness of Reliefband at closing.
On December 7, 2022, the parties to the Purchase Agreement entered into the Termination Agreement, pursuant to which the parties mutually agreed to terminate the Purchase Agreement immediately and abandon the proposed Reliefband Acquisition. As a result of the Termination Agreement, the Purchase Agreement is of no further force or effect.
Microart Agreement
On October 21, 2022, we entered into the Manufacturing Agreement, with Microart. Pursuant to the Microart Agreement, Microart will manufacture, on a non-exclusive basis, certain components and sub-assemblies of our current and future products. During the term of the Microart Agreement, we shall order Products from Microart by issuing purchase orders, and Microart shall manufacture and supply Products to us in the quantities specified in the applicable purchase orders and in accordance with our specifications. Subject to certain exceptions, Microart will charge us a fixed price for every Product purchased, which fixed price may only be changed by Microart once per each cumulative twelve-month period, and in each case, any increase shall not exceed an amount specified in the Microart Agreement.
The Microart Agreement has a three-year initial term, with automatic annual renewals until terminated by one of the parties in accordance with the terms of the Microart Agreement. The Microart Agreement may be terminated as follows: (i) at any time upon mutual agreement of the parties; (ii) by either party at the end of the initial three year term or any subsequent annual renewal term upon written notice received by the other party not less than 60 calendar days prior to the expiration of the relevant term; (iii) by either party upon 30 calendar days written notice to the other party following a material breach of the agreement if the breaching party fails to cure such breach in a reasonable period of time; or (iv) by either party upon the other party seeking an order for relief under bankruptcy laws, a composition with or assignment for the benefit of creditors, or the dissolution or liquidation.
We expect that this new relationship with Microart will significantly reduce the cost of manufacturing our ClearUP product, and potentially our future products as well.
ALOM Agreement
On November 25, 2022, we entered into a Fulfillment Services Agreement (the “ALOM Agreement”), with ALOM Technologies Corporation (“ALOM”). Pursuant to the ALOM Agreement, commencing on November 28, 2022 (the “Effective Date”), ALOM will provide, on a non-exclusive basis, certain assembly, procurement, storage, returns, and fulfillment services to our end customers and retailers within the United States. During the term of the ALOM Agreement, ALOM shall provide the services in accordance with purchase orders issued by us from time to time. The consideration payable by us to ALOM for services rendered under the ALOM Agreement will be calculated and invoiced based on fixed hourly rates and fixed unit pricing, as applicable, subject to certain exceptions; provided that, commencing April 1, 2023, we will be subject to certain minimum periodic purchase requirements.
The ALOM Agreement has a three-year initial term, with automatic annual renewals until terminated by one of the parties in accordance with the terms of the agreement. The ALOM Agreement may be terminated as follows: (i) for cause upon sixty calendar days’ written notice describing with particularity the conduct constituting such
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breach, if such breach is not cured to the reasonable satisfaction of the aggrieved party within such 60-day period; (ii) for failure to pay any invoices when due, if full payment is not made within twenty calendar days after delivery of a written notice; or (iii) for convenience, upon sixty calendar days’ written notice.
Expanding our product offerings
As of November 14, 2022, the day that we filed our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, we intended to increase our product offerings through the Reliefband Acquisition. As discussed elsewhere in this prospectus, on December 7, 2022, we entered into a Termination Agreement with the parties to the Purchase Agreement, pursuant to which we mutually terminated the Purchase Agreement and abandoned the proposed Reliefband Acquisition. As a result, we no longer currently expect to expand our product offerings through the acquisition of the Reliefband assets.
We are currently re-evaluating our plans and strategies with respect to the expansion of our product offerings in the future.
Further reduction to our product costs
On October 21, 2022, we entered into the Microart Agreement with Microart, pursuant to which Microart will manufacture, on a non-exclusive basis, certain components and sub-assemblies of our current and future products. During the term of the Microart Agreement, we shall order products from Microart by issuing purchase orders, and Microart shall manufacture and supply products to us in the quantities specified in the applicable purchase orders and in accordance with our specifications. Subject to certain exceptions, Microart will charge us a fixed price for every product purchased, which fixed price may only be changed by Microart once per each cumulative twelve-month period, and in each case, any increase shall not exceed an amount specified in the Microart Agreement.
In addition, on November 25, 2022, we entered into the ALOM Agreement, pursuant to which ALOM will provide, on a non-exclusive basis, certain assembly, procurement, storage, returns, and fulfillment services to our end customers and retailers within the United States. During the term of the ALOM Agreement, ALOM shall provide the services in accordance with purchase orders issued by us from time to time. The consideration payable by us to ALOM for services rendered under the ALOM Agreement will be calculated and invoiced based on fixed hourly rates and fixed unit pricing, as applicable, subject to certain exceptions; provided that, commencing April 1, 2023, we will be subject to certain minimum periodic purchase requirements
We expect that these new arrangements with Microart and ALOM will significantly reduce the cost of manufacturing and fulfillment our ClearUP product, and potentially our future products as well.
Other operational updates
In 2022, we also invested in our marketing, product design and e-commerce distribution infrastructure as follows:
| • | We broadened our advertising mix and increased marketing spend to drive sales growth. |
| • | We optimized our sales channel strategy to increase our profit margin, and terminated less profitable channels. |
| • | We made infrastructure-level improvements to our website and ecommerce functions, including to enhance mobile access to, and use of, our website and adding payment options. |
| • | We were featured in ABC News Report: “New Bioelectronic Technologies Could Signal the Future of Medicine” in January 2022. |
| • | ClearUP was named best sinus pain relief solution of 2021 by Global Health & Pharma Magazine in February 2022. |
| • | Our CEO spoke at high-profile events evangelizing bioelectronic medicine as a first-line therapeutic option for chronic disease, including Fortune Brainstorm Health and Neurotech Leaders’ Forum. |
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| • | We successfully launched the rebranding of our website and related marketing materials and increased ClearUP sales price from $149.00 to $169.99. |
In 2022, we also invested in our product innovation and development programs as follows:
| • | We advanced the collaboration with Mount Sinai School of Medicine Division of Rhinology and Skull Base Surgery on a sham-controlled clinical trial to evaluate a new bioelectronic approach to treating postoperative pain after sinus surgery. This 60-person randomized sham-controlled clinical trial is currently on-going. |
| • | We initiated development work related to a potential product candidate in migraine as follows: |
| ○ | Completed market studies to identify needs in the treatment of migraine |
| ○ | Identified multiple internal and external assets for device development |
| ○ | Identified clinical partner: Allergy & Asthma Associates of Santa Clara Valley Research Center |
| ○ | Developed a clinical trial protocol |
| • | We furthered our regulatory compliance through a formal re-certification audit by an external third party, BSI, and were found to be fully conforming to the ISO 13485 certification requirements leading to an extension of our certification. |
| • | We broadened our IP portfolio receiving one new issuance, bringing issued claims to 96. We also filed 4 additional Patent Cooperation Treaty (“PCT”) applications covering new indications. |
In 2022, we have also strengthened our management team with key new hires, and we now have a core team of 16 individuals. We have intentionally maintained a small core team at this stage of the Company. We have relied, and continue to rely, heavily on third-party service providers, including marketing agencies, clinical research organizations and academic research partnerships, finance and accounting support, legal support, and contract manufacturing organizations to carry out our operations. In connection with our IPO in November last year, we upgraded various aspects of the Company to align with public company standards.
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2022 and 2021 (in thousands)
The following table summarizes our results of operations (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| Revenue |
$ | 477 | $ | 277 | $ | 200 | $ | 1,432 | $ | 868 | $ | 564 | ||||||||||||
| Cost of sales |
414 | 303 | 111 | 1,176 | 904 | 272 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Gross profit (loss) |
63 | (26 | ) | 89 | 256 | (36 | ) | 292 | ||||||||||||||||
| Operating expenses: |
||||||||||||||||||||||||
| Research and development |
399 | 175 | 224 | 1,295 | 565 | 730 | ||||||||||||||||||
| Sales and marketing |
487 | 450 | 37 | 2,291 | 1,095 | 1,196 | ||||||||||||||||||
| General and administrative |
1,761 | 578 | 1,183 | 4,512 | 1,645 | 2,867 | ||||||||||||||||||
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|
|
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|
|
|
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| Total operating expenses |
2,647 | 1,203 | 1,444 | 8,098 | 3,305 | 4,793 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||||
| Loss from operations |
(2,584 | ) | (1,229 | ) | (1,355 | ) | (7,842 | ) | (3,341 | ) | (4,501 | ) | ||||||||||||
| Other income (expense): |
||||||||||||||||||||||||
| Interest income (expense) |
1 | (1,171 | ) | 1,172 | 1 | (1,668 | ) | 1,669 | ||||||||||||||||
| Change in fair value of derivative liabilities |
— | 80 | (80 | ) | — | 81 | (81 | ) | ||||||||||||||||
| Other income (expense) |
(1 | ) | — | (1 | ) | (1 | ) | 158 | (159 | ) | ||||||||||||||
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|
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|
|
|
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|
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| Total other income (expense) |
— | (1,091 | ) | 1,091 | — | (1,429 | ) | 1,429 | ||||||||||||||||
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|
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|
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| Net loss |
$ | (2,584 | ) | $ | (2,320 | ) | $ | (264 | ) | $ | (7,842 | ) | $ | (4,770 | ) | $ | (3,072 | ) | ||||||
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Revenue
Revenue is generated by the sale of our ClearUP and ancillary products, including accessories and accelerated shipping charges, and is net of return reserves. We currently sell directly to consumers through our own website, Amazon and Walmart. We also sell to major and specialty online retailers, such as BestBuy and FSAStore. Noninvasive bioelectronic medicine is an emerging market space that provides consumers with non-drug treatments for various diseases and ClearUP is the first FDA-approved bioelectronic treatment for sinus pain and congestion. We expect our sales to continue to grow as we further our market penetration efforts and implement moderate price increases.
For the three months ended September 30, 2022, revenue increased by $200 thousand, or 72%, compared to the same period in 2021, primarily due to a 37% increase in unit sales. Unit sales in our direct-to-consumer channels increased 130%, while unit sales in our retail channels decreased by 31% due to the termination of less profitable reseller channels. Average sales price in our direct-to-consumer and reseller channels increased by 6% and 33%, respectively.
For the nine months ended September 30, 2022, revenue increased by $564 thousand, or 65%, compared to the same period in 2021, primarily due to a 37% increase in unit sales, with the majority from our direct-to-consumer channels. Unit sales in our direct-to-consumer channels increased by 146%, while unit sales in our retail channels decreased by 45% due to the termination of less profitable reseller channels. Average sales price in our direct-to-consumer and reseller channels increased by 2% and 23%, respectively.
Cost of Sales
Cost of sales consists primarily of the materials and services to manufacture our products, the internal personnel costs to oversee manufacturing and supply chain functions, and the shipment of goods to customers. A significant portion of our cost of sales is currently in fixed and semi-fixed expenses associated with the management of manufacturing and supply chain. Cost of sales is expected to increase on an absolute basis as sales volume increases. Cost of sales is expected to decrease as a proportion of revenue with (i) the optimization of our supply chain and (ii) the allocation of fixed and semi-fixed expenses over increasing unit sales volume over time.
For the three months ended September 30, 2022, cost of sales increased by $111 thousand, or 37%, compared to the same period in 2021, primarily driven by higher sales volume in 2022. Variable cost was $373 thousand, or $95.04 per unit, for the three months ended September 30, 2022, compared to $236 thousand, or $82.34 per unit, for the same period in 2021. The increase in the variable cost was primarily driven by a temporary price increase in several electronic components due to the well-documented global supply chain shortages, the purchase price variance for the quarter was approximately $26.02 per unit. Fixed cost was $41 thousand, or $10.48 per unit, for the three months ended September 30, 2022, compared to $67 thousand, or $23.40 per unit, for the same period in 2021. The decrease in the fixed cost was primarily due to higher sales volume absorbing the fixed costs.
For the nine months ended September 30, 2022, cost of sales increased by $272 thousand, or 30%, compared to the same period in 2021, primarily driven by higher sales volume in 2022. Variable cost was $1.0 million, or $85.49 per unit, for the nine months ended September 30, 2022, compared to $698 thousand, or $78.35 per unit, for the same period in 2021. The increase in the variable cost was primarily due to a temporary price increase in several electronic components during the third quarter due to the well-documented global supply chain shortages. Fixed cost was $134 thousand, or $11.01 per unit, for the nine months ended September 30, 2022, compared to $206 thousand, or $23.16 per unit, for the same period in 2021. The decrease in the fixed cost was primarily due to higher sales volume absorbing the fixed overhead costs.
Gross Margin
Gross margin has been and will continue to be affected by, and is likely to fluctuate on a quarterly basis due to, a variety of factors, including sales volumes, product and channel mix, pricing strategies, costs of finished goods,
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and product return rates, new product launches and potential new manufacturing partners and suppliers. We expect our gross margin to increase with future price increases, optimization of our product design and supply-chain, and increasing sales volume over which fixed and semi-fixed costs are allocated.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred to conduct research, including the discovery, development and validation of product candidates. Research and development expenses include personnel costs, including stock-based compensation expense, third-party contractor services, including development and testing of prototype devices, and maintenance of limited in-house research facilities. We expense research and development costs as they are incurred. We expect research and development expenses to increase with the discovery and validation of new product candidates.
For the three months ended September 30, 2022, research and development expenses increased by $224 thousand compared to the same period in 2021.
For the nine months ended September 30, 2022, research and development expenses increased by $730 thousand compared to the same period in 2021.
The year-over-year increases for the three- and nine-months ended September 30, 2022 were primarily due to increased headcount and costs related to additional investments in product candidate research and design. The emphasis of research and development activities in 2022 has been primarily related to product research and design in the migraine therapeutic area, initiation of a double-blind randomized controlled trial for post-operative pain relief following sinus surgery, and enhancement of our intellectual property protection. Activities in 2021 were primarily focused on seeking FDA approval for a second indication for our ClearUP product line.
Sales and Marketing Expenses
Sales and marketing expenses include personnel costs and expenses for advertising and other marketing services. Personnel costs consist of salaries, bonuses, benefits and stock-based compensation expense. We expect sales and marketing expenses to increase as we continue to expand our markets and distribution channels.
For the three months ended September 30, 2022, sales and marketing expenses increased by $37 thousand compared to the same period in 2021.
For the nine months ended September 30, 2022, sales and marketing expenses increased by $1.2 million compared to the same period in 2021.
The increases for both the three- and nine-months ended September 30, 2022 were due primarily to the expansion of our sales and marketing efforts, including (i) expanding advertising platforms; (ii) growing our social media presence; (iii) upgrading and optimizing ecommerce infrastructure, online/website design; and (iv) other marketing initiatives.
General and Administrative Expenses
General and administrative expenses include D&O insurance, personnel costs, expenses for outside professional services and other expenses. Personnel costs consist of salaries, bonuses, benefits and stock-based compensation expense. Outside professional services consist of legal, finance, accounting and audit services, and other consulting fees. We expect general and administrative expenses to increase as we optimize our operational infrastructure mix versus using outside consultants in the next year or two, but expect the expense to decrease as a proportion of revenue as revenue scales against fixed and semi-fixed administrative expenses over time.
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For the three months ended September 30, 2022, general and administrative expenses increased by $1.2 million compared to the same period in 2021, and was primarily attributable to $373 thousand of increased legal fees associated with the acquisition of Reliefband, $236 thousand in other consulting fees which included $84 thousand of fees associated with the acquisition of Reliefband, $218 thousand of increased personnel costs associated with increased headcount, $201 thousand of increased D&O insurance costs, $96 thousand of increased facilities and related costs associated with the relocation of the Company’s headquarters and $67 thousand of other fees and professional services that are required for public company standards.
For the nine months ended September 30, 2022, general and administrative expenses increased by $2.9 million compared to the same period in 2021, and was primarily attributable to $813 thousand of increased personnel costs associated with increased headcount, $469 thousand of increased legal fees which included $431 thousand of fees associated with the acquisition of Reliefband, $255 thousand in other consulting fees which included $84 thousand of fees associated with the acquisition of Reliefband, $609 thousand of increased D&O insurance costs, $363 thousand of increased facilities and related costs associated with the relocation of the Company’s headquarters and $349 thousand of other increased fees and professional services that are required for public company standards.
Other Income/Expense, Net
Other expense, net in 2021 consisted primarily of amortization of debt discount included in interest of $1.6 million, offset by $157 thousand of debt forgiveness associated with PPP loans. There were no similar expenses in the three and nine months ended September 30, 2022.
Results of Operations
Comparison of the Years Ended December 31, 2021 and 2020
The following table summarizes our results of operations (in thousands):
| Year Ended December 31, |
||||||||||||
| Statement of operations data: |
2021 | 2020 | Change | |||||||||
| Revenue |
$ | 1,166 | $ | 860 | $ | 306 | ||||||
| Cost of sales |
1,295 | 1,085 | 210 | |||||||||
|
|
|
|
|
|
|
|||||||
| Gross loss |
(129 | ) | (225 | ) | (96 | ) | ||||||
| Operating expenses: |
||||||||||||
| Research and development |
878 | 659 | 219 | |||||||||
| Sales and marketing |
1,696 | 1,306 | 390 | |||||||||
| General and administrative |
2,929 | 1,014 | 1,915 | |||||||||
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|
|
|||||||
| Total operating expenses |
5,503 | 2,979 | 2,524 | |||||||||
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|
|
|
|
|
|||||||
| Loss from operations |
(5,632 | ) | (3,204 | ) | (2,428 | ) | ||||||
| Other income (expense): |
||||||||||||
| Interest expense |
(1,823 | ) | (423 | ) | (1,400 | ) | ||||||
| Change in fair value of derivative liabilities |
436 | (27 | ) | 463 | ||||||||
| Loss on extinguishment of debt |
(1,636 | ) | — | (1,636 | ) | |||||||
| Other income |
162 | 15 | 147 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total other income (expense) |
(2,861 | ) | (435 | ) | (2,426 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Loss before provision for income taxes |
(8,493 | ) | (3,639 | ) | (4,854 | ) | ||||||
| Provision for income taxes |
1 | — | 1 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss and comprehensive loss |
$ | (8,494 | ) | $ | (3,639 | ) | $ | (4,855 | ) | |||
|
|
|
|
|
|
|
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Revenue
Revenue increased $306 thousand, or 36%, from $860 thousand for the year ended December 31, 2020 to $1,166,000 for the year ended December 31, 2021, primarily attributable to increased unit sales of 21% from approximately 10,400 units for the year ended December 31, 2020 to approximately 12,600 units for the year ended December 31, 2021 and increases in net product average order value for the year ended December 31, 2021 as compared to December 31, 2020 as described in more detail below. Ancillary revenues were less than 1% of total revenue for both of the years ended December 31, 2020 and 2021.
| Year Ended December 31, |
||||||||||||
| Statement of operations data (in thousands): |
2021 | 2020 | Change | |||||||||
| Product Revenue |
||||||||||||
| Direct-to-consumer |
$ | 691 | $ | 551 | $ | 140 | ||||||
|
|
|
|
|
|
|
|||||||
| Retail |
592 | 415 | 177 | |||||||||
|
|
|
|
|
|
|
|||||||
| Return and Warranty Reserves |
(117 | ) | (106 | ) | (11 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total Revenue |
$ | 1,166 | 860 | $ | 306 | |||||||
|
|
|
|
|
|
|
|||||||
Direct-to-consumer product revenue increased $140 thousand, or 25%, from $551 thousand for the year ended December 31, 2020 to $691 thousand for the year ended December 31, 2021, which increase is primarily attributable to increased unit sales of 17% from approximately 4,800 units for the year ended December 31, 2020 to approximately 5,600 units for the year ended December 31, 2021. Net product average order value increased to $123.39 for the year ended December 31, 2021 from $114.79 for the year ended December 31, 2020 primarily due to a reduction in consumer pricing incentives during the year ended December 31, 2021 from the year ended December 31, 2020.
Retail channel product revenue increased $177 thousand, or 44%, from $415 thousand for the year ended December 31, 2020 to $592 thousand for the year ended December 31, 2021, which increase is primarily attributable to increased unit sales of 25% from approximately 5,600 units for the year ended December 31, 2020 to approximately 7,000 units for the year ended December 31, 2021. Average product order value increased to $84.57 for the year ended December 31, 2021, from $74.11 for the year ended December 31, 2020 primarily due to our focus on selling product through higher margin retail channel customers for the year ended December 31, 2021 from the year ended December 31, 2020.
Return and warranty reserves as a percentage of product revenue was approximately 11.1% for the year ended December 31, 2020, as compared to 9.1% for the year ended December 31, 2021. We lowered the return and warranty reserve due to lower return rates which we believe were a result of our efforts to provide more effective online and print media on how to use our products.
Cost of Sales
Cost of sales for the year ended December 31, 2021 was $1.3 million compared to $1.1 million for the year ended December 31, 2020, an increase of $210 thousand or 19%. The period over period increase was primarily attributable to increased unit sales of 21% from approximately 10,400 units for the year ended December 31, 2020 to approximately 12,600 units for the year ended December 31, 2021.
Variable cost of goods sold includes product costs, fulfillment, shipping and other variances and adjustments. Variable cost of goods sold was $1.0 million or $82.46 per unit given 12,600 units for the year ended December 31, 2021 as compared to $737 thousand or $70.87 per unit given 10,400 units for the year ended December 31, 2020. The increase in variable cost of goods sold was due to increased costs related to global supply chain issues. Fulfillment and shipping costs are significantly lower for retail channel bulk orders.
Fixed cost of goods sold includes allocation of fixed and semi-fixed expenses, including, non-cash Company personnel allocation and monthly minimum management, storage and processing fees from our third-party
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logistics provider. Fixed cost of goods sold decreased to $256 thousand for the year ended December 31, 2021 as compared to $348 thousand for the year ended December 31, 2020 primarily due to lower non-cash Company personnel allocation as the Company refined its production management processes. Non-cash Company personnel allocation for the fourth quarter of 2021 was $23 thousand.
Revenue less variable cost of goods sold for the year ended December 31, 2021 was $166 thousand compared to $123 thousand for the year ended December 31, 2020. Gross loss for the year ended December 31, 2021 was $129 thousand compared to $225 thousand for the year ended December 31, 2020.
Our gross margin has been and will continue to be affected by and likely fluctuate on a quarterly basis due to a variety of factors, including sales volumes, product and channel mix, pricing strategies, costs of finished goods, and product return rates, new product launches and potential new manufacturing partners and suppliers. We expect our gross margin to increase with the launch of ClearUP Gen 2 and increasing sales volume over which fixed and semi-fixed costs are allocated.
Operating Expenses
Research and Development Expenses
Research and development expenses increased by $219 thousand from $659 thousand for the year ended December 31, 2020 compared to $878 thousand for the year ended December 31, 2021. The emphasis of activity in 2020 was primarily related to completion of a four-week at home clinical study supporting the application for a CE Mark for ClearUP. Activity in 2021 was primarily focused on developing ClearUP Gen 2, and preparation for seeking FDA approval for a second indication for the ClearUP product line.
Sales and Marketing Expenses
Sales and marketing expenses increased to $1.7 million for the year ended December 31, 2021, compared to $1.3 million for the year ended December 31, 2020. The increase of $390 thousand primarily related to $300 thousand of increased fourth quarter spending in anticipation of and use of proceeds of our November 2021 IPO to expand our sales and marketing efforts, including (i) expanding advertising; (ii) growing our social media presence; (iii) upgrading and optimizing ecommerce infrastructure, online/website design; and (iv) other initiatives marketing initiatives.
General and Administrative Expenses
General and administrative expenses increased by $1.9 million to $2.9 million for the year ended December 31, 2021, compared to $1.0 million for the year ended December 31, 2020, primarily due to increase salaries, consulting fees, audit fees and other professional services to upgrade the accounting and finance function and to obtain an audit.
Other Income (Expense), Net
Other income (expense), net for the year ended December 31, 2021 is primarily due to the loss on extinguishment of debt upon conversion of the convertible notes payable to common stock of $1.6 million, amortization of debt discount of $1.7 million and interest expense of $76 thousand offset by the income from the forgiveness of the PPP loan and the change in the fair value of the conversion feature derivative liabilities. Other income (expense), net for the year ended December 31, 2020 is primarily due to the amortization of debt discount of $411 thousand.
Liquidity and Capital Resources
Sources of Liquidity
From our inception through September 30, 2022, we have generated $4.0 million in revenue from product sales and have incurred operating losses and negative cash flows from our operations. As of September 30, 2022, we
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had cash and cash equivalents of $6.3 million, working capital of $5.6 million and an accumulated deficit of $27.4 million. We have financed our operations to date primarily through issuances of SAFE instruments, convertible notes and convertible preferred stock and the proceeds from the IPO in November 2021. In 2019, we sold an aggregate of 2,787,854 shares of our convertible preferred stock to accredited investors, generating net proceeds of $3.8 million and borrowings from convertible notes payables issued to investors in the amount of $1.7 million. In 2020, we borrowed $1.6 million by issuing convertible notes and issued notes payable to borrow $195 thousand. In November 2021, we completed our IPO, generating net proceeds to the Company of approximately $14.9 million. During the year ended December 31, 2021, we borrowed $2.6 million by issuing convertible notes payable. During the nine months ended September 30, 2022, we did not engage in any capital raising activities, other than through the sale of our products.
In addition, on October 28, 2021, we entered into a Revolving Line of Credit Note with Tethered LLC (“Tethered”) providing us with a $250 thousand revolving line of credit (the “Line of Credit”), pursuant to which we could request advances until December 3, 2022. Advances drawn under the Line of Credit would have borne interest at an annual rate of 6.0%, and each advance would have been payable on the maturity date with the interest on outstanding advances payable monthly. We had the right, at our option, prepay any borrowings under the Line of Credit, in whole or in part, at any time prior to the maturity date, without premium or penalty. We never drew down on the Line of Credit, and it automatically terminated pursuant to its terms on December 3, 2022.
Management expects to incur substantial additional operating losses for the foreseeable future to expand our markets, continue research and development programs, complete development of new products, obtain regulatory approvals, launch and commercialize our products and comply with material government (including environmental) regulations. Based on the Company’s current cash levels and burn rate, amongst other things, the Company believes its cash and financial resources may be insufficient to meet the Company’s anticipated needs for the twelve months following the date of issuance of the condensed financial statements for the quarter ended September 30, 2022, included elsewhere in this prospectus, which raises substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance date of the condensed financial statements.
During the years ended December 31, 2021 and 2020, we incurred net losses of $8.5 million and $3.6 million, respectively, and used $5.6 million and $3.0 million of cash for operations, respectively. Management expects to incur substantial additional operating losses for at least the next two years to expand our markets, complete development of new products, obtain regulatory approvals, launch and commercialize our products and continue research and development programs.
Plan of Operation and Future Funding Requirements
We use our capital resources primarily to fund marketing and advertising for ClearUP, development of our product candidates, and general operations. We expect that our operating expenses will increase significantly as we discover, acquire, validate and develop additional product candidates; seek regulatory approval and, if approved, proceed to commercialization of new products; obtain, maintain, protect and enforce our intellectual property portfolio; hire additional personnel; and maintain compliance with material government (in addition to environmental) regulations. We plan to increase our research and development investments to identify and develop new product candidates. Furthermore, we have incurred and will continue to incur additional costs associated with operating as a public company that we did not experience as a private company. We expect to continue to incur significant losses for the foreseeable future. At this time, due to the inherently unpredictable nature of research and new product adoption, as well as supply chain constraints that we are currently facing, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize future product candidates, if at all. For the same reasons, we are also unable to predict how quickly we will ramp-up revenue from ClearUP product sales or whether, or when, if ever, we may achieve profitability from the sales of one or more products. Clinical and preclinical development timelines, the probability of success, and sell-in costs can differ materially from expectations. In addition, we cannot forecast which product candidates may be best developed and/or monetized through future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
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As previously disclosed, we have encountered disruptions in our supply of various materials and components, and electronic components in particular, due to well-documented shortages and constraints in the global supply chain. We are continuing to evaluate alternative and secondary source suppliers in order to ensure that we are able to source sufficient components and materials to manufacture our products. Global supply chain shortages (especially when coupled with the increase in inflation) could result in an increase in the cost of the components used in our products, which could result in a decrease of our gross margins or in us having to increase the price at which we sell our products until supply chain constraints are resolved. Additionally, in the event that we are unable to source sufficient components and materials from our current suppliers, or to develop relationships with additional suppliers, to manufacture enough of our products to satisfy demand, we may have to cease or slow down production and our business operations and financial condition may be materially harmed and we may need to alter our plan of operation.
In addition to the foregoing, we may, from time to time, consider opportunities for strategic acquisitions. If an acquisition is identified and pursued, a substantial portion of our cash reserves may be required to complete such acquisition. If we identify an attractive acquisition that would require more cash to complete than we are willing or able to use from our cash reserves, we will consider financing options to complete the acquisition, including through equity and/or debt financings. As discussed above, our previously contemplated acquisition of certain assets of Reliefband was abandoned upon execution of the Termination Agreement in December 2022.
We have generated operating losses in each period since inception. We have incurred an accumulated deficit of $27.4 million through September 30, 2022. We expect to incur additional losses in the future as we expand both our marketing and research and development activities. Based on our current cash levels and burn rate, amongst other things, we believe our cash and financial resources may be insufficient to meet our anticipated needs for the next twelve months. As a result, we expect that we will need to raise additional capital to continue operating our business and fund our planned operations, including research and development, clinical trials and, if regulatory approval is obtained, commercialization of future product candidates.
Our ability to grow sales revenue will depend on successfully executing a comprehensive marketing campaign to drive additional sales through existing and new channels. Long-term growth will be commensurate with our ability to successfully identify, develop, and secure regulatory approval of one or more additional product candidates beyond ClearUP. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through private or public equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. We do not know whether additional financing will be available on commercially acceptable terms, or at all, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to fund our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or limited, which could materially adversely affect our business, financial conditions or results of operations, and we may have to significantly delay, scale back or discontinue the development and commercialization of our products and/or future product candidates.
The timing and amount of our operating expenditures will depend largely on:
| • | our ability to raise additional capital if and when necessary and on terms favorable to the Company; |
| • | the availability of electronic parts and other components for our products, as well as our ability to source such parts and components at favorable prices; |
| • | the timing and progress of sales initiatives driving top-line revenue; |
| • | the timing and adoption rate of ClearUP line extensions at lower cost of goods; |
| • | the payment terms and timing of commercial contracts entered into for manufacturing and sales of our products to and through online third-party retailers; |
| • | the timing and progress of preclinical and clinical development activities; |
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| • | the number and scope of preclinical and clinical programs we decide to pursue; |
| • | the timing and amount of milestone payments we may receive under any future collaboration agreements; |
| • | whether we close potential future strategic acquisition opportunities, and if we do, our ability to successfully integrate acquired assets and/or businesses with our own; |
| • | our ability to source new business opportunities through licenses and research and development programs and to establish new collaboration arrangements; |
| • | the costs involved in prosecuting and enforcing patent and other intellectual property claims; |
| • | the cost and timing of additional regulatory approvals beyond those currently held by us; |
| • | our efforts to enhance operational systems and hire additional personnel, including personnel to support finance, sales, marketing, operations and development of our product candidates and satisfy our obligations as a public company; and |
| • | our efforts to maintain compliance with material government (including environmental) regulations. |
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to fund our operations and capital funding needs through equity and/or debt financings. We may also consider entering into collaboration arrangements or selectively partnering with third parties for clinical development and commercialization. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of additional debt would result in debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations or our ability to incur additional indebtedness or pay dividends, among other items. If we raise additional funds through governmental funding, collaborations, strategic partnerships and alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially and adversely affect our business, financial condition, results of operations and prospects.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
| Nine Months Ended September 30, |
||||||||
| 2022 | 2021 | |||||||
| (unaudited) | (unaudited) | |||||||
| Cash used in operating activities |
$ | (6,692 | ) | $ | (2,852 | ) | ||
| Cash used in investing activities |
(11 | ) | — | |||||
| Cash provided by financing activities |
56 | 2,656 | ||||||
|
|
|
|
|
|||||
| Net (decrease) increase in cash and cash equivalents |
$ | (6,647 | ) | $ | (196 | ) | ||
|
|
|
|
|
|||||
| Year Ended December 31, |
||||||||
| 2021 | 2020 | |||||||
| Cash used in operating activities |
$ | (5,612 | ) | $ | (3,027 | ) | ||
| Cash used in investing activities |
— | — | ||||||
| Cash provided by financing activities |
17,543 | 1,760 | ||||||
|
|
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents |
$ | 11,931 | $ | (1,267 | ) | |||
|
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Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2022 was $6.7 million, which consisted primarily of a net loss of $7.8 million, decreased by non-cash charges of $415 thousand and a net change of $735 thousand in our net operating assets. The non-cash charges primarily consisted of stock-based compensation of $286 thousand and amortization of right-of-use assets of $122 thousand. The change in our net operating assets and liabilities was primarily due to an increase in accounts payable of $813 thousand and a decrease in prepaids and other current assets of $462 thousand, offset by an increase in inventory of $332 thousand and a decrease in lease liabilities of $135 thousand.
Net cash used in operating activities for the nine months ended September 30, 2021 was $2.9 million, which consisted primarily of net loss of $4.8 million decreased by non-cash charges of $1.5 million and a net change of $461 thousand in our net operating assets. The non-cash charges primarily consisted of debt discount amortization of $1.6 million and stock-based compensation of $41 thousand offset by forgiveness of the PPP loan of $157 thousand and $81 thousand for the change in fair value of derivative liabilities. The change in our net operating assets and liabilities was primarily due to an increase in accounts payable and accrued expenses of $1.1 million offset by an increase in deferred offering costs of $555 thousand.
Net cash used in operating activities for the year ended December 31, 2021, was $5.6 million, which consisted primarily of net loss of $8.5 million decreased by non-cash charges of $3.3 million and increased by a net change of $403 thousand in our net operating assets. The non-cash charges primarily consisted of debt discount amortization of $1.7 million, loss on extinguishment of debt from conversion of convertible notes payable to common stock of $1.6 million, stock-based compensation of $57 thousand, accounts receivable allowances of $66 thousand and issuance of warrant for consulting services of $280 thousand offset by the change in fair value remeasurement of derivative liabilities of $436 thousand and the forgiveness of the PPP loan of $157 thousand. The change in our net operating assets and liabilities was primarily due to an increase in inventory and prepaid expenses, offset by an increase in accounts payable in 2021.
Net cash used in operating activities for the year ended December 31, 2020, was $3.0 million, which consisted primarily of net loss of $3.7 million decreased by non-cash charges of $568 thousand and decreased by a net change of $44 thousand in our net operating assets. The non-cash charges primarily consisted of debt discount amortization of $411 thousand, stock-based compensation of $78 thousand, and change in fair value remeasurement of derivative liabilities of $27 thousand. The change in our net operating assets and liabilities was primarily due to an increase in inventory, accompanied by a decrease in accrued liabilities in 2020.
Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2022 was related to the purchases of property and equipment. We had no investing activities during the nine months ended September 30, 2021.
We had no investing activities during the years ended December 31, 2021 and 2020.
Financing Activities
Our financing activities provided $56 thousand of cash during the nine months ended September 30, 2022, which consisted of proceeds from the exercise of stock options.
Our financing activities provided $2.7 million of cash during the nine months ended September 30, 2021, which consisted primarily of $2.6 million of proceeds from convertible notes payable borrowings and $62 thousand of proceeds from the exercise of stock options.
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Our financing activities provided $17.5 million of cash during the year ended December 31, 2021, which consisted primarily of the proceeds from the IPO, net of issuance costs, of $14.9 million, convertible notes payable borrowings of $2.6 million, and from issuance of common stock from exercise of stock options of $62 thousand, offset by notes payable repayment of $19 thousand.
Our financing activities provided $1.7 million of cash during the year ended December 31, 2020, which consisted primarily of convertible notes payable borrowings of $1.6 million, borrowings of $156 thousand in the form of the federal Paycheck Protection Program and borrowings of $39 thousand to finance our insurance policies.
Known Trends or Uncertainties
As discussed elsewhere in this prospectus, the world has been affected by the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine and economic uncertainty in human capital management (“HCM”). Inflation has risen, Federal Reserve interest rates have increased recently, and the general consensus among economists suggests that we should expect a higher recession risk to continue over the next year. Climate change continues to be an intense topic of public discussion and is adding additional challenges and financial burden due to impending reparations and changes in the customer mindset. These factors, amongst other things, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. The pandemic and recent economic volatility have negatively impacted our business in various ways over the last two years, including, more recently, as a result of global supply chain constraints at least partially attributable to the pandemic. Until the pandemic has passed, there remains uncertainty as to the effect of COVID-19 on our business in both the short and long-term. We will continue to monitor material impacts on our HCM strategies, including potential of employee attrition, amongst other things.
We are continuing to encounter disruptions in our supply of various materials and components, and electronic components in particular, due to well-documented shortages and constraints in the global supply chain. We have experienced increased pricing, longer lead-times, unavailability of product and limited supplies, protracted delivery dates, and/or shortages of certain parts and supplies that are necessary components for our products. As a result, we are carrying increased inventory balances to ensure availability of necessary products and to secure pricing. Although we are seeing some recent improvement in the market place, uncertainty with respect to the availability of necessary products and supplies, as well as pricing thereof, remains. We are continuingly evaluating alternative and secondary source suppliers in order to ensure that we are able to source sufficient components and materials to manufacture our products at a reasonable price point. In the event that the price of our components increase significantly or we are unable source sufficient components and materials from our current suppliers, or to develop relationships with additional suppliers, to manufacture enough of our products to satisfy demand, we may have to cease or slow down production and our business operations and financial condition may be materially harmed.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the ongoing military conflict between Russia and Ukraine. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as further supply chain interruptions. Additionally, the recent military conflict in Ukraine has led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds.
Although our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine to date, it is impossible to predict the extent to which our operations, or those of our suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact our business. The extent and duration of the military action, sanctions and resulting market disruptions are
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impossible to predict, but could be substantial. We are continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business.
As a result of these global issues, it has been difficult to accurately forecast our revenues or financial results, especially given the near and long term impact of the pandemic, and geopolitical issues, inflation, the Federal Reserve interest rate increases and the potential for a recession. In addition, while the potential impact and duration of these issues on the economy and our business may be difficult to assess or predict, these world events have resulted in, and may continue to result in, significant disruption of global financial markets, and may reduce our ability to access additional capital, which could negatively affect our liquidity in the future. Our results of operations could be materially below our forecasts as well, which could adversely affect our results of operations, disappoint analysts and investors, or cause our stock price to decline.
Furthermore, a decrease in orders in a given period could negatively affect our revenues in future periods. These global issues and events may also have the effect of heightening many risks associated with our customers and supply chain. We may take further actions that alter our operations as may be required by federal, state, or local authorities from time to time, or which we determine are in our best interests. In addition, we may decide to postpone or abandon planned investments in our business in response to changes in our business, which may impact our ability to attract and retain customers and our rate of innovation, either of which could harm our business.
Inflation
Inflation has increased recently and is expected to continue to increase for the near future. Inflationary factors, such as increases in the cost of our products (and components thereof), interest rates, overhead costs and transportation costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the near future (especially if inflation rates continue to rise) due to supply chain constraints, consequences associated with COVID-19 and the ongoing conflict between Russia and Ukraine, employee availability and wage increases, trade tariffs imposed on certain products from China and increased product pricing due to semiconductor product shortages.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
Contractual Obligations and Commitments
Office Lease
The Company executed a noncancelable operating lease for approximately 9,091 square feet of office space in Hayward, California in November 2021 as its headquarters. The lease will expire in October 2025 and there is no option to renew for an additional term. The Company is obligated to pay, on a pro-rata basis, real estate taxes and operating costs related to the premises.
Lease cost recorded during the nine months ended September 30, 2022 was $151 thousand. There were no similar lease costs in 2021 related to the noncancelable operating lease, as the lease was not in effect at that time.
We enter into contracts in the normal course of business with our contract manufacturer and other vendors to assist in the manufacturing of our products and performance of our research and development activities and other services for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not discussed in this section. There have been no material changes to our previously disclosed business strategy with respect to our contractual obligations as disclosed under Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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Critical Accounting Estimates
Our condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to sales return reserves, warranty reserves, stock-based compensation, and going concern. Management bases its estimates and judgments on historical experience and on various other factors, including the macro-economic factors such as COVID-19 pandemic, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The methods, estimates, and judgments used by us in applying these critical accounting policies have a significant impact on the results we report in our condensed consolidated financial statements. Our significant accounting policies and estimates are included in our audited financial statements for the year ended December 31, 2021 included elsewhere in this prospectus.
Information regarding our significant accounting policies and estimates can also be found in Note 2 to our condensed financial statements for the quarter ended September 30, 2022 included elsewhere in this prospectus.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2 to our condensed financial statements for the quarter ended September 30, 2022 included elsewhere in this prospectus.
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MANAGEMENT
The following table sets forth the names, ages, and positions of our executive officers and directors:
| Name |
Age |
Position | ||
| Jennifer Ernst |
54 | Chief Executive Officer and Director | ||
| Veronica Cai |
47 | Chief Financial Officer and Secretary | ||
| Blake Gurfein, PhD |
39 | Chief Scientific Officer | ||
| Ryan Sabia |
36 | Chief Operating Officer | ||
| Sheryle Bolton |
76 | Chair of the Board | ||
| Karen Drexler |
63 | Director | ||
| Dean Zikria |
55 | Director |
Executive Officers
Jennifer Ernst is a co-founder and has served as our Chief Executive Officer and as a director since September 2016, and served as our Chief Financial Officer from September 2016 to July 2021. Previously, Ms. Ernst served as the Chief Executive Officer of the U.S. subsidiary of Thin Film Electronics ASA from April 2011 to December 2015. Ms. Ernst also served as the Chief Strategy Officer of Thin Film Electronics ASA from January 2015 to December 2015, where she established and guided the strategic planning process across all business functions and four separate product lines. Ms. Ernst also worked for Xerox PARC for over 20 years, where she held multiple go-to-market roles, including as the Director of Business Development. Ms. Ernst previously served as a director of FlexTech Alliance, the U.S. national consortium for flexible and printed electronics, for three years, including one year as the Chair. Ms. Ernst earned her Master of Business Administration degree from Santa Clara University. We believe Ms. Ernst is qualified to serve on our Board because of the perspective and experience she provides as our co-founder and Chief Executive Officer, as well as her significant experience as an executive in the technology and electronics industries and her experience in product development and commercialization.
Veronica Cai joined the Company on April 1, 2022 with two and a half decades of finance and accounting experience, specializing in scaling finance organizations in early development stage to post commercial, large international corporations and IPOs. She has held various senior financial executive roles in both publicly listed companies and private-equity backed technologies and healthcare businesses, assisting with the navigation through transitions between the different phases of business and fund raisings efforts of such businesses. Prior to joining the Company, Ms. Cai served as the Vice President of Accounting & Finance at RefleXion Medical, Inc., a private medical device company located in California, from April 2020 to February 2022. Prior to that, from February 2019 to April 2020, Ms. Cai served as the Principal Accounting Officer and Corporate Controller for Catalyst Biosciences, Inc. (NASDAQ:CBIO), biopharmaceutical company focused on developing protease therapeutics, where she oversaw all accounting functions and assisted their corporate management team with the preparation and filing of all of the Company’s SEC regulatory filings. From April 2016 to December 2018, Ms. Cai served as a director and the Assistant Controller of Zogenix, Inc. (previously, NASDAQ:ZGNX), a pharmaceutical company focused on developing and commercializing therapies for certain rare diseases. Additionally, from October 1998 to April 2016, Ms. Cai served in a number of financial and accounting roles advancing her accounting and auditing skills serving on behalf of public and privately-held companies throughout California. Ms. Cai also was an Inspections Specialist at the Public Company Accounting Board (PCAOB) from September 2012 to February 2015. She received Bachelors of Science Degrees in Business Administration and Accounting and Finance from San Francisco State University.
Blake Gurfein, PhD serves as our Chief Scientific Officer, a role that he has held since March 2019, prior to which he served as our Vice President of Research commencing in January 2018. Dr. Gurfein leads our clinical and scientific research. In addition to his full-time role with the Company, he has also served as an Adjunct Assistant Professor of Medicine at the University of California San Francisco since 2012. Dr. Gurfein is an
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expert in neuromodulation device development and has served as a research executive and consultant for several medical device and pharma companies, including as Chief Scientific Officer of Rio Grande Neurosciences from 2014 to 2017 and as a Medical Writer for EMD Serono/Pfizer in 2012. Dr. Gurfein’s prior research in neuroscience and immunology was funded by the National Institutes of Health and philanthropic donors, yielding high-impact journal publications. Dr. Gurfein has a Ph.D. in Neuroscience from the Icahn School of Medicine at Mount Sinai and an Sc.B. in Neuroscience from Brown University.
Ryan Sabia serves as our Chief Operating Officer, a position that he has held since December 2021, and prior to that served as our Vice President of Sales and Operations from March 2021 until his promotion in December. Mr. Sabia has 18 years of experience in global supply chain, systems infrastructure, and sales operations in industries that range from automotive, medical supply, and consumer electronics. From June 2019 to April 2021, Mr. Sabia served as Global Director of Strategic Operations for Mars, Inc. From July 2015 to December 2018, he served as General Manager of Operations for Medelita, LLC, a medical apparel design and manufacturing company. Prior to that, he worked as Senior Director of Operations for Pinpoint Resources Group, a software technology consulting and staffing company, from January 2013 to July 2015, and as a Hedge Fund Financial Reporting Analyst for J.P. Morgan from August 2012 to January 2013. Mr. Sabia is seasoned in environments that range from Fortune 500 companies (J.P. Morgan, BestBuy, and Toyota) to bootstrap startups, while specializing in scaling for global omnichannel logistics and e-commerce marketplaces. As a result of his finance and accounting background, Mr. Sabia drives a data-focused approach while leveraging modern technologies for business analytics and resource planning. Mr. Sabia graduated from Suffolk University Sawyer Business School with a Bachelor of Science in Finance.
Non-Employee Directors
Sheryle Bolton has served as a director since July 16, 2019, and as Chair of the Board since August 18, 2021. She is an experienced serial technology entrepreneur, public company CEO, corporate executive, speaker, board member, and investor. Ms. Bolton has been a corporate executive in financial services, media, and health care and has served on the boards of private and public corporations, ranging from large groups of mutual funds to technology and finance companies, as well as non-profits, including an NGO, where she served as Chair of the Audit Committee, focused on financing small businesses in Asia and Sub-Saharan Africa and Berry College, a private college with an internationally known work-study program. Ms. Bolton worked in private equity investing as an investment banker at Merrill Lynch Capital Markets, as Director of Strategy at Home Box Office and in asset management at Rockefeller & Co. As CEO, she raised significant funding for several start-ups from angels, venture capital, and the public and institutional markets. She was CEO of Scientific Learning Corporation, a health care and educational technology company, where she led the company from pre-product to IPO with venture funding from Warburg Pincus. She was also CEO and Chair of the public company. She has served as a board member for more than forty Scudder-Kemper mutual funds. From 2015 to 2021, Ms. Bolton was an adjunct Professor of Practice at Hult International Business School, where she taught entrepreneurship and finance courses in graduate and undergraduate programs. She has also been an invited speaker on business and entrepreneurship in the US, Asia, the Pacific Rim, Latin America, and Europe. Harvard Business School recognized Ms. Bolton as one of its most influential female graduates in Silicon Valley and the San Francisco Bay Area. She was a recipient of the first Springboard All-Women’s IPO Class award, a former Chair of Watermark, the largest organization in Silicon Valley for female executives and entrepreneurs, and a recipient of the “A Woman Who Made Her Mark” award, among many other honors and recognition. Ms. Bolton started her career as a Peace Corps Volunteer in Africa. She holds a Bachelor of Arts. and a Master of Arts in Linguistics from the University of Georgia and a Master of Business Administration from Harvard Business School. We believe that Ms. Bolton is qualified to serve as a member of our Board due to her experience as an entrepreneur, as a CEO taking a company public, and as a public company CEO and director.
Karen Drexler has served as a director on our Board since July 16, 2019. Ms. Drexler is a serial entrepreneur with expertise in the fields of digital health, medical devices and diagnostics. From June 2016 until June 2020, she was the CEO and a board member of Sandstone Diagnostics, Inc., a private company developing instruments
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and consumables for point-of-care medical testing. Ms. Drexler also serves on the boards of ResMed (NYSE: RSMD), OutSet Medical (NASDAQ: OM), EBR Systems (ASX: EBR), VIDA Health, a leading company in Al-powered lung intelligence solutions and analytics, Bone Health Technologies, a company developing vibration-based solutions to avoid and treat bone loss and Huma.ai, a medical intelligence company. From 2011 to 2017, she served as chair of the board of Hygieia, Inc., a digital insulin therapy company, and remains involved as an advisor to the CEO. She also acts as a senior strategic advisor for other early-stage companies and spent 11 years on the board of the Keller Center for Innovation in Engineering Education at Princeton University. Ms. Drexler has served on numerous private company boards in the fields of diagnostics, medical devices, and digital health. She is an active mentor and advisor with Astia, a global nonprofit that supports high-potential female founders. She is a founding member of Astia Angels, a network of individual investors who fund such founders, and a lead mentor with StartX, the Stanford University incubator. She is also on the Life Science and Women’s Health Councils for Springboard, an accelerator for women-led technology-oriented companies. Through her work with Astia, Springboard, and StartX, she interacts with many promising young medtech companies. Ms. Drexler was founder, president, and CEO of Amira Medical Inc., a private company focused on minimally invasive glucose monitoring technology, from 1996 until it was sold to Roche Holding AG in 2001. Before Amira Medical, she held management roles at LifeScan and played a key role in its sale to Johnson & Johnson (NYSE: JNJ). Ms. Drexler graduated magna cum laude with a Bachelor of Science in Chemical Engineering from Princeton University and earned a Master of Business Administration with honors from the Stanford University Graduate School of Business. Ms. Drexler’s executive and board experience in the medical diagnostics and medical device industries, and particularly her experience in digital health, technology and data security, and out-of-hospital care models, led our Board to conclude she should serve as a director.
Dean Zikria has served as a director since July 10, 2019. Mr. Zikria brings deep industry experience in allergy and asthma as well as other chronic diseases to the Board. Most recently, commencing on June 1, 2021, he has been serving as the Chief Commercial Officer at Intuity Medical Inc., a Silicon Valley MedTech company launching a highly disruptive glucose meter in the diabetes industry. In addition, he has served as Chairman of DZ Advisors, LLC, a company founded by Mr. Zikria in 2017 that provides consulting and advisory services to the med-tech, bio-tech, digital health and pharmaceutical industries, since inception, where he also served as President from December 2017 until May 31, 2021. Mr. Zikria also sits on the boards of the following privately held companies: AsthmaTek, Inc., a startup digital health company in the asthma space, Paneau Inc., a technology company placing targeted advertising in ride shares, Brev.Dev, Inc., a technology company developing a disruptive platform to aid developers, and Mind Machine LLC, a marketing and advertising agency focused on the MedTech industry. Mr. Zikria is also on the scientific advisory board of Bailard, Inc., a multi-billion dollar independent wealth and investment management firm. From 2019 to 2021, Mr. Zikria served as the CEO of Mind Machine LLC, a marketing/advertising agency, where he was also the Founder and continues to serve as Chairman. He has previously served as CEO of Spirosure Inc., a FeNO detection company for asthma diagnostics, from 2014 to 2017. He has also previously served as head of global marketing for Johnson & Johnson’s Animas Corporation within their medical device & diagnostics division. He was head of strategy for Pfizer Pharmaceuticals U.S. Cardiovascular Unit, a division with approximately $7 billion in annual revenues. Mr. Zikria brings experience in strategic planning, scenario planning and analysis, and mergers and acquisitions, including sourcing, transactions and integration. We believe that Mr. Zikria is qualified to serve as a member of our Board due to his experience in the allergy and asthma industries, as well as his experience in strategic planning, scenario planning and analysis, and mergers and acquisitions.
Family Relationships
There are no family relationships among any of our directors or executive officers.
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Corporate Governance
Composition of our Board of Directors
Our business and affairs are managed under the direction of our board of directors (“Board”). The number of directors will be fixed by our Board, subject to the terms of our amended and restated certificate of incorporation and amended and restated bylaws, which include a requirement that the number of directors be fixed exclusively by a resolution adopted by directors constituting a majority of the total number of authorized directors, whether or not there exist any vacancies in previously authorized directorships. The size of our Board is currently fixed at five directors, with one vacancy.
When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable our Board to satisfy its oversight responsibilities effectively in light of our business and structure, the Board focuses primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business.
Corporate Governance Profile
As set forth in our amended and restated certificate of incorporation and amended and restated bylaws, our corporate governance is structured in a manner we believe closely aligns our interests with those of our stockholders. Notable features of our corporate governance structure include the following:
| • | a majority of our directors satisfy the Nasdaq listing standards for independence; |
| • | generally, all matters to be voted on by stockholders will be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all stockholders present in person or represented by proxy, voting together as a single class; |
| • | we comply with the requirements of Nasdaq rules, including having committees comprised solely of independent directors; and |
| • | we do not have a stockholder rights plan. |
Our directors will stay informed about our business by attending meetings of our Board and its committees and through supplemental reports and communications. Our independent directors will meet regularly in executive sessions without the presence of our corporate officers or non-independent directors.
Classified Board of Directors
In accordance with the terms of our amended and restated certificate of incorporation, our Board is divided into three staggered classes of directors and each is assigned to one of the three classes, Class I, Class II and Class III. Each class of directors is elected for a three-year term, except that the initial term for Class II directors will expire in 2023, and the initial term for Class III directors will expire in 2024. Our directors are divided among the three classes as follows:
| • | the Class I director is Karen Drexler, and her term will expire at our 2025 annual meeting of stockholders; |
| • | the Class II director is Dean Zikria, and his term will expire at our 2023 annual meeting of stockholders; and |
| • | the Class III directors are Sheryle Bolton and Jennifer Ernst, and their terms will expire at our 2024 annual meeting of stockholders. |
The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company.
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Leadership Structure and Risk Oversight
Currently, Ms. Ernst serves as our Chief Executive Officer and Ms. Bolton serves as Chair of our Board. The Board does not have a policy regarding the separation of the roles of Chief Executive Officer and Chair of the Board, as our Board believes it is in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board.
The Board actively manages the Company’s risk oversight process and receives periodic reports from management on areas of material risk to the Company, including operational, financial, legal, and regulatory risks. The Board committees will assist the Board in fulfilling its oversight responsibilities in certain areas of risk. The Audit Committee assists the Board with its oversight of the Company’s major financial risk exposures. The Compensation Committee assists the Board with its oversight of risks arising from the Company’s compensation policies and programs. The Corporate Governance and Nominating Committee assists the Board with its oversight of risks associated with board organization, board independence, and corporate governance. While each committee is responsible for evaluating certain risks and overseeing the management of those risks, the entire Board will continue to be regularly informed about the risks.
Director Independence
The Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominations committees be independent, or, if a listed company has no nominations committee, that director nominees be selected or recommended for the board’s selection by independent directors constituting a majority of the board’s independent directors. The Nasdaq rules further require that audit committee members satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act and that compensation committee members satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act.
Our board has undertaken a review of the independence of our directors and considered whether any director has a material relationship with us that could compromise that director’s ability to exercise independent judgment in carrying out that director’s responsibilities. Our Board has affirmatively determined that each of Dean Zikria, Sheryle Bolton and Karen Drexler qualify as an independent director, as defined under the applicable corporate governance standards of Nasdaq. These rules require that our Audit Committee be composed of at least three directors, all of whom must be independent members.
Board Committees and Meetings
The Board has three standing committees, the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee, to assist it with the performance of its responsibilities. The Board designates the members of these committees and the committee chairs based on the recommendation of the Corporate Governance and Nominating Committee. The Board has adopted written charters for each of these committees which can be found at the investor relations section of our corporate website. The chair of each committee develops the agenda for that committee and determines the frequency and length of committee meetings.
Audit Committee
Our Board has established an Audit Committee which consists of three independent directors, Dean Zikria, Sheryle Bolton and Karen Drexler, with Sheryle Bolton serving as the Chairperson. The Board has determined that each member of the Audit Committee meets the independence requirements of Rule 10A-3 of the Exchange Act, and the applicable rules of Nasdaq, and has sufficient knowledge in financial and auditing matters to serve on the Audit Committee. The committee’s primary duties include:
| • | selecting a firm to serve as the independent registered public accounting firm to audit our financial statements; |
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| • | reviewing and discussing with management and our independent auditor our annual and quarterly financial statements and related disclosures, including disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the results of the independent auditor’s audit or review, as the case may be; |
| • | reviewing our financial reporting processes and internal control over financial reporting systems and the performance, generally, of our internal audit function; |
| • | overseeing the audit and other services of our independent registered public accounting firm and being directly responsible for the appointment, independence, qualifications, compensation and oversight of the independent registered public accounting firm, which reports directly to the Audit Committee; |
| • | providing an open means of communication among our independent registered public accounting firm, management, our internal auditing function and our Board; |
| • | reviewing any disagreements between our management and the independent registered public accounting firm regarding our financial reporting; |
| • | preparing the Audit Committee report for inclusion in our proxy statement for our annual stockholder meetings; |
| • | establishing procedures for complaints received regarding our accounting, internal accounting control and auditing matters; and |
| • | approving all audit and permissible non-audit services conducted by our independent registered public accounting firm. |
The Board has determined that Sheryle Bolton is an “audit committee financial expert,” as that term is defined in the rules promulgated by the SEC pursuant to the Sarbanes-Oxley Act of 2012. The Board has further determined that each of the members of the Audit Committee is financially literate and that at least one member of the committee has accounting or related financial management expertise, as such terms are interpreted by the Board in its business judgment.
Compensation Committee
Our Board has established a Compensation Committee which consists of three independent directors (as defined under the general independence standards of Nasdaq and our Corporate Governance Guidelines): Dean Zikria, Sheryle Bolton and Karen Drexler are each a “non-employee director” (within the meaning of Rule 16b-3 of the Exchange Act). Karen Drexler serves as Chairperson of the Compensation Committee. The committee’s primary duties include:
| • | reviewing all overall compensation policies and practices; |
| • | approving corporate goals and objectives relevant to executive officer compensation and evaluate executive officer performance in light of those goals and objectives; |
| • | determining and approving executive officer compensation, including base salary and incentive awards; |
| • | reviewing and approving, or making recommendations to the Board regarding, compensation plans; and |
| • | administering our equity incentive plan, subject to Board approval. |
Our Compensation Committee determines and approves elements of executive officer compensation, except that compensation of our Chief Executive Officer and Chief Financial Officer will be subject to review and approval by the Board. It also provides recommendations to the Board with respect to non-employee director compensation. The Compensation Committee may not delegate its authority to any other person, other than to a subcommittee.
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Corporate Governance and Nominating Committee
Our Board has also established a Corporate Governance and Nominating Committee which consists of Dean Zikria, Sheryle Bolton and Karen Drexler, with Karen Drexler serving as Chairperson. The committee’s primary duties include:
| • | recruiting new directors, consider director nominees recommended by stockholders and others and recommend nominees for election as directors; |
| • | reviewing the size and composition of our Board and committees; |
| • | overseeing the evaluation of the Board; |
| • | recommending actions to increase the Board’s effectiveness; and |
| • | developing, recommending and overseeing our corporate governance principles, including our Code of Business Conduct and Ethics and our Corporate Governance Guidelines. |
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. Our Code of Business Conduct and Ethics is available on the investor relations section of our corporate website. We intend to disclose any amendments to the code, or any waivers of its requirements, on our corporate website or in a Current Report on Form 8-K.
Legal Proceedings
To our knowledge, (i) no director or executive officer has been a director or executive officer of any business that has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years; (ii) no director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years; (iii) no director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years; and (iv) no director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.
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EXECUTIVE AND DIRECTOR COMPENSATION
The following table sets forth, for the fiscal years ended December 31, 2021 and December 31, 2020, the dollar value of all cash and noncash compensation earned by our named executive officers, as set forth above.
| Name and Principal Position |
Year | Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Non-Qualified Deferred Compensation Earnings ($) |
All Other Compensation ($)(1) |
Totals ($) |
|||||||||||||||||||||||||||
| Jennifer Ernst, |
2021 | 218,487 | — | — | — | — | — | 30,965 | 249,452 | |||||||||||||||||||||||||||
| CEO and Director |
2020 | 181,125 | — | — | — | — | — | 16,317 | 197,442 | |||||||||||||||||||||||||||
| Briana Benz, |
2021 | 104,166 | 100,000 | 172,416 | (3) | — | — | — | 17,982 | 376,582 | ||||||||||||||||||||||||||
| CFO(2) |
2020 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Blake Gurfein, PhD |
2021 | 227,589 | — | — | 183,975 | — | — | 31,356 | 442,920 | |||||||||||||||||||||||||||
| Chief Scientific Officer |
2020 | 226,250 | — | — | — | — | — | 16,276 | 242,526 | |||||||||||||||||||||||||||
| (1) | Includes the cost of health insurance coverage and benefits paid for by us for each named executive officer that is not reimbursed. |
| (2) | Ms. Benz was appointed as our Chief Financial Officer in July 2021, and subsequently resigned from her role as Chief Financial Officer on April 1, 2022. Veronica Cai was appointed as our new Chief Financial Officer on April 1, 2022. |
| (3) | Represents 112,500 shares of common stock issued to Ms. Benz pursuant to a restricted stock purchase agreement, which shares were subject to certain vesting criteria. Upon Ms. Benz’s resignation, the Company repurchased 93,750 of such shares, all of which were unvested at the time of repurchase. |
Narrative to the summary compensation table
Employment Agreements/Arrangements
As of the year ended December 31, 2021, we had executive offer letters in place with Jennifer Ernst, our Chief Executive Officer, and Briana Benz, our former Chief Financial Officer. Subsequent to the year ended December 31, 2021, on April 1, 2022, we entered into executive offer letters with Ryan Sabia, our Chief Operating Officer, and Veronica Cai, our new Chief Financial Officer. A summary of the terms of Ms. Ernst’s, Ms. Benz’s, Mr. Sabia’s and Ms. Cai’s executive offer letters is set forth below.
In addition, Blake Gurfein is currently subject to a standard, at-will offer letter.
Currently, the annual compensation of each of the executive officers is determined by the Board. The named executive officers are also entitled to participate in the Company’s benefit plans, which such benefits are generally available to all full-time employees.
Executive Offer Letter with Jennifer Ernst
On July 31, 2021, we entered into an executive offer letter with Jennifer Ernst. Pursuant to her executive offer letter, effective July 31, 2021, Ms. Ernst is entitled to a base salary of $275 thousand and, commencing with the 2022 calendar year (payable in the first quarter of 2023), will be eligible to receive, at the sole discretion of the Board, an annual end-of-year incentive bonus in amount up to 40% of her base salary. The annual end-of-year incentive bonus, if earned, will be determined by the Board, in its sole discretion, and will be dependent upon the achievement of certain Company milestones and profitability, and such other milestones as the Board deems appropriate.
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Ms. Ernst’s employment is “at will,” meaning that either she or the Company are entitled to terminate Ms. Ernst’s employment at any time and for any reason, with or without cause. In the event that her employment with the Company is terminated for any reason before December 31 of any given year, she will not be entitled to receive an annual end-of-year bonus. In the event that (i) Ms. Ernst elects to terminate her employment with the Company other than for good reason, (ii) the Company terminates her employment for cause, or (iii) her employment is terminated as a result of her death of complete disability, then Ms. Ernst will not be entitled to receive any separation benefits. In the event that Ms. Ernst terminates her employment for good reason or the Company terminates her employment without cause, Ms. Ernst shall be entitled to receive 1/12 of her base salary for a period of six months after termination.
Executive Offer Letter with Briana Benz
On July 29, 2021, we entered into an executive offer letter with Briana Benz. Pursuant to her executive offer letter, effective July 16, 2021, Ms. Benz was entitled to a base salary of $250 thousand and was to be eligible to receive, at the sole discretion of the Board, an annual end-of-year incentive bonus in amount up to 25% of her base salary. The annual end-of-year incentive bonus, if earned, was to be determined by the Board, in its sole discretion, and was to be dependent upon the achievement of certain Company milestones and profitability, and such other milestones as the Board deems appropriate. In connection with Ms. Benz’s appointment as our Chief Financial Officer, Ms. Benz was issued 112,500 restricted shares of our common stock pursuant to a restricted stock purchase agreement. All shares that were issued are initially subject to a repurchase option in favor of the Company, which repurchase option lapsed at a rate of 1/48th per month, commencing September 1, 2021, subject to Ms. Benz’s continued employment with the Company. In addition, the Company’s repurchase option would have lapsed as to all of the shares in the event of a termination of service without cause in connection with or within 12 months following a Change of Control (as defined in the 2021 Plan). In addition to the foregoing compensation, Ms. Benz received a $100 thousand cash bonus promptly after of our IPO.
Ms. Benz’s employment was “at will,” meaning that either she or the Company were entitled to terminate Ms. Benz’s employment at any time and for any reason, with or without cause. In the event that her employment with the Company were to be terminated for any reason before December 31 of any given year, she would not have been entitled to receive an annual end-of-year bonus. In the event that (i) Ms. Benz were to elect to terminate her employment with the Company other than for good reason, (ii) the Company were to terminate her employment for cause, or (iii) her employment were to be terminated as a result of her death of complete disability, then Ms. Benz would not have been entitled to receive any separation benefits. In the event that Ms. Benz were to terminate her employment for good reason or the Company were to terminate her employment without cause, Ms. Benz would have been entitled to receive the following severance payments: (i) in the event that she had been employed by the Company for a period between three months and twelve months, then she would have been entitled to receive 1/12 of her base salary for a period of three months after termination, and (ii) in the event that she had been employed by the Company for more than twelve months, then she would have been entitled to receive 1/12 of her base salary for a period of six months after termination; provided, however, that if Ms. Benz were to terminate her employment for good reason or the Company were to terminate her employment without cause after the closing of the Company’s initial public offering, then she will be entitled to receive 1/12 of her base salary for a period of six months after termination regardless of the amount of time she has been employed by the Company.
On April 1, 2022, Ms. Benz resigned from her role as Chief Financial Officer to pursue other opportunities. As a result of her resignation, her executive offer letter terminated effective April 1, 2022 (the “Separation Date”). In accordance with her agreement, she was paid all accrued and unpaid wages, as well as all accrued but unused vacation hours, through the Separation Date.
Executive Offer Letter with Ryan Sabia
On April 1, 2022, we entered into an executive offer letter with Ryan Sabia, our Chief Operating Officer. Pursuant to his executive offer letter, Mr. Sabia is entitled to receive a base salary of $250 thousand per annum (subject to review and adjustment in accordance with the Company’s normal performance review practices), and
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he will be eligible to receive, at the sole discretion of the Board, an annual end-of-year incentive bonus in an amount up to 25% of his base salary. The annual end-of-year incentive bonus, if earned, will be determined by the Board, in its sole discretion, and will be dependent upon the achievement of certain Company milestones and profitability, and such other milestones as the Board deems appropriate.
Mr. Sabia’s employment is “at will,” meaning that either he or the Company are entitled to terminate Mr. Sabia’s employment at any time and for any reason, with or without cause. In the event that his employment with the Company is terminated for any reason before December 31 of any given year, he will not be entitled to receive an annual end-of-year bonus. In the event that (i) Mr. Sabia elects to terminate his employment with the Company other than for good reason, (ii) the Company terminates his employment for cause, or (iii) his employment is terminated as a result of his death of complete disability, then Mr. Sabia will not be entitled to receive any separation benefits. In the event that Mr. Sabia terminates his employment for good reason or the Company terminates his employment without cause, then Mr. Sabia shall be entitled to receive 1/12 of his base salary for a period of six months after termination and the Company shall pay his COBRA coverage for a period of six months after termination.
Executive Offer Letter with Veronica Cai
On April, 1, 2022, in connection with her appointment as Chief Financial Officer, we entered into an executive offer letter with Veronica Cai. Pursuant to her executive offer letter, Ms. Cai is entitled to receive a base salary of $325 thousand per annum (subject to review and adjustment in accordance with the Company’s normal performance review practices), and she will be eligible to receive, at the sole discretion of Board, an annual end-of-year incentive bonus in an amount up to 25% of her base salary. Additionally, in connection with her appointment as Chief Financial Officer, on April 1, 2022, we granted Ms. Cai stock options to purchase 117,880 shares of Company common stock under our 2021 Equity Incentive Plan, which options (i) have an exercise price of $1.61 per share, (ii) will expire 10 years from the date of grant, and (iii) shall vest as follows: (a) 25% on April 1, 2023, and (b) the balance will vest in 36 equal monthly installments thereafter, subject to limited exceptions.
Ms. Cai’s employment is “at will,” meaning that either she or the Company are entitled to terminate Ms. Cai’s employment at any time and for any reason, with or without cause. In the event that her employment with the Company is terminated for any reason before December 31 of any given year, she will not be entitled to receive an annual end-of-year bonus. In the event that (i) Ms. Cai elects to terminate her employment with the Company other than for good reason, (ii) the Company terminates her employment for cause, or (iii) her employment is terminated as a result of her death of complete disability, then Ms. Cai will not be entitled to receive any separation benefits. In the event that Ms. Cai terminates her employment for good reason or the Company terminates her employment without cause, then Ms. Cai shall be entitled to receive 1/12 of her base salary for a period of six months after termination and the Company shall pay her COBRA coverage for a period of six months after termination.
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Outstanding Equity Awards at Fiscal Year-End 2021
The following table provides information regarding the outstanding equity awards held by our named executive officers as of December 31, 2021. See “Equity Incentive Plan Information,” below, for additional information regarding our equity incentive plans.
| Outstanding Equity Awards at Fiscal Year-End | ||||||||||||||||||||||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
| Name |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares of Stock That Have Not Vested (#) |
Market Value of Shares of Stock That Have Not Vested ($) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
|||||||||||||||||||||||||||
| Jennifer Ernst |
47,083 | 10,417 | (1) | — | 0.132 | 4/1/2028 | — | — | — | — | ||||||||||||||||||||||||||
| Briana Benz |
— | — | — | — | — | 103,125 | (2) | 400,125 | — | — | ||||||||||||||||||||||||||
| Blake Gurfein |
— | 82,500 | (3) | — | 4.59 | 12/14/2031 | — | — | — | — | ||||||||||||||||||||||||||
| 6,250 | 1,563 | (4) | — | 0.12 | 4/3/2028 | — | — | — | — | |||||||||||||||||||||||||||
| 4,167 | 1,042 | (4) | — | 0.12 | 6/27/2028 | — | — | — | — | |||||||||||||||||||||||||||
| (1) | The options vest as follows: (i) 25% on April 1, 2019, and (ii) the remaining 75% in equal monthly installments over the next 36 months. |
| (2) | Upon Ms. Benz’s resignation, the Company repurchased 93,750 of such shares, which represented all of her unvested shares on April 1, 2022 (her resignation date). |
| (3) | The options vest as follows: (i) 25% on December 14, 2022, and (ii) the remaining 75% in equal monthly installments over the next 36 months. |
| (4) | The options vest as follows: (i) 25% on January 1, 2019, and (ii) the remaining 75% in equal monthly installments over the next 36 months. |
Equity Incentive Plan Information
The following table provides information as of December 31, 2021, regarding our equity compensation plans:
| Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans |
|||||||||
| Equity compensation plans approved by security holders |
879,899 | $ | 1.80 | 707,250 | ||||||||
| Equity compensation plans not approved by security holders |
— | — | — | |||||||||
| Total |
879,899 | $ | 1.80 | 707,250 | ||||||||
2017 Equity Incentive Plan
The Board adopted the 2017 Plan on April 13, 2017. The principal purpose of the 2017 Plan is to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation
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awards and cash-based performance bonus awards. The material terms of the 2017 Plan are summarized below. In August 2021, the Board adopted and our stockholders approved the 2021 Plan, which became effective upon the completion of our IPO. Upon the effectiveness of the 2021 Plan, it replaced the 2017 Plan, except with respect to awards outstanding under the 2017 Plan, and no further awards are available for grant under the 2017 Plan.
Share reserve. Under the 2017 Plan, 981,269 shares of our common stock were reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, restricted stock awards, and other stock-based awards. With respect to the share reserve under the 2017 Plan:
| • | to the extent that an award terminated, expired or lapsed for any reason or an award was settled in cash without the delivery of shares prior to the effectiveness of the 2021 Plan, any shares subject to the award at such time would have been available for future grants under the 2017 Plan; and |
| • | prior to the effectiveness of the 2021 Plan, to the extent that shares of our common stock were repurchased by us prior to vesting so that shares were returned to us, such shares would have been available for future grants under the 2017 Plan. |
As noted above, upon the effectiveness of the 2021 Plan, it replaced the 2017 Plan, except with respect to awards outstanding under the 2017 Plan, and no further awards are available for grant under the 2017 Plan.
Administration. Following completion of our IPO, the Compensation Committee of the Board began administering the 2017 Plan. Prior to that, the 2017 Plan was administered by the Board.
Subject to the terms and conditions of the 2017 Plan, the administrator has the authority to select the persons to whom awards are to be made, to determine the number of shares to be subject to awards and the terms and conditions of awards, and to make all other determinations and to take all other actions necessary or advisable for the administration of the 2017 Plan. The administrator is also authorized to adopt, amend or rescind rules relating to administration of the 2017 Plan. The Board may at any time remove the Compensation Committee as the administrator and revest in itself the authority to administer the 2017 Plan.
Eligibility. Options, restricted stock and all other stock-based and cash-based awards under the 2017 Plan may be granted to individuals who are then our officers, employees or consultants or are the officers, employees or consultants of certain of our subsidiaries. Such awards also may be granted to our directors. Only employees of our company may be granted incentive stock options (“ISOs”).
Awards. The 2017 Plan provides that the administrator may grant or issue stock options, restricted stock, other stock- or cash-based awards and dividend equivalents, or any combination thereof; provided, however, that as noted above, no additional awards may be issued under the 2017 Plan. Each award will be set forth in a separate agreement with the person receiving the award, which will indicate the type, terms and conditions of the award.
| • | Incentive stock options. ISOs will be designed in a manner intended to comply with the provisions of Section 422 of the Code and will be subject to specified restrictions contained in the Code. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of common stock on the date of grant, may only be granted to employees, and must not be exercisable after a period of ten years measured from the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) at least 10% of the total combined voting power of all classes of our capital stock, the 2017 Plan provides that the exercise price must be at least 110% of the fair market value of a share of common stock on the date of grant and the ISO must not be exercisable after a period of five years measured from the date of grant. |
| • | Nonstatutory stock options. Nonstatutory Stock Options, or NSOs, will provide for the right to purchase shares of our common stock at a specified price which may not be less than fair market value on the date of |
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| grant, and usually will become exercisable (at the discretion of the administrator) in one or more installments after the grant date, subject to the participant’s continued employment or service with us and/ or subject to the satisfaction of corporate performance targets and individual performance targets established by the administrator. NSOs may be granted for any term specified by the administrator that does not exceed ten years. |
| • | Restricted stock. Restricted stock may be granted to any eligible individual and made subject to such restrictions as may be determined by the administrator. Restricted stock, typically, may be forfeited for No consideration or repurchased by us at the original purchase price if the conditions or restrictions on vesting are not met. In general, restricted stock may not be sold or otherwise transferred until restrictions are removed or expire. Purchasers of restricted stock, unlike recipients of options, will have voting rights and will have the right to receive dividends, if any, prior to the time when the restrictions lapse, however, extraordinary dividends will generally be placed in escrow, and will not be released until restrictions are removed or expire. |
| • | Other stock-based awards. Other stock-based awards are awards of fully vested shares of our common stock and other awards valued wholly or partially by referring to, or otherwise based on, shares of our common stock. |
Other stock-based awards may be granted to participants and may also be available as a payment form in the settlement of other awards, as standalone payments and as payment in lieu of base salary, bonus, fees or other cash compensation otherwise payable to any individual who is eligible to receive awards. The plan administrator will determine the terms and conditions of other stock-based awards, which may include vesting conditions based on continued service, performance and/or other conditions.
Any award may be granted as a performance award, meaning that the award will be subject to vesting and/or payment based on the attainment of specified performance goals.
Change in control. In the event of a change in control, to the extent that an award (i) is vested, (ii) the terms of an award provide for acceleration of vesting upon a change in control, or (iii) the administrator elects to accelerate the vesting of the award in connection with the change in control, the plan administrator may elect to provide for the purchase or exchange of an award for cash or other property in an amount equal to the difference between (x) the value of cash or other property the optionee would receive in connection with such change in control if the optionee exercised the award, and (y) the aggregate exercise price of the vested portion of the award. If the award is not purchased or exchanged as provided above, then the award will be terminated and cease to be exercisable unless the award is expressly assumed or substituted by the acquirer.
Adjustments of awards. In the event of any stock dividend or other distribution, stock split, reverse stock split, reorganization, combination or exchange of shares, merger, consolidation, split-up, spin-off, recapitalization, repurchase or any other corporate event affecting the number of outstanding shares of our common stock or the share price of our common stock that would require adjustments to the 2017 Plan or any awards under the 2017 Plan in order to prevent the dilution or enlargement of the potential benefits intended to be made available thereunder, the administrator will make appropriate, proportionate adjustments to: (i) the aggregate number and type of shares subject to the 2017 Plan; (ii) the number and kind of shares subject to outstanding awards and terms and conditions of outstanding awards (including, without limitation, any applicable performance targets or criteria with respect to such awards); and (iii) the grant or exercise price per share of any outstanding awards under the 2017 Plan. In connection with the 1-for-4 reverse stock split of our issued and outstanding shares of common stock that was effected on August 31, 2021, the terms of certain awards granted under our 2017 Plan were equitably adjusted in accordance with the provisions thereof.
Amendment and termination. The administrator may terminate, amend or modify the 2017 Plan at any time and from time to time. However, we must generally obtain stockholder approval to amend or modify the 2017 Plan to
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the extent required by applicable law, rule or regulation (including any applicable stock exchange rule). Notwithstanding the foregoing, an option may be amended to reduce the per share exercise price below the per share exercise price of such option on the grant date and options may be granted in exchange for, or in connection with, the cancellation or surrender of options having a higher per share exercise price without receiving additional stockholder approval.
No ISOs may be granted pursuant to the 2017 Plan after the tenth anniversary of the effective date of the 2017 Plan. Any award that is outstanding on the termination date of the 2017 Plan will remain in force according to the terms of the 2017 Plan and the applicable award agreement.
2021 Equity Incentive Plan
In August 2021, the Board adopted and our stockholders approved the 2021 Plan, which became effective upon the completion of our IPO. Upon the effectiveness of the 2021 Plan, it replaced the 2017 Plan, except with respect to awards outstanding under the 2017 Plan, and no further awards may be made under the 2017 Plan. Additionally, any awards that are cancelled or expire under the 2017 Plan will not be reissued. The principal purpose of the 2021 Plan is to attract, retain and incentivize the Company’s employees and other service providers through the granting of certain stock-based awards, including performance-based awards. The material terms of the 2021 Plan, as it is currently contemplated, are summarized below.
Share reserve. Under the 2021 Plan, 937,500 shares of our common stock were reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, restricted stock awards, restricted stock units, stock bonus awards and performance-based awards as of the date of its adoption by the Company. With respect to the share reserve under the 2021 Plan:
| • | to the extent that an award terminates, expires or lapses for any reason or an award is settled in cash without the delivery of shares, any shares subject to the award at such time will be available for future grants under the 2021 Plan; and |
| • | to the extent that shares of our common stock are repurchased by us at the original purchase price, such shares will be available for future grants under the 2021 Plan. |
In addition, the 2021 Plan provides that additional shares will automatically be added to the shares authorized for issuance under the 2021 Plan on January 1 of each year. The number of shares added each year will be equal to the lesser of: (i) 5.0% of the outstanding on December 31st of the preceding calendar year or (ii) such number of shares determined by the Board, in its discretion. In accordance with this provision, on January 1, 2022, the number of shares of our common stock authorized for issuance under the 2021 Plan automatically increased from 937,500 shares to 1,423,261 shares (an increase equal to 5% of the number of our outstanding shares of common stock as of December 31, 2021).
Share Counting. For purposes of counting the number of shares available for the grant of stock awards under the 2021 Plan, all shares covered by any stock award shall be counted against shares available under the 2021 Plan on a “one for one” basis. Notwithstanding the foregoing, (i) awards that may be settled only in cash shall not be so counted, and (ii) while any performance-based award is outstanding, the maximum number of shares issuable under such award shall be counted against available shares under the 2021 Plan, and upon final settlement of such performance-based award, any shares not issued to the holder due to failure to achieve any related performance goal(s) shall again be available for grant and issuance under the 2021 Plan.
Administration. Effective upon completion of our IPO, the Compensation Committee of the Board is authorized to administer the 2021 Plan unless the Board subsequently assumes authority for administration. The Compensation Committee must consist of at least two members of the Board, each of whom is intended to qualify as a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act and an “independent
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director” within the meaning of the rules of the applicable stock exchange, or other principal securities market on which shares of our common stock are traded. The term Administrator refers to either the Board or the Compensation Committee, as applicable.
Additionally, the Board or Compensation Committee may delegate certain functions under the 2021 Plan to designate employees who are not Officers to be recipients of awards under the 2021 Plan, and to determine the number of shares subject to awards granted to such employees.
Subject to the terms and conditions of the 2021 Plan, the Administrator has the authority to construe and interpret the 2021 Plan and awards granted under it and to determine the persons to whom and the dates on which awards will be granted, the number of shares of common stock to be subject to each award, the time or times during the term of each award within which all or a portion of such award may be exercised, the exercise price, the type of consideration and other terms of the award. All decisions, determinations and interpretations by the Administrator regarding the 2021 Plan shall be final and binding on all participants or other persons claiming rights under the 2021 Plan or any award.
Awards. The 2021 Plan provides that the Administrator may grant or issue stock options, restricted stock, restricted stock units, other stock-based awards and dividend equivalents, or any combination thereof. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.
Eligibility. Options, restricted stock, restricted stock units and all other stock-based awards under the 2021 Plan may be granted to individuals who are then our officers, employees, directors or consultants or are the officers, employees or consultants of certain of our subsidiaries. Only employees of our company or certain of our subsidiaries may be granted incentive stock options, or ISOs. No ISO may be granted under the 2021 Plan to any person who, at the time of the grant, owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of the Company or any affiliate of the Company, unless the exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant and the term of the option does not exceed five years from the date of grant. In addition, the aggregate fair market value, determined at the time of grant, of the shares of common stock with respect to which ISOs are exercisable for the first time by a participant during any calendar year (under the 2021 Plan and all other such plans of the Company and its affiliates) may not exceed $100,000. ISOs are not transferable except by will or by the laws of descent and distribution, provided that a participant may designate a beneficiary who may exercise an option following the participant’s death.
| • | Stock Options. Options granted under the 2021 Plan may become exercisable in cumulative increments (“vest”) as determined by the Administrator. Such increments may be based on continued service to the Company over a certain period of time, the occurrence of certain performance milestones, or other criteria. Options granted under the 2021 Plan may be subject to different vesting terms. Except as to a maximum of five percent (5%) of the number of shares reserved and available for grant and issuance under the 2021 Plan, any options that vest on the basis of the participant’s continued service will have a minimum vesting period of one year. In addition, the Administrator may not use discretion to accelerate the vesting of options (subject to a maximum five percent (5%) of shares under the 2021 Plan that may be accelerated) other than in connection with a death, disability or a change in control (where a participant terminates employment in certain situations or equity awards are not assumed or substituted for in the transaction). |
To the extent provided by the terms of an option, a participant may satisfy any federal, state or local tax withholding obligation relating to the exercise of such option by a cash payment upon exercise, by authorizing the Company to withhold a portion of the stock otherwise issuable to the participant, or by such other method as may be set forth in the option agreement. The maximum term of options under the 2021 Plan is 10 years, except that in certain cases (see Eligibility) the maximum term of certain incentive stock options is five years. Options under the 2021 Plan generally terminate sixty (60) days after termination of the participant’s service unless
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(i) such termination is due to the participant’s disability, in which case the option may, but need not, provide that it may be exercised at any time within 6 months of such termination; (ii) the participant dies before the participant’s service has terminated, or within three months after termination of such service, in which case the option may, but need not, provide that it may be exercised within 12 months of the participant’s death by the person or persons to whom the rights to such option pass by will or by the laws of descent and distribution; or (iii) the option by its terms specifically provides otherwise. If an optionee’s service with the Company, or any affiliate of the Company, ceases with cause, the option will terminate at the time the optionee’s service ceases. In no event may an option be exercised after its expiration date.
| • | Stock Bonuses and Restricted Stock Awards. Stock bonus awards and restricted stock awards are granted through a stock bonus award agreement or restricted stock award agreement. The purchase price for a stock purchase award (if any) may be payable in cash, or any other form of legal consideration approved by the Administrator. Stock bonus awards may be granted in consideration for the recipient’s past services for the Company. Common stock issued under a restricted stock or stock bonus award agreement may be subject to a share repurchase option or forfeiture right in our favor, each in accordance with a vesting schedule and subject to the minimum vesting requirement. If a recipient’s service relationship with us terminates, we may reacquire or receive via forfeiture all of the shares of our common stock issued to the recipient pursuant to a restricted stock or stock bonus award that have not vested as of the date of termination. Rights under a stock bonus or restricted stock bonus agreement may be transferred only as expressly authorized by the terms of the applicable stock bonus or restricted stock purchase agreement. |
| • | Restricted Stock Units. Restricted stock unit awards are issued pursuant to a restricted stock unit award agreement. The consideration for a stock unit award shall be determined by the Administrator and may be payable in any form acceptable to the Administrator and permitted under applicable law. The Administrator may impose any restrictions or conditions upon the vesting of restricted stock unit awards, or that delay the delivery of the consideration after the vesting of stock unit awards, that it deems appropriate consistent with the minimum vesting requirement. Restricted stock unit awards may be settled in cash or shares of the Company’s common stock, as determined by the Administrator. No dividends payments will be made on unvested restricted stock unit awards, but instead any dividends will be deferred until awards become vested. If a restricted stock unit award recipient’s service relationship with the Company terminates, any unvested portion of the restricted stock unit award is forfeited upon the recipient’s termination of service. |
| • | Performance-Based Award. Any award may be granted as a performance award, meaning that the award will be subject to vesting and/or payment based on the attainment of specified performance goals. Generally, such pre-established performance goals consist of one or more business criteria and a targeted performance level with respect to such criteria as a condition of awards being granted or becoming exercisable, or as a condition to accelerating the timing of such events. Performance may be measured over a period of any length specified by the Administrator. |
Certain Corporate Transactions. In the event of a merger, sale of all or substantially all of the assets of the Company or other change of control transaction, unless otherwise determined by the Board, all outstanding awards will be subject to the agreement governing such merger, asset sale or other change of control transaction. Such agreement need not treat all such awards in an identical manner, and it will provide for one or more of the following with respect to each award: (i) the continuation of the award, (ii) the assumption of the award, (iii) the substitution of the award, or (iv) the payment of the excess of the fair market value of the shares subject to the award over the exercise price or purchase price of such shares. In the event the successor corporation refuses to either continue, assume or substitute the shares subject to the award pursuant to the terms of the 2021 Plan, or pay the excess of the fair market value of the shares subject to the award over the exercise price or purchase price of such shares, then outstanding awards shall vest and become exercisable as to 100% of the shares subject thereto contingent upon the consummation of such change of control transaction.
Adjustments Provisions. Transactions not involving receipt of consideration by the Company, such as a merger, consolidation, reorganization, recapitalization, reincorporation, reclassification, stock dividend, dividend in
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property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, or a change in corporate structure may change the type(s), class(es) and number of shares of common stock subject to the 2021 Plan and outstanding awards. In that event, the 2021 Plan will be appropriately adjusted as to the type(s), class(es) and the maximum number of shares of common stock subject to the 2021 Plan, and outstanding awards will be adjusted as to the type(s), class(es), number of shares and price per share of common stock subject to such awards.
Amendment and termination. The administrator may terminate, amend or modify the 2021 Plan at any time and from time to time. However, we must generally obtain stockholder approval to amend or modify the 2021 Plan to the extent required by applicable law, rule or regulation (including any applicable stock exchange rule). Notwithstanding the foregoing, an option may be amended to reduce the per share exercise price below the per share exercise price of such option on the grant date and options may be granted in exchange for, or in connection with, the cancellation or surrender of options having a higher per share exercise price without receiving additional stockholder approval.
Director Compensation
The following table sets forth information regarding the compensation awarded to, earned by, or paid to our non-employee directors who served on our Board for the year ended December 31, 2021.
| Name |
Fees earned or paid in cash ($)(1) |
Stock awards ($) |
Option awards ($)(2) |
Non-equity incentive plan compensation ($) |
Nonqualified deferred compensation earnings ($) |
All other compensation ($) |
Total ($) | |||||||||||||||||||||
| Sheryle Bolton |
8,750 | — | 37,800 | — | — | — | 46,500 | |||||||||||||||||||||
| Karen Drexler |
6,944 | — | 37,800 | — | — | — | 44,744 | |||||||||||||||||||||
| Dean Zikria |
4,861 | — | 37,800 | — | — | — | 42,661 | |||||||||||||||||||||
| (1) | These amounts reflect the cash payments that we made as compensation for Board services during fiscal 2021. |
| (2) | These amounts represent the grant date fair value of stock options granted in fiscal 2021 computed in accordance with FASB ASC Topic 718. We do not include any impact of estimated forfeitures related to service-based vesting terms in these calculations. |
On December 16, 2021, our Board, upon recommendation of the Compensation Committee, approved an annual compensation plan for our Board (the “Board Compensation Plan”). In accordance with the Board Compensation Plan, directors of the Company will be entitled to receive the following annual compensation, which amounts will be paid in equal quarterly installments in accordance with our policies:
| • | Annual Retainer for all Directors: $35,000 |
| • | Chairperson of the Board: $15,000 |
| • | Chairperson of the Audit Committee: $13,000 |
| • | Chairperson of the Compensation Committee: $9,000 |
| • | Chairperson of the Nominating and Governance Committee: $6,000 |
Prior to approval of the above Board Compensation Plan, we did not have a compensation plan in place for our Board.
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
We describe below the transactions and series of similar transactions, since January 1, 2019, to which we were a party or will be a party, in which:
| • | the amounts involved exceeded or will exceed the lesser of $120 thousand or one percent of the average of our total assets for the last two fiscal years; and |
| • | any of our directors, executive officers, holders of more than 5% of our capital stock or any member of their immediate family had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements with directors and executive officers, which are described where required under the section above entitled “Executive and Director Compensation.” |
Subinoy Das is both a consultant and investor in the Company. We entered into a consulting agreement with Dr. Das on May 1, 2019 to provide us with support for research and clinical activities. On December 30, 2020, the Board granted Dr. Das 28,323 non-statutory stock options to replace amounts accrued for services provided by Mr. Das for fiscal years ended December 31, 2020 and 2019. The fair value of this grant was $13 thousand, which was expensed in fiscal year ended December 31, 2020. We recognized a gain on settlement of $117 thousand, which was included in research and development expense for the year ended December 31, 2020.
In June 2021, we issued a convertible note payable to Jennifer Ernst, our Chief Executive Officer, for total proceeds of $100 thousand. The note was unsecured, had a term of two years, and accrued interest at a rate of 3% per annum. The note converted into 26,986 shares of our common stock upon consummation of our IPO.
In December 2021, the Company entered into an agreement with a significant shareholder for certain product development consultation services. There were no consulting fees paid in the year ended December 31, 2021. We owed such individual $3 thousand as of December 31, 2021. During the nine months ended September 30, 2022, the Company incurred $18 thousand of expenses in connection with the agreement. As of September 30, 2022, there were no amounts owed to the shareholder.
Policies and Procedures Regarding Related Party Transactions
Our Board has adopted a written related person transaction policy setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which we were or are to be a participant, where the amount involved exceeds $120 thousand and a related person had or will have a direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transactions, our Audit Committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction and the extent of the related person’s interest in the transaction. The related person transactions disclosed in this Proxy Statement were each approved by the full Board or Audit Committee, as applicable.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of our outstanding common stock as of December 6, 2022 by: (i) each of our directors, (ii) each of our named executive officers (as defined by Item 402(a)(3) of Regulation S-K promulgated under the Exchange Act), (iii) all of our directors and named executive officers as a group, and (iv) each person known to us to beneficially own more than 5% of each class of our outstanding common stock. As of December 6, 2022, there were 9,677,734 shares of our common stock issued and outstanding.
Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse. The Company does not know of any arrangements the operation of which may at a subsequent date result in a change of control of the Company.
| Beneficial owner (1) |
Amount and Nature of Beneficial Ownership |
Percent of Class |
||||||
| Directors and Named Executive Officers |
||||||||
| Jennifer Ernst(2) |
1,307,377 | 13.4 | % | |||||
| Veronica Cai(3) |
— | — | ||||||
| Blake Gurfein, PhD(4) |
156,094 | 1.6 | % | |||||
| Ryan Sabia(5) |
43,228 | |||||||
| Dean Zikria(6) |
23,208 | * | ||||||
| Sheryle Bolton(7) |
23,208 | * | ||||||
| Karen Drexler(8) |
32,423 | * | ||||||
| All directors and executive officers as a group (7 persons) |
1,585,538 | 15.9 | % | |||||
| 5% or Greater Shareholders |
||||||||
| John Claude(9) |
1,196,000 | 12.4 | % | |||||
| Grand Magnolia Enterprises(10) |
485,838 | 5.0 | % | |||||
| * | Less than 1% |
| (1) | Unless otherwise indicated in the footnotes to the table, the address for each beneficial owner listed is c/o Tivic Health Systems, Inc., 25821 Industrial Blvd., Suite 100, Hayward, CA 94545. |
| (2) | Includes 1,199,877 shares of common stock held by Ms. Ernst, and options to purchase 107,500 of common stock that are vested and exercisable (or will be vested and exercisable within 60 days of December 6, 2022). |
| (3) | Ms. Cai was appointed as the Company’s Chief Financial Officer on April 1, 2022, although not listed as a “named executive officer” under the “Executive and Director Compensation” section of this prospectus due to the fact that she was appointed after completion of the fiscal year ended December 31, 2021. |
| (4) | Includes 111,979 shares of common stock held by Dr. Gurfein, as well as options to purchase 44,115 shares of common stock that are vested and exercisable (or will be vested and exercisable within 60 days of December 6, 2022). |
| (5) | Includes options to purchase 43,228 shares of common stock that are vested and exercisable (or will be vested and exercisable within 60 days of December 6, 2022). |
| (6) | Includes options to purchase 23,208 shares of common stock that are vested and exercisable (or will be vested and exercisable within 60 days of December 6, 2022). |
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| (7) | Includes options to purchase 23,208 shares of common stock that are vested and exercisable (or will be vested and exercisable within 60 days of December 6, 2022). |
| (8) | Includes 2,965 shares of common stock held by Ms. Drexler, and options to purchase 29,458 shares of common stock that are vested and exercisable (or will be vested and exercisable within 60 days of December 6, 2022). |
| (9) | Includes 1,196,000 shares of common stock held by Mr. Claude, based solely upon information contained in a Schedule 13G filed by Mr. Claude on February 14, 2022. Mr. Claude is a former director of the Company. |
| (10) | Includes 485,838 shares of common stock held by Grand Magnolia Enterprises (“Grand Magnolia”), based solely upon the Company’s records. The address of Grand Magnolia is 477 Cooper Road, Suite 480, Westerville, Ohio 43081. |
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DESCRIPTION OF CAPITAL STOCK
We are offering shares of common stock in this offering at an assumed public offering price of $1.12 per share.
These shares are being issued pursuant to an underwriting agreement between us and the underwriter. You should review the underwriting agreement filed as an exhibit to the registration statement of which this prospectus is a part, for a complete description of the terms and conditions applicable to this offering.
General
Our authorized capital stock consists of 200,000,000 shares of common stock, $0.0001 par value per share, and 10,000,000 shares of preferred stock, $0.0001 par value per share.
As of December 6, 2022, there are 9,677,734 shares of common stock outstanding, and zero shares of preferred stock outstanding.
In addition, as of December 6, 2022, there were outstanding options to purchase 1,268,850 shares of common stock and outstanding warrants to purchase 272,680 shares of common stock.
This description is intended as a summary and is qualified in its entirety by reference to our amended and restated certificate of incorporation and amended and restated bylaws, which are filed, or incorporated by reference, as exhibits to the registration statement of which this prospectus forms a part.
Common Stock
Voting Rights
Holders of our common stock are entitled to one vote for each share of common stock held of record for the election of our directors and all other matters requiring stockholder action, except with respect to amendments to our Charter to alter or change the powers, preferences, rights or other terms of any outstanding preferred stock if the holders of such affected series of preferred stock are entitled to vote on such an amendment. Holders of our common stock do not have cumulative voting rights. In the case of election of directors, all matters to be voted on by our stockholders must be approved by a plurality of the votes entitled to be cast by all shares of common stock. Accordingly, the holders of a majority of the outstanding shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they so choose, other than any directors that holders of any preferred stock we may issue may be entitled to elect. Except as otherwise provided by our Charter, bylaws, the rules or regulations of any stock exchange applicable to the Company, or applicable law or pursuant to any regulation applicable to the Company or its securities, all other matters presented to our stockholders at a duly called or convened meeting, at which a quorum is present, shall be decided by the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter.
Dividends
Dividends may be declared and paid on shares of our common stock as and when determined by our board of directors, subject to any preferential dividend or other rights of any then outstanding preferred stock and to the requirements of applicable law. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock will be entitled to share equally, identically and ratably in any dividends that our board of directors may determine to issue from time to time.
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Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, holders of our common stock would be entitled to share ratably in our assets that are legally available for distribution to stockholders after payment of our debts and other liabilities. If we have any preferred stock outstanding at such time, holders of the preferred stock may be entitled to distribution and/or liquidation preferences. In either such case, we must pay the applicable distribution to the holders of our preferred stock before we may pay distributions to the holders of our common stock.
Other Rights
Our stockholders have no preemptive, conversion or other rights to subscribe for additional shares, and there are no redemption or sinking funds provisions applicable to the common stock. The rights, preferences and privileges of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future.
Preferred Stock
No series of preferred stock are currently designated, and there are no shares of preferred stock currently outstanding. Under the terms of our Charter, our board of directors has the authority, without further action by our stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the dividend, voting and other rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding.
Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock. We have no current plans to issue any shares of preferred stock.
Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws
Certain provisions of Delaware law, as well as our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, are expected to discourage certain types of coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to first negotiate with our Board. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging such proposals, including proposals that are priced above the then-current market value of our common stock, because, among other reasons, such negotiation could result in an improvement of the terms of such proposals.
Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.
Certain provisions set forth in our amended and restated certificate of incorporation, our amended and restated bylaws, and in Delaware law, which are summarized below, may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders.
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Classified Board of Directors
Our Board is divided into three classes serving three-year terms, with one class being elected each year by a plurality of the votes cast by the stockholders entitled to vote on the election.
Proposals of business and nominations.
Our amended and restated bylaws generally regulate proposals of business and nominations for election of directors by stockholders. In general, Section 2.5 requires stockholders intending to submit proposals or nominations at a stockholders meeting to provide the Company with advance notice thereof, including information regarding the stockholder proposing the business or nomination as well as information regarding the proposed business or nominee. Sections 2.4 and 2.5 provides a time period during which business or nominations must be provided to the Company that will create a predictable window for the submission of such notices, eliminating the risk that the Company finds a meeting will be contested after printing its proxy materials for an uncontested election and providing the Company with a reasonable opportunity to respond to nominations and proposals by stockholders.
Blank Check Preferred Stock.
Our Board has the right to issue preferred stock in one or more series and to determine the designations, rights, preferences of such preferred stock without stockholder approval.
Board Vacancies.
Our amended and restated bylaws generally provide that only our Board (and not the stockholders) may fill vacancies and newly created directorships.
While the foregoing provisions of our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law may have an anti-takeover effect, these provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board and in the policies formulated by the Board, and to discourage certain types of transactions that may involve an actual or threatened change of control. In that regard, these provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our common stock that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management.
Delaware Anti-Takeover Statute
We are subject to the provisions of Section 203 of the Delaware General Corporation Law (“Section 203”) regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder unless:
| • | prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
| • | upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, the outstanding voting stock owned by the interested stockholder, (i) shares owned by persons who are directors and also officers and (ii) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
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| • | at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. |
Generally, a business combination includes a merger, asset, stock sale or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock. We expect the existence of Section 203 to have an anti-takeover effect with respect to transactions our Board does not approve in advance. We also anticipate that Section 203 may discourage business combinations or other attempts that might result in a premium over the market price for the shares of common stock held by our stockholders.
Listing
Our common stock is listed on the Nasdaq Capital Market under the ticker symbol “TIVC.”
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Equiniti Trust Company. The transfer agent’s principal business address is 90 Park Avenue, 25th Floor, New York, NY 10016, and its telephone number is 800-468-9716.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following discussion is a summary of certain U.S. federal income tax considerations applicable to non-U.S. holders (as defined below) with respect to their ownership and disposition of shares of our common stock issued pursuant to this offering. For purposes of this discussion, a non-U.S. holder means a beneficial owner of our common stock that is for U.S. federal income tax purposes:
| • | a non-resident alien individual; |
| • | a foreign corporation or any other foreign organization taxable as a corporation for U.S. federal income tax purposes; or |
| • | a foreign estate or trust, the income of which is not subject to U.S. federal income tax on a net income basis. |
This discussion does not address the tax treatment of partnerships or other entities that are pass-through entities for U.S. federal income tax purposes or persons that hold their common stock through partnerships or other pass-through entities. A partner in a partnership or other pass-through entity that will hold our common stock should consult his, her or its tax advisor regarding the tax consequences of holding and disposing of our common stock through a partnership or other pass-through entity, as applicable.
This discussion is based on the current provisions of the Internal Revenue Code of 1986, as amended (“Code”), existing and proposed U.S. Treasury Regulations promulgated thereunder, current administrative rulings and judicial decisions, all as in effect as of the date of this prospectus and, all of which are subject to change or to differing interpretation, possibly with retroactive effect. Any such change or differing interpretation could alter the tax consequences to non-U.S. holders described in this prospectus. There can be no assurance that the Internal Revenue Service (“IRS”) will not challenge one or more of the tax consequences described herein. We assume in this discussion that a non-U.S. holder holds shares of our common stock as a capital asset within the meaning of Section 1221 of the Code, which is generally property held for investment.
This discussion does not address all aspects of U.S. federal income taxation that may be relevant to a particular non-U.S. holder in light of that non-U.S. holder’s individual circumstances including the alternative minimum tax, or the Medicare tax on net investment income, the timing of income accruals required under Section 451(b) of the Code, the rules regarding qualified small business stock within the meaning of Section 1202 of the Code and any election to apply Section 1400Z-2 of the Code to gains recognized with respect to shares of our common stock. This discussion also does not address any U.S. state, local or non-U.S. taxes or any other aspect of any U.S. federal tax other than the income tax. This discussion also does not consider any specific facts or circumstances that may apply to a non-U.S. holder and does not address the special tax rules applicable to particular non-U.S. holders, such as:
| • | insurance companies; |
| • | tax-exempt or governmental organizations; |
| • | banks or other financial institutions; |
| • | brokers or dealers in securities or currencies; |
| • | regulated investment companies and real estate investment trusts; |
| • | retirement plans, including tax-qualified retirement plans; |
| • | “controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax; |
| • | Pension plans, including “qualified foreign pension funds” as defined in Section 897(l)(2) of the Code and entities wholly-owned by a “qualified foreign pension fund”; |
| • | partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes and other pass-through entities (and partners and investors therein); |
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| • | persons deemed to sell our common stock under the constructive sale provisions of the Code; |
| • | persons that hold our common stock as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment; |
| • | persons who have elected to mark securities to market; |
| • | persons who have a functional currency other than the U.S. dollar; |
| • | persons that own, or have owned, actually or constructively, more than 5% of our common stock; |
| • | persons who hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation; and |
| • | expatriates or long-term residents of the United States. |
This discussion is for general information only and is not tax advice. Accordingly, all prospective non-U.S. holders of our common stock should consult their tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership and disposition of our common stock.
Distributions on our common stock
In general, distributions (including constructive distributions), if any, on our common stock to non-U.S. holders will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the non-U.S. holder’s investment, up to such holder’s tax basis in the common stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below in “Gain on sale or other taxable disposition of our common stock.” Any such distributions will also be subject to the discussions below under the sections entitled “Backup withholding and information reporting” and “Withholding and information reporting requirements—FATCA.”
Subject to the discussion in the following two paragraphs in this section, dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder’s country of residence. If we or another withholding agent apply over-withholding or if a non-U.S. holder does not timely provide us with the required certification, the non-U.S. holder may be entitled to a refund or credit of any excess tax withheld by timely filing an appropriate claim with the IRS.
Dividends that are treated as effectively connected with a trade or business conducted by a non-U.S. holder within the United States and, if an applicable income tax treaty so provides, that are attributable to a permanent establishment or a fixed base maintained by the non-U.S. holder within the United States, are generally exempt from the 30% withholding tax if the non-U.S. holder satisfies applicable certification and disclosure requirements. However, such U.S. effectively connected income, net of specified deductions and credits, is taxed at the same graduated U.S. federal income tax rates applicable to United States persons (as defined in the Code). Any U.S. effectively connected income received by a non-U.S. holder that is a corporation may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder’s country of residence.
A non-U.S. holder of our common stock who claims the benefit of an applicable income tax treaty between the United States and such holder’s country of residence generally will be required to provide a properly executed IRS Form W-8BEN or W-8BEN-E (or successor form) to the applicable withholding agent and satisfy applicable certification and other requirements. Non-U.S. holders are urged and expected to consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty. A non-U.S. holder that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty may be entitled to obtain a refund or credit of any excess amounts withheld by timely filing a U.S. tax return with the IRS.
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Gain on sale or other taxable disposition of our common stock
Subject to the discussions below under “Backup withholding and information reporting” and “Withholding and information reporting requirements—FATCA,” a non-U.S. holder generally will not be subject to any U.S. federal income tax on any gain realized upon such holder’s sale or other taxable disposition of shares of our common stock unless:
| • | the gain is effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business and, if an applicable income tax treaty so provides, is attributable to a permanent establishment or a fixed-base maintained by such non-U.S. holder in the United States, in which case the non-U.S. holder generally will be taxed on a net income basis at the graduated U.S. federal income tax rates applicable to United States persons (as defined in the Code) and, if the non-U.S. holder is a foreign corporation, the branch profits tax described above in “Distributions on our common stock” also may apply; |
| • | the non-U.S. holder is a nonresident alien individual who is present in the United States for a period or periods aggregating 183 days or more in the taxable year of the disposition and certain other conditions are met, in which case the non-U.S. holder will be subject to a 30% tax (or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder’s country of residence) on the net gain derived from the disposition, which may be offset by certain U.S. source capital losses of the non-U.S. holder, if any (even though the individual is not considered a resident of the United States), provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses; or |
| • | we are, or have been, at any time during the five-year period preceding such sale or other taxable disposition (or the non-U.S. holder’s holding period, if shorter) a “U.S. real property holding corporation,” unless our common stock is regularly traded on an established securities market and the non-U.S. holder holds no more than 5% of our outstanding common stock, directly or indirectly, actually or constructively, during the shorter of the 5-year period ending on the date of the disposition or the period that the non-U.S. holder held our common stock. Generally, a corporation is a U.S. real property holding corporation only if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. Although there can be no assurance, we do not believe that we are, or have been, a U.S. real property holding corporation, or that we are likely to become one in the future. No assurance can be provided that our common stock will be regularly traded on an established securities market for purposes of the rules described above. |
Backup withholding and information reporting
We must report annually to the IRS and to each non-U.S. holder the gross amount of the distributions on our common stock paid to such holder and the tax withheld, if any, with respect to such distributions. Non-U.S. holders may have to comply with specific certification procedures to establish that the holder is not a United States person (as defined in the Code) in order to avoid backup withholding at the applicable rate with respect to dividends on our common stock. Dividends paid to non-U.S. holders subject to withholding of U.S. federal income tax, as described above in “Distributions on our common stock,” generally will be exempt from U.S. backup withholding.
Information reporting and backup withholding will generally apply to the proceeds of a disposition of our common stock by a non-U.S. holder effected by or through the U.S. office of any broker, U.S. or foreign, unless the holder certifies its status as a non-U.S. holder and satisfies certain other requirements, or otherwise establishes an exemption. Generally, information reporting and backup withholding will not apply to a payment of disposition proceeds to a non-U.S. holder where the transaction is effected outside the United States through a non-U.S. office of a broker. However, for information reporting purposes, dispositions effected through a non-U.S. office of a broker with substantial U.S. ownership or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker. Non-U.S. holders should consult their tax
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advisors regarding the application of the information reporting and backup withholding rules to them. Copies of information returns may be made available to the tax authorities of the country in which the non-U.S. holder resides or is incorporated under the provisions of a specific treaty or agreement. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holder’s U.S. federal income tax liability, if any, provided that an appropriate claim is filed with the IRS in a timely manner.
Withholding and information reporting requirements—FATCA
Sections 1471 through 1474, inclusive, of the Code and the Treasury Regulations and administrative guidance promulgated thereunder (commonly referred to as the “Foreign Account Tax Compliance Act,” or “FATCA,”) generally imposes a U.S. federal withholding tax at a rate of 30% on payments of dividends on our common stock paid to a foreign entity unless (i) if the foreign entity is a “foreign financial institution,” such foreign entity undertakes certain due diligence, reporting, withholding, and certification obligations, (ii) if the foreign entity is not a “foreign financial institution,” such foreign entity identifies certain of its U.S. investors, if any, or (iii) the foreign entity is otherwise exempt under FATCA. Under applicable U.S. Treasury regulations, withholding under FATCA currently applies to payments of dividends on our common stock. Currently proposed U.S. Treasury Regulations provide that FATCA withholding does not apply to gross proceeds from the disposition of property of a type that can produce U.S. source dividends or interest; however, prior versions of the rules would have made such gross proceeds subject to FATCA withholding. Taxpayers (including withholding agents) can generally rely on the proposed Treasury Regulations until final Treasury Regulations are issued. Under certain circumstances, a non-U.S. holder may be eligible for refunds or credits of this withholding tax. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Non-U.S. holders should consult their tax advisors regarding the possible implications of this legislation on their investment in our common stock and the entities through which they hold our common stock, including, without limitation, the process and deadlines for meeting the applicable requirements to prevent the imposition of the 30% withholding tax under FATCA.
The preceding discussion of U.S. federal income tax considerations is for general information only and does not constitute tax advice. Each prospective investor should consult its own tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, holding and disposing of our common stock, including the consequences of any proposed change in applicable laws.
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UNDERWRITING
ThinkEquity LLC is acting as representative of the underwriters. Subject to the terms and conditions of an underwriting agreement between us and the representative, we have agreed to sell to each underwriter named below, and each underwriter named below has severally agreed to purchase, at the public offering price less the underwriting discounts set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:
| Underwriters |
Number of Shares |
|||
| ThinkEquity LLC |
||||
|
|
|
|||
| Total |
||||
|
|
|
|||
The underwriting agreement provides that the obligations of the underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to various conditions and representations and warranties, including the approval of certain legal matters by their counsel and other conditions specified in the underwriting agreement. The shares of common stock are offered by the underwriters, subject to prior sale, when, as and if issued to and accepted by them. The underwriters reserve the right to withdraw, cancel or modify the offer to the public and to reject orders in whole or in part. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares of common stock are taken, other than those shares of common stock covered by the over-allotment option described below.
We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.
Over-Allotment Option
We have granted a 45-day option to the representative of the underwriters to purchase up to additional shares of our common stock at a public offering price of $ per share, solely to cover over-allotments, if any. The underwriters may exercise this option for 45 days from the date of this prospectus solely to cover sales of shares of common stock by the underwriters in excess of the total number of shares of common stock set forth in the table above. If any of these additional shares are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
Discounts, Commissions and Reimbursement
The underwriters propose initially to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share of common stock. If all of the shares of common stock offered by us are not sold at the public offering price, the underwriters may change the offering price and other selling terms by means of a supplement to this prospectus.
The following table shows the public offering price, underwriting discounts and commissions and proceeds, before expenses, to us. The information assumes either no exercise or full exercise of the over-allotment option we granted to the representative of the underwriters.
| Per Share | Total Without Over-allotment Option |
Total With Over-allotment Option |
||||||||||
| Public offering price |
$ | $ | $ | |||||||||
| Underwriting discounts and commissions (7%) |
$ | $ | $ | |||||||||
| Proceeds, before expenses, to us |
$ | $ | $ | |||||||||
| Non-accountable expense allowance (1%)(1) |
$ | $ | $ | |||||||||
| (1) | The non-accountable expense allowance will not be payable with respect to the representative’s exercise of the over-allotment option, if any. |
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We have agreed to pay a non-accountable expense allowance to the representative of the underwriters equal to 1% of the gross proceeds received at the completion of the offering. The non-accountable expense allowance of 1% is not payable with respect to any shares sold upon exercise of the representative’s over-allotment option. We have paid an expense deposit of $25,000 to the representative, which will be applied against the out-of-pocket accountable expenses that will be paid by us to the underwriters in connection with this offering, and will be reimbursed to us to the extent not actually incurred in compliance with FINRA Rule 5110(g)(4)(A).
We have also agreed to pay certain of the representative’s expenses relating to the offering, including (i) all filing fees and communication expenses relating to the registration of the shares of common stock to be sold in the offering (including the shares subject to the representative’s over-allotment option) with the SEC; (ii) all filing fees and expenses associated with the review of the offering by FINRA; (iii) all fees and expenses relating to the listing of our common stock on the Nasdaq Capital Market, including any fees charges by The Depository Trust for new securities; (iv) all fees, expenses and disbursements relating to background checks of our officers, directors and entities in an amount not to exceed $15,000 in the aggregate; (v) all fees, expenses and disbursements relating to the registration or qualification of our common stock under the “blue sky” securities laws of such states, if applicable, and other jurisdictions as The representative may reasonably designate; (vi) all fees, expenses and disbursements relating to the registration, qualification or exemption of our shares of common stock under the securities laws of such foreign jurisdictions as the representative may reasonably designate; (vii) the costs of all mailing and printing of the underwriting documents (including, without limitation, the underwriting agreement, any blue sky surveys and, if appropriate, any agreement among underwriters, selected dealers’ agreement, underwriters’ questionnaire and power of attorney), registration statements, prospectuses and all amendments, supplements and exhibits thereto and as many preliminary and final prospectuses as the representative may reasonably deem necessary; (viii) the costs and expenses of our public relations firm; (ix) the costs of preparing, printing and delivering certificates representing our shares of common stock; (x) fees and expenses of the transfer agent for our common stock; (xi) stock transfer and/or stamp taxes, if any, payable upon the transfer of shares of our common stock from us to the representative; (xii) the costs associated with post-closing advertising this offering in the national editions of the Wall Street Journal and New York Times; (xii) the costs associated with bound volumes of the public offering materials as well as commemorative mementos and lucite tombstones, each of which we or our designee will provide within a reasonable time after the closing in such quantities as the representative may reasonably request, in an amount not to exceed $3,000; (xiii) the fees and expenses of our accountants; (xiv) the fees and expenses of our legal counsel and other agents and representatives; (xv) the fees and expenses of the underwriter’s legal counsel not to exceed $150,000; (xvi) the $29,500 cost associated with the use of Ipreo’s book building, prospectus tracking and compliance software for this offering; (xvii) $10,000 for data services and communications expenses; (xviii) up to $10,000 of the representative’s actual accountable “road show” expenses; and (xix) up to $30,000 of the representative’s market making and trading, and clearing firm settlement expenses for this offering.
Our total estimated expenses of the offering, including registration and filing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts and commissions, are approximately $ .
Representative’s Warrants
Upon completion of this offering, we have agreed to issue to the representative as compensation warrants to purchase up to shares of common stock (5% of the aggregate number of shares of common stock sold in this offering inclusive of the over-allotment option, or the representative’s warrants). The representative’s warrants will be exercisable at a per share exercise price equal to 125% of the public offering price per share in this offering. The representative’s warrants are exercisable at any time and from time to time, in whole or in part, during the four year period commencing 180 days following the commencement of sales of the securities issued in this offering.
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The representative’s warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(e)(1)(A) of FINRA. The representative (or permitted assignees under Rule 5110(e)(2)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days following the commencement of sales of the securities issued in this offering. In addition, the representative’s warrants provide for registration rights upon request, in certain cases. The sole demand registration right provided will not be greater than five years from the commencement of sales of the securities issued in this offering in compliance with FINRA Rule 5110(g)(8)(C). The piggyback registration rights provided will not be greater than seven years from the commencement of sales of the securities issued in this offering in compliance with FINRA Rule 5110(g)(8)(D). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the Representative’s Warrants may be adjusted in certain circumstances including in the event of a stock dividend or our recapitalization, reorganization, merger or consolidation. However, the Representative’s Warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
Lock-Up Agreements
Pursuant to “lock-up” agreements, we, our executive officers and directors, and certain stockholders, have agreed, without the prior written consent of the representative not to directly or indirectly, offer to sell, sell, pledge or otherwise transfer or dispose of any of shares of (or enter into any transaction or device that is designed to, or could be expected to, result in the transfer or disposition by any person at any time in the future of) our common stock, enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of our common stock, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common stock or securities convertible into or exercisable or exchangeable for common stock or any other securities of ours or publicly disclose the intention to do any of the foregoing, subject to customary exceptions, for a period of three (3) months after the date of the closing of this offering. In addition, we have agreed that for a period of six (6) months after the closing of this offering that we will not directly or indirectly in any “at-the-market,” continuous equity or variable rate transaction, offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock, without the prior written consent of the representative.
Determination of Offering Price
The public offering price of the shares of our common stock that we are offering was negotiated between us and the representative based on, among other things, the trading price of our common stock prior to the offering. Other factors considered in determining the public offering price of the shares of our common stock include our history and prospects, the stage of development of our business, our business plans for the future and the extent to which they have been implemented, an assessment of our management, general conditions of the securities markets at the time of the offering and such other factors as were deemed relevant.
Right of First Refusal
In connection with our initial public offering that closed on November 15, 2021, we granted ThinkEquity LLC, for a period of eighteen (18) months following the closing of such offering, an irrevocable right of first refusal (the “Initial ROFR”) to act as sole and exclusive investment banker, sole and exclusive book-runner, and/or sole and exclusive placement agent, at the representative’s sole discretion, for each and every future public and private equity and debt offering, including all equity linked financings, during such (eighteen) 18 month period for us, or any successor to our company or any subsidiary of our company, on terms and conditions customary to
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the representative. The representative will have the sole right to determine whether or not any other broker-dealer will have the right to participate in any such offering and the economic terms of any such participation. In connection with this closing of this offering, we have agreed to grant ThinkEquity LLC a six (6) month extension to the Initial ROFR, such that the right of first refusal described above would extend until November 15, 2023.
Discretionary Accounts
The underwriters do not intend to confirm sales of the shares of common stock offered hereby to any accounts over which they have discretionary authority.
Nasdaq Capital Market Listing
Our common stock is listed on the Nasdaq Capital Market under the symbol “TIVC.”
Other
From time to time, certain of the underwriters and/or their affiliates may in the future provide, various investment banking and other financial services for us for which they may receive customary fees. In the course of their businesses, the underwriters and their affiliates may actively trade our securities or loans for their own account or for the accounts of customers, and, accordingly, the underwriters and their affiliates may at any time hold long or short positions in such securities or loans. Except for services provided in connection with this offering, no underwriter has provided any investment banking or other financial services to us during the 180-day period preceding the date of this prospectus and we do not expect to retain any underwriter to perform any investment banking or other financial services for at least 90 days after the date of this prospectus.
Except for services provided in connection with (i) this offering, (ii) our initial public offering that closed on November 15, 2021 in which the representative acted as sole underwriter and was paid an underwriting discount of 7% of the public offering price as well as a non-accountable expense allowance equal to 1% of the public offering price per share of common stock and warrants to purchase up to 172,500 shares of our common stock, and (iii) acting as the exclusive financial advisor to us for any transaction involving a merger, share capital exchange, asset acquisition, share purchase, reorganization or similar business combination between us and Reliefband, no underwriter has provided any investment banking or other financial services to us during the 180-day period preceding the date of this prospectus and we do not expect to retain any underwriter to perform any investment banking or other financial services for at least 90 days after the date of this prospectus.
Price Stabilization, Short Positions and Penalty Bids
In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may over-allot in connection with this offering by selling more shares than are set forth on the cover page of this prospectus. This creates a short position in our common stock for its own account. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares of common stock over-allotted by the underwriters is not greater than the number of shares of common stock that they may purchase in the over-allotment option. In a naked short position, the number of shares of common stock involved is greater than the number of shares common stock in the over-allotment option. To close out a short position, the underwriters may elect to exercise all or part of the over-allotment option. The underwriters may also elect to stabilize the price of our common stock or reduce any short position by bidding for, and purchasing, common stock in the open market.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing shares of common stock in this offering because the underwriter repurchases the shares of common stock in stabilizing or short covering transactions.
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Finally, the underwriters may bid for, and purchase, shares of our common stock in market making transactions, including “passive” market making transactions as described below.
These activities may stabilize or maintain the market price of our common stock at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be effected on the national securities exchange on which our shares of common stock are traded, in the over-the-counter market, or otherwise.
In connection with this offering, the underwriters or their affiliates may engage in passive market making transactions in our common stock immediately prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103 generally provides that:
| • | a passive market maker may not effect transactions or display bids for our common stock in excess of the highest independent bid price by persons who are not passive market makers; |
| • | net purchases by a passive market maker on each day are generally limited to 30% of the passive market maker’s average daily trading volume in our common stock during a specified two-month prior period or 200 shares of common stock, whichever is greater, and must be discontinued when that limit is reached; and |
| • | passive market making bids must be identified as such. |
Indemnification
We have agreed to indemnify the underwriters against liabilities relating to this offering arising under the Securities Act and the Exchange Act, liabilities arising from breaches of some or all of the representations and warranties contained in the underwriting agreement, and to contribute to payments that the underwriters may be required to make for these liabilities.
Electronic Distribution
This prospectus in electronic format may be made available on websites or through other online services maintained by one or more of the underwriters, or by their affiliates. Other than this prospectus in electronic format, the information on any underwriter’s website and any information contained in any other website maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
Selling Restrictions
No action has been taken in any jurisdiction (except in the United States) that would permit a public offering of our common stock, or the possession, circulation or distribution of this prospectus or any other material relating to us or our common stock in any jurisdiction where action for that purpose is required. Accordingly, our common stock may not be offered or sold, directly or indirectly, and this prospectus or any other offering material or advertisements in connection with our common stock may be distributed or published, in or from any country or jurisdiction, except in compliance with any applicable rules and regulations of any such country or jurisdiction.
Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the
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information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.
Canada
The shares of common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts, or NI 33-105, the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
China
The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”
European Economic Area—Belgium, Germany, Luxembourg and Netherlands
The information in this document has been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.
An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:
| • | to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
| • | to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or |
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| consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements); |
| • | to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent of the Company or any underwriter for any such offer; or |
| • | in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive. |
France
This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code Monétaire et Financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1; and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1; and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.
Hong Kong
Neither the information in this document nor any other document relating to the offer has been delivered for registration to the Registrar of Companies in Hong Kong, and its contents have not been reviewed or approved by any regulatory authority in Hong Kong, nor have we been authorized by the Securities and Futures Commission in Hong Kong. This document does not constitute an offer or invitation to the public in Hong Kong to acquire shares. Accordingly, unless permitted by the securities laws of Hong Kong, no person may issue or have in its possession for the purpose of issue, this document or any advertisement, invitation or document relating to the shares, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong other than in relation to shares which are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” (as such term is defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“SFO”) and the subsidiary legislation made thereunder) or in circumstances which do not result in this document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance of Hong Kong (Cap. 32 of the Laws of Hong Kong) (the “CO”) or which do not constitute an offer or an invitation to the public for the purposes of the SFO or the CO. The offer of the shares is personal to the person to whom this document has been delivered by or on behalf of our company, and a subscription for shares will only be accepted from such person. No person to whom a copy of this document is issued may issue, circulate or distribute this document in Hong Kong or make or give
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a copy of this document to any other person. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. No document may be distributed, published or reproduced (in whole or in part), disclosed by or to any other person in Hong Kong or to any person to whom the offer of sale of the shares would be a breach of the CO or SFO.
Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.
Israel
The securities offered by this prospectus have not been approved or disapproved by the Israel Securities Authority (the “ISA”), nor have such securities been registered for sale in Israel. The securities may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus that has been approved by the ISA. The ISA has not issued permits, approvals or licenses in connection with this offering or publishing this prospectus, nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered.
This document does not constitute a prospectus under the Israeli Securities Law and has not been filed with or approved by the ISA. In the State of Israel, this document may be distributed only to, and may be directed only at, and any offer of the securities may be directed only at, (i) to the extent applicable, a limited number of persons in accordance with the Israeli Securities Law and (ii) investors listed in the first addendum to the Israeli Securities Law (the “Addendum”) consisting primarily of joint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange Ltd., underwriters, venture capital funds, entities with equity in excess of NIS 50 million and “qualified individuals,” each as defined in the Addendum (as it may be amended from time to time), collectively referred to as qualified investors (in each case purchasing for their own account or, where permitted under the Addendum, for the accounts of their clients who are investors listed in the Addendum). Qualified investors will be required to submit written confirmation that they fall within the scope of the Addendum, are aware of the meaning of same and agree to it.
Italy
The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Societ — $$ — Aga e la Borsa, “CONSOB” pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
| • | to Italian qualified investors, as defined in Article 100 of Decree no.58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and |
| • | in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended. |
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Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:
| • | made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and |
| • | in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws. |
Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.
Japan
The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.
Portugal
This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissăo do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Sweden
This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
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Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority (FINMA).
This document is personal to the recipient only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document nor the securities have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor has the Company received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by the Company.
No offer or invitation to subscribe for securities is valid or permitted in the Dubai International Financial Centre.
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to our Company.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
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LEGAL MATTERS
Procopio, Cory, Hargreaves & Savitch LLP, San Diego, California, has acted as our Company’s legal counsel and will pass upon the validity of the securities offered by this prospectus. Certain legal matters will be passed upon for the underwriters by Blank Rome, LLP, New York, New York.
EXPERTS
Rosenberg Rich Baker Berman, P.A., independent registered public accounting firm, has audited our financial statements at December 31, 2021 and 2020, and for the years then ended, as set forth in their report. We have included our financial statements in this prospectus and elsewhere in the registration statement in reliance on Rosenberg Rich Baker Berman P.A.’s report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information about us and the common stock offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance we refer you to the copy of such contract or other document filed as an exhibit to the registration statement. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
We are subject to the periodic reporting requirements of the Exchange Act, and we file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information are available on the website of the SEC referred to above. We also maintain a website at www.tivichealth.com. You may access these materials at our corporate website free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our corporate website is not a part of this prospectus and the inclusion of our corporate website address in this prospectus is an inactive textual reference only.
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Page |
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F-2 |
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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| F7–29 | ||||
Unaudited Interim Condensed Financial Statements For the Three and Nine Months Ended September 30, 2022 and 2021 |
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| F-30 | ||||
| F-31 | ||||
| F-32 | ||||
| F-33 | ||||
| F34–46 | ||||
December 31, 2021 |
December 31, 2020 |
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ASSETS |
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| Current assets |
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| Cash and cash equivalents |
$ | $ | ||||||
| Accounts receivable, net |
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| Total assets |
$ | $ | ||||||
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| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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| Current liabilities |
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| Accounts payable |
$ | $ | ||||||
| Other accrued expenses |
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| Operating lease liability, current |
— | |||||||
| Notes payable, current |
— | |||||||
| Conversion feature derivative liability |
— | |||||||
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| Total current liabilities |
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| Operating lease liability |
— | |||||||
| Notes payable |
— | |||||||
| Convertible notes payable, net of debt discount |
— | |||||||
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| Total liabilities |
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| Stockholders’ equity (deficit) |
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| Convertible preferred stock, $ |
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| Preferred stock, $ |
— | — | ||||||
| Common stock, $ |
— | |||||||
| Additional paid in capital |
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| Accumulated deficit |
( |
) | ( |
) | ||||
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| Total stockholders’ equity (deficit) |
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| Total liabilities and stockholders’ equity (deficit) |
$ | $ | ||||||
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Years Ended December 31, |
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2021 |
2020 |
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Revenue |
$ | $ | ||||||
Cost of sales |
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Gross loss |
( |
) | ( |
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Operating expenses: |
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Research and development |
||||||||
Sales and marketing |
||||||||
General and administrative |
||||||||
Total operating expenses |
||||||||
Loss from operations |
( |
) | ( |
) | ||||
Other income (expense): |
||||||||
Interest expense |
( |
) | ( |
) | ||||
Change in fair value of derivative liabilities |
( |
) | ||||||
Loss on extinguishment of debt |
( |
) | — | |||||
Other income |
||||||||
Total other income (expense) |
( |
) | ( |
) | ||||
Loss before provision for income taxes |
( |
) | ( |
) | ||||
Provision for income taxes |
— | |||||||
Net loss and comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
Net loss per share - basic and diluted |
$ | ( |
) | $ | ( |
) | ||
Weighted-average number of shares - basic and diluted |
||||||||
Convertible Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Equity (Deficit) |
||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||
Balances at January 1, 2020 |
— | ( |
) | |||||||||||||||||||||||||
Issuance of convertible preferred stock, net of issuance costs |
— | — | — | — | ||||||||||||||||||||||||
Exercise of stock options |
— | — | — | — | ||||||||||||||||||||||||
Stock-based compensation expense |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Balances at December 31, 2020 |
$ | $ | — | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||
Conversion of convertible preferred stock to common stock |
( |
) | ( |
) | — | — | — | |||||||||||||||||||||
Conversion of convertible notes payable to common stock |
— | — | ||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs |
— | |||||||||||||||||||||||||||
Exercise of stock options |
— | — | — | — | ||||||||||||||||||||||||
Issuance of warrants |
— | — | — | — | — | |||||||||||||||||||||||
Stock-based compensation expense |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Balances at December 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
Years Ended December 31, |
||||||||
2021 |
2020 |
|||||||
Cas h flows from operating activities |
||||||||
Net loss |
$ |
( |
) |
$ |
( |
) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Stock based compensation |
||||||||
Depreciation |
||||||||
Change in fair value of derivative liabilities |
( |
) |
||||||
Amortization of debt discount |
||||||||
Loss on extinguishment of debt |
— |
|||||||
Amortization of right-of-use |
— |
|||||||
Noncash interest |
— |
|||||||
Forgiveness of PPP loan |
( |
) |
— |
|||||
Issuance of common stock warrant |
— |
|||||||
Accounts receivable allowances |
||||||||
Reserve for inventory obsolescence |
( |
) |
||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
( |
) |
( |
) | ||||
Inventory |
( |
) |
||||||
Prepaid expenses and other current assets |
( |
) |
||||||
Accounts payable |
||||||||
Accrued expenses |
( |
) | ||||||
Lease liabilities |
— |
|||||||
Net cash used in operating activities |
( |
) |
( |
) | ||||
Cash flows from financing activities |
||||||||
Proceeds from notes payable borrowings |
— |
|||||||
Repayment of notes payable borrowings |
( |
) |
( |
) | ||||
Proceeds from convertible notes payable borrowings |
||||||||
Proceeds from convertible notes payable borrowings – related party |
— |
|||||||
Proceeds from exercise of stock options |
||||||||
Proceeds from issuance of common stock, net of issuance costs |
— |
|||||||
Proceeds from issuance of convertible preferred stock, net of issuance costs |
— |
|||||||
Net cash provided by financing activities |
||||||||
Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
Cash and cash equivalents |
||||||||
Beginning of period |
||||||||
End of period |
$ |
$ |
||||||
Supplemental disclosures of cash flow information |
||||||||
Cash paid for income tax |
$ |
$ |
||||||
Cash paid for interest |
$ |
— |
$ |
|||||
Supplemental disclosure on noncash financing activities |
||||||||
Issuance of conversion feature derivative liability |
$ |
$ |
||||||
Conversion of convertible notes payable and accrued interest to common stock |
$ |
— |
||||||
Conversion of convertible preferred stock to common stock |
$ |
$ |
— |
|||||
Reclassify conversion feature derivative liability to additional paid in capital |
$ |
$ |
— |
|||||
Issuance of common stock warrant |
$ |
$ |
— |
|||||
Recognition of right-of-use |
$ |
$ |
— |
|||||
1. |
Formation and Business of the Company |
2. |
Summary of Significant Accounting Policies |
3. |
Financial Instruments and Fair Value Measurements |
As of December 31, 2021 |
||||||||||||||||||||
Carrying Amount |
Fair Value |
Quoted Priced in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||||||||
Assets |
||||||||||||||||||||
Money market funds |
$ | $ | $ | $ | — | $ | — | |||||||||||||
Total assets |
$ | $ | $ | $ | — | $ | — | |||||||||||||
As of December 31, 2020 |
||||||||||||||||||||
Carrying Amount |
Fair Value |
Quoted Priced in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||||||||
Assets |
||||||||||||||||||||
Money market funds |
$ | $ | $ | $ | — | $ | — | |||||||||||||
Total assets |
$ | $ | $ | $ | — | $ | — | |||||||||||||
Liabilities |
||||||||||||||||||||
Conversion feature derivative liability |
$ | $ | $ | — | $ | — | $ | |||||||||||||
Total liabilities |
$ | $ | $ | — | $ | — | $ | |||||||||||||
Conversion Right Liability |
||||
Balance at January 1, 2020 |
||||
Issuance of convertible rights |
||||
Changes in fair value |
||||
Balance at December 31, 2020 |
||||
Issuance of convertible rights |
||||
Changes in fair value |
( |
) | ||
Reclassification to additional paid-in capital |
( |
) | ||
Balance at December 31, 2021 |
$ | |||
4. |
Accounts Receivable Factoring |
5. |
Inventory, net |
December 31, 2021 |
December 31, 2020 |
|||||||
Raw materials |
$ | $ | ||||||
Work in process |
— | |||||||
Finished goods |
||||||||
Inventory at cost |
||||||||
Less reserve for obsolescence |
— | ( |
) | |||||
Inventory, net |
$ | $ | ||||||
6. |
Commitments |
Operating lease cost |
$ | |||
Short term lease cost |
||||
Total lease cost |
$ | |||
Right-of-use |
$ | |||
Operating lease liabilities, current |
$ | |||
Operating lease liabilities, non-current |
||||
Total operating lease liabilities |
$ | |||
Remaining lease term (in years) |
||||
Discount rate |
% |
Cash paid for amounts included in the measurement of lease liabilities |
$ |
Fiscal Year |
||||
2022 |
$ | |||
2023 |
||||
2024 |
||||
2025 |
||||
Total minimum lease payments |
||||
Less imputed interest |
( |
) | ||
Present value of lease payments |
$ | |||
7. |
Notes Payable |
8. |
Convertible Notes Payable |
| (i) | the per share liquidation preference; and |
| (ii) | the percentage of the conversion price to determine the per share dividend rights. |
Convertible Notes Payable |
||||
Balance at January 1, 2020 |
||||
Issuance of convertible notes payable |
||||
Matured |
||||
Balance at December 31, 2020 |
$ | |||
Issuance of convertible notes payable |
||||
Converted to common stock |
( |
) | ||
Balance at December 31, 2021 |
||||
Debt Discount |
||||
Balance at January 1, 2020 |
||||
Debt discount recognized |
||||
Amortized to interest expense |
( |
) | ||
Balance at December 31, 2020 |
$ | |||
Debt discount recognized |
||||
Amortized to interest expense |
( |
) | ||
Reclassified to additional paid-in capital upon conversion of convertible notes payable |
( |
) | ||
Balance at December 31, 2021 |
||||
9. |
Convertible Preferred Stock |
10. |
Preferred Stock |
11. |
Common Stock |
December 31, 2021 |
December 31, 2020 |
|||||||
Convertible preferred stock outstanding |
— | |||||||
Warrants to purchase common stock |
— | |||||||
Options issued and outstanding |
||||||||
Shares available for future stock option grants |
||||||||
Total |
||||||||
12. |
Common Stock Warrants |
2021 |
||||
Expected life (in years) |
||||
Expected volatility |
% | |||
Risk-free interest rate |
% | |||
Dividend yield |
% | |||
Class of Shares |
Number of Warrants | Exercise Price | Expiration Date | |||||||
Common Stock |
$ | July 1, 2026 | ||||||||
Common Stock |
$ | November 15, 2026 | ||||||||
Common Stock |
$ | November 10, 2026 | ||||||||
13. |
Equity Incentive Plans |
Options Outstanding |
||||||||||||||||||||||||
Shares Available For Grant |
Number of Options |
Weighted Average Exercise Price |
Weighted- Average Grant Date Fair Value |
Weighted- Average Remaining Contractual Life (in years) |
Aggregate Intrinsic Value (in 000s) |
|||||||||||||||||||
Balances, January 1, 2020 |
$ | $ | $ | |||||||||||||||||||||
Options granted |
( |
) | $ | $ | ||||||||||||||||||||
Options forfeited / cancelled |
( |
) | $ | $ | ||||||||||||||||||||
Options expired |
( |
) | $ | $ | ||||||||||||||||||||
Options exercised |
— | ( |
) | $ | $ | |||||||||||||||||||
Balances, December 31, 2020 |
$ | $ | $ | |||||||||||||||||||||
Shares reserved for issuance |
— | |||||||||||||||||||||||
Reserved shares cancelled |
( |
) | — | |||||||||||||||||||||
Options granted |
( |
) | $ | $ | ||||||||||||||||||||
Options forfeited / cancelled |
( |
) | $ | $ | ||||||||||||||||||||
Options expired |
( |
) | $ | $ | ||||||||||||||||||||
Options exercised |
— | ( |
) | $ | $ | |||||||||||||||||||
Balances, December 31, 2021 |
$ | $ | $ | |||||||||||||||||||||
At December 31, 2021 |
||||||||||||||||||||||||
Vested and exercisable |
$ | $ | ||||||||||||||||||||||
Number of Shares |
Weighted- Average Grant-Date Fair Value Per Share |
|||||||
Non-vested as of January 1, 2020 |
$ | |||||||
Vested |
( |
) | $ | |||||
Non-vested as of December 31, 2020 |
$ | |||||||
Issuance of restricted common stock |
$ | |||||||
Vested |
( |
) | $ | |||||
Non-vested as of December 31, 2021 |
$ | |||||||
2021 |
2020 |
|||||||
Expected life (in years) |
||||||||
Expected volatility |
% | % | ||||||
Risk-free interest rate |
% | % | ||||||
Dividend yield |
% | % | ||||||
2021 |
2020 |
|||||||
Cost of sales |
$ | — | $ | |||||
Research and development |
||||||||
Sales and marketing |
||||||||
General and administrative |
||||||||
Total stock-based compensation |
$ | $ | ||||||
14. |
Income Taxes |
For the Years Ended |
||||||||
December 31, 2021 |
December 31, 2020 |
|||||||
Income tax provision at statutory rate |
% | % | ||||||
State income taxes, net of federal benefit |
% | % | ||||||
Interest expense |
- |
% | % | |||||
Loss on extinguishment of debt |
- |
% | % | |||||
Other |
- | % | - |
% | ||||
Change in valuation allowance |
- |
% | - |
% | ||||
Effective income tax rate |
% | % | ||||||
For the Years Ended |
||||||||
December 31, 2021 |
December 31, 2020 |
|||||||
| Deferred tax assets: |
||||||||
| Net operating loss carryforwards |
$ | $ | ||||||
| Derivative liability |
— | |||||||
| Research and development credits |
||||||||
| Lease liability |
— | |||||||
| Other temporary differences |
||||||||
| |
|
|
|
|||||
| Total deferred tax assets |
||||||||
| Valuation allowance |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Deferred tax assets recognized |
||||||||
| |
|
|
|
|||||
| Deferred tax liabilities: |
||||||||
| Debt discount |
— | ( |
) | |||||
| Right-of-use |
( |
) | — | |||||
| |
|
|
|
|||||
| Total deferred tax liabilities |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net deferred tax assets |
$ | $ | ||||||
| |
|
|
|
|||||
For the Years Ended |
||||||||
December 31, 2021 |
December 31, 2020 |
|||||||
| Unrecognized tax benefits, beginning of year |
$ | $ | ||||||
| Additions related to current year tax positions |
||||||||
| |
|
|
|
|||||
| Net deferred tax assets |
$ | $ | ||||||
| |
|
|
|
|||||
15. |
Net Loss per Share |
For the Years Ended December 31, |
||||||||
2021 |
2020 |
|||||||
| Convertible preferred stock (as converted) |
— | |||||||
| Common stock warrants |
— | |||||||
| Common stock options issued and outstanding |
||||||||
| |
|
|
|
|||||
| Total |
||||||||
| |
|
|
|
|||||
For the Years Ended December 31, |
||||||||
2021 |
2020 |
|||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Weighted-average number of shares - basic and diluted |
||||||||
| Net loss per share - basic and diluted |
$ | ( |
) | $ | ( |
) | ||
16. |
Related Party Transactions |
September 30, 2022 |
December 31, 2021 |
|||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | |||||||
Accounts receivable, net |
||||||||
Inventory, net |
||||||||
Deferred offering costs |
||||||||
Prepaid expenses and other current assets |
||||||||
Total current assets |
||||||||
Property and equipment, net |
||||||||
Right-of-use |
||||||||
Other assets |
||||||||
Total assets |
$ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | $ | ||||||
Other accrued expenses |
||||||||
Operating lease liability, current |
||||||||
Total current liabilities |
||||||||
Operating lease liability |
||||||||
Total liabilities |
||||||||
Commitments and contingencies |
||||||||
Stockholders’ equity |
||||||||
Preferred stock, $ September 30, 2022 and December 31, 2021 |
— | — | ||||||
Common stock, $ shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively |
||||||||
Additional paid in capital |
||||||||
Accumulated deficit |
( |
) | ( |
) | ||||
Total stockholders’ equity |
||||||||
Total liabilities and stockholders’ equity |
$ | $ | ||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Revenue |
$ | $ | $ | $ | ||||||||||||
Cost of sales |
||||||||||||||||
Gross profit (loss) |
( |
) | ( |
) | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
||||||||||||||||
Sales and marketing |
||||||||||||||||
General and administrative |
||||||||||||||||
Total operating expenses |
||||||||||||||||
Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Other income (expense): |
||||||||||||||||
Interest income (expense) |
( |
) | ( |
) | ||||||||||||
Change in fair value of derivative liabilities |
||||||||||||||||
Other income (expense) |
( |
) | ( |
) | ||||||||||||
Total other income (expense) |
( |
) | ( |
) | ||||||||||||
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Net loss per share - basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Weighted-average number of shares - basic and diluted |
||||||||||||||||
Convertible Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Deficit |
||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||
Balances at January 1, 2021 |
$ |
$ |
— |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||||||||||||
Exercise of stock options |
— |
— |
— |
— |
||||||||||||||||||||||||
Stock-based compensation expense |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Net loss |
— |
— |
— |
— |
— |
( |
) |
( |
) | |||||||||||||||||||
Balances at March 31, 2021 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
Stock-based compensation expense |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Net loss |
— |
— |
— |
— |
— |
( |
) |
( |
) | |||||||||||||||||||
Balances at June 30, 2021 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
Exercise of stock options |
— |
— |
— |
— |
||||||||||||||||||||||||
Issuance of common stock |
— |
— |
— |
— |
— |
— |
||||||||||||||||||||||
Issuance of warrant |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Stock-based compensation expense |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Net loss |
— |
— |
— |
— |
— |
( |
) |
( |
) | |||||||||||||||||||
Balances at September 30, 2021 |
$ |
$ |
— |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||||||||||||
Preferred Stock |
Common Stock |
Additional Paid-in |
Accumulated |
Total Stockholders’ |
||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Equity |
||||||||||||||||||||||
Balances at January 1, 2022 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
Stock-based compensation expense |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Balances at March 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
Repurchase of restricted common stock |
— | — | ( |
) | — | — | — | — | ||||||||||||||||||||
Stock-based compensation expense |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Balances at June 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
Exercise of stock options |
— |
— |
— |
— |
||||||||||||||||||||||||
Stock-based compensation expense |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Net loss |
— |
— |
— |
— |
— |
( |
) |
( |
) | |||||||||||||||||||
Balances at September 30, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||
Nine Months Ended September 30, |
||||||||
2022 |
2021 |
|||||||
Cash flows from operating activities |
||||||||
Net loss |
$ |
( |
) |
$ |
( |
) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Stock based compensation |
||||||||
Depreciation |
||||||||
Change in fair value of derivative liabilities |
— |
( |
) | |||||
Amortization of debt discount |
||||||||
Amortization of right-of-use |
— |
|||||||
Accounts receivable allowances |
— |
( |
) | |||||
Reserve for inventory obsolescence |
— |
( |
) | |||||
Forgiveness of PPP loan |
— |
( |
) | |||||
Issuance of common stock warrant |
— |
|||||||
Changes is operating assets and liabilities: |
||||||||
Accounts receivable |
( |
) |
( |
) | ||||
Inventory |
( |
) |
( |
) | ||||
Prepaid expenses and other current assets |
||||||||
Deferred offering costs |
( |
) |
( |
) | ||||
Accounts payable |
||||||||
Accrued expenses |
( |
) |
||||||
Lease liabilities |
( |
) |
— |
|||||
Other assets |
— |
|||||||
Net cash used in operating activities |
( |
) |
( |
) | ||||
Cash flows from investing activities |
||||||||
Acquisition of property and equipment |
( |
) |
— |
|||||
Net cash used in investing activities |
( |
) |
— |
|||||
Cash flows from financing activities |
||||||||
Repayment of notes payable borrowings |
— |
( |
) | |||||
Payment of deferred offering costs |
— |
|||||||
Proceeds from convertible notes payable borrowings |
— |
|||||||
Proceeds from exercise of stock options |
||||||||
Net cash provided by financing activities |
||||||||
Net decrease in cash and cash equivalents |
( |
) |
( |
) | ||||
Cash and cash equivalents |
||||||||
Beginning of period |
||||||||
End of period |
$ |
$ |
||||||
Noncash financing transactions |
||||||||
Issuance of conversion feature derivative liability |
$ |
— |
$ |
|||||
Original issue discount on convertible notes payable |
$ |
— |
$ |
|||||
1. |
Formation and Business of the Company |
2. |
Summary of Significant Accounting Policies |
3. |
Financial Instruments and Fair Value Measurements |
As of September 30, 2022 (unaudited) |
||||||||||||||||||||
Carrying Amount |
Fair Value |
Quoted Priced in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||||||||
Assets |
||||||||||||||||||||
Money market funds |
$ | $ | $ | $ | — | $ | — | |||||||||||||
Total assets |
$ | $ | $ | $ | — | $ | — | |||||||||||||
As of December 31, 2021 |
||||||||||||||||||||
Carrying Amount |
Fair Value |
Quoted Priced in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||||||||
Assets |
||||||||||||||||||||
Money market funds |
$ | $ | $ | $ | — | $ | — | |||||||||||||
Total assets |
$ | $ | $ | $ | — | $ | — | |||||||||||||
4. |
Inventory, net (in thousands) |
September 30, |
December 31, |
|||||||
2022 |
2021 |
|||||||
(unaudited) |
||||||||
Raw materials |
$ | $ | ||||||
Finished goods |
||||||||
Inventory at cost |
||||||||
Less reserve for obsolescence |
||||||||
Inventory, net |
$ | $ | ||||||
5. |
Prepaid expenses and other current assets (in thousands) |
September 30, |
December 31, |
|||||||
2022 |
2021 |
|||||||
(unaudited) |
||||||||
Prepaid director and officer liability insurance |
$ | $ | ||||||
Refundable research and development tax credit |
||||||||
Short term deposits |
||||||||
Other |
||||||||
Total prepaid expenses and other current assets |
$ | $ | ||||||
6. |
Lease |
Remaining lease term (in years) |
||||
Discount rate |
% |
Fiscal Year |
||||
Remainder of 2022 |
$ | |||
2023 |
||||
2024 |
||||
2025 |
||||
Total minimum lease payments |
||||
Less imputed interest |
( |
) | ||
Present value of lease payments |
$ | |||
7. |
Commitments and Contingencies |
8. |
Preferred Stock |
9. |
Common Stock |
September 30, 2022 |
December 31, 2021 |
|||||||
Warrants to purchase common stock |
||||||||
Options issued and outstanding |
||||||||
Shares available for future stock option grants |
||||||||
Total |
||||||||
10. |
Common Stock Warrants |
2021 |
||||
Expected life (in years) |
||||
Expected volatility |
7% | |||
Risk-free interest rate |
% | |||
Dividend yield |
% | |||
Class of Shares |
Number of Warrants |
Exercise Price |
Expiration Date |
|||||||||
Common Stock |
$ |
|||||||||||
Common Stock |
$ |
|||||||||||
Common Stock |
$ |
|||||||||||
11. |
Equity Incentive Plans |
Outstanding |
Exercisable |
|||||||
January 1, 2022 |
||||||||
Granted |
||||||||
Canceled or expired |
( |
) |
( |
) | ||||
Exercised |
( |
) |
( |
) | ||||
September 30, 2022 |
||||||||
Number of Shares |
||||
January 1, 2022 |
||||
Vested |
( |
) | ||
Cancelled |
( |
) | ||
September 30, 2022 |
— |
|||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Research and development |
$ | $ | $ | $ | ||||||||||||
Sales and marketing |
||||||||||||||||
General and administrative |
||||||||||||||||
Total stock-based compensation |
$ | $ | $ | $ | ||||||||||||
12. |
Net Loss per Share |
Nine Months Ended |
||||||||
September 30, |
||||||||
2022 |
2021 |
|||||||
Convertible preferred stock (as converted) |
— | |||||||
Warrants to purchase common stock |
||||||||
Common stock options issued and outstanding |
||||||||
Total |
||||||||
13. |
Related Party Transactions |
14. |
Subsequent Events |
Table of Contents
10,714,285 Shares of Common Stock
Tivic Health Systems, Inc.
PRELIMINARY PROSPECTUS
ThinkEquity
, 2022
Table of Contents
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by us in connection with the issuance and distribution of the securities being registered hereunder. All of the amounts shown are estimates, except for the Securities and Exchange Commission registration fee and FINRA filing fee.
| Amount to be Paid |
||||
| SEC Registration Fee |
$ | 1,616 | ||
| FINRA filing fee |
7,500 | |||
| Legal fees and expenses |
300,000 | |||
| Accounting fees and expenses |
85,000 | |||
| Transfer agent and registrar fees |
5,000 | |||
| Printer service fees |
143,000 | |||
| Miscellaneous expenses |
7,884 | |||
|
|
|
|||
| Total |
$ | 550,000 | ||
|
|
|
|||
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 102 of the Delaware General Corporation Law, we have adopted provisions in our amended and restated certificate of incorporation and amended and restated bylaws that limit or eliminate the personal liability of our directors for a breach of their fiduciary duty of care as a director. The duty of care generally requires that, when acting on behalf of the corporation, directors exercise an informed business judgment based on all material information reasonably available to them. Consequently, a director will not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for:
| • | any breach of the director’s duty of loyalty to us or our stockholders; |
| • | any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
| • | any act related to unlawful stock repurchases, redemptions or other distributions or payment of dividends; or |
| • | any transaction from which the director derived an improper personal benefit. |
These limitations of liability do not affect the availability of equitable remedies such as injunctive relief or rescission. Our amended and restated certificate of incorporation authorizes us to indemnify our officers, directors and other agents to the fullest extent permitted under Delaware law.
As permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws will provide that:
| • | we may indemnify our directors, officers, and employees to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions; |
| • | we may advance expenses to our directors, officers and employees in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions; and |
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| • | the rights provided in our bylaws are not exclusive. |
Our amended and restated certificate of incorporation provides that we will indemnify each person who was or is a party, or is or was threatened to be made a party, to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of us) by reason of the fact that he or she is or was, or has agreed to become, a director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to as an “Indemnitee”), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding and any appeal therefrom, if such Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, and, with respect to any criminal action or proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful. Our amended and restated certificate of incorporation provides that we will indemnify any Indemnitee who was or is a party to an action or suit by or in the right of us to procure a judgment in our favor by reason of the fact that the Indemnitee is or was, or has agreed to become, a director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, and any appeal therefrom, if the Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, except that no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to us, unless a court determines that, despite such adjudication but in view of all of the circumstances, he or she is entitled to indemnification of such expenses. Notwithstanding the foregoing, to the extent that any Indemnitee has been successful, on the merits or otherwise, he or she will be indemnified by us against all expenses (including attorneys’ fees) actually and reasonably incurred in connection therewith. Expenses must be advanced to an Indemnitee under certain circumstances.
The above discussion of our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law is not intended to be exhaustive and is respectively qualified in its entirety by such amended and restated certificate of incorporation, amended and restated bylaws and applicable Delaware law.
We have entered into indemnification agreements with each of our directors and officers. These indemnification agreements may require us, among other things, to indemnify our directors and officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of his or her service as one of our directors or officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request.
We maintain standard policies of insurance that provide coverage for certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers.
In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), against certain liabilities.
To the extent that our directors and officers are indemnified under the provisions contained in our amended and restated bylaws, Delaware law or contractual arrangements against liabilities arising under the Securities Act, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is therefore unenforceable.
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ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
All share and per share data included in this Item 15 has been retrospectively adjusted to reflect the 1-for-4 reverse stock split of our common stock, which was effected on August 31, 2021.
Convertible Debt
From December 2017 through November 2018, we issued unsecured convertible promissory notes (the “$7 Million Cap Notes”) in the aggregate amount of approximately $1.98 million to accredited investors pursuant to the terms of a Note Purchase Agreement dated December 2017, as amended September 2018. Each of the $7 Million Cap Notes had a maturity date of December 2019, and were generally convertible into the Company’s equity securities at a per share conversion price that was computed on the basis of a valuation cap (the “Cap”) of $7 million, or a discount rate of 20% to the next round of financing (the “Discount Rate”), whichever resulted in the issuance of a greater number of equity securities to the investors, and were converted into shares of our Series Seed-3 Preferred Stock in connection with our preferred stock financing, discussed in further detail below.
From August 2018 through April 2019, we issued unsecured convertible promissory notes (the “$14 Million Cap Notes”) in the aggregate amount of approximately $1.53 million to accredited investors pursuant to the terms of a Note Purchase Agreement dated August 2018. Each of the $14 Million Cap Notes had a maturity date of September 2020, and were generally convertible into the Company’s equity securities at a per share conversion price that was computed on the basis of a Cap of $14 million, or a Discount Rate of 15%, whichever resulted in the issuance of a greater number of equity securities to the investors, and were converted into shares of our Series Seed-4 Preferred Stock in connection with our preferred stock financing, discussed in further detail below.
In May 2019, we issued an unsecured convertible promissory note (the “May 2019 Note”) in the amount of $455,000 to an accredited investor pursuant to the terms of a Note Purchase Agreement dated May 2019. The May 2019 Note had a maturity date of September 2021, and was generally convertible into the Company’s equity securities at a per share conversion price that was computed on the basis of a Cap of $14 million, or a Discount Rate of 15%, whichever resulted in the issuance of a greater number of equity securities to the investors, and were converted into shares of our Series Seed-4 Preferred Stock in connection with our preferred stock financing, discussed in further detail below.
From June 2020 through December 2020, we issued unsecured convertible promissory notes (the “2020 Bridge Notes”) in the amount of approximately $1.57 million to accredited investors pursuant to the terms of a Note Purchase Agreement dated June 2020, as amended October 2020. The 2020 Bridge Notes have a maturity date of June 2022, and are generally convertible into the Company’s equity securities at a per share conversion price that will be computed on the basis of a Cap of $40 million or a Discount Rate of 25%, whichever results in the issuance of a greater number of equity securities to the investors. In August 2021, the 2020 Bridge Notes were amended to provide that, in addition to the foregoing conversion terms, in the event that the Company consummates an initial public offering of its common stock prior to the occurrence of a Qualified Financing, a Change of Control or the Maturity (all as defined in the 2020 Bridge Note), then, at the election of the Company, all accrued but unpaid interest thereon shall be converted into shares of common stock as of immediately prior to the consummation of the initial public offering at a per share price equal to the lesser of (i) 75% of the per share public offering price and (ii) the quotient resulting from dividing the $40 million Cap by the Company’s capitalization on a fully diluted basis, as of immediately prior to closing of the initial public offering.
From March 2021 through April 2021, we issued unsecured convertible promissory notes in the amount of approximately $0.4 million to accredited investors. These notes were issued as part of the same offering as the 2020 Bridge Notes, accrue interest at a rate of 3% per annum, and mature on June 1, 2022.
The 2020 Bridge Notes, including those issued from March to April 2021, in the aggregate principal amount of approximately $1,987,500, converted into an aggregate of 545,613 shares of our common stock in connection with closing of the IPO, based on accrued interest of approximately $58,600 as of November 10, 2021, and a conversion price of $3.75 per share (75% of the IPO price per share).
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From June 2021 through July 2021, we issued convertible notes payable for total proceeds of approximately $1.86 million to accredited investors, of which proceeds a total of $0.45 million was not received by the Company until July 2021. The notes were issued at an original issue discount of approximately $0.24 million with principal outstanding of approximately $2.11 million. The notes are unsecured, have a term of twenty-three months, and accrue interest at a rate of 3% per annum.
In June 2021, we issued a convertible note payable to our Chief Executive Officer for total proceeds of $0.10 million. The note is unsecured, has a term of twenty-three months, and accrues interests at a rate of 3% per annum.
In June 2021, we issued convertible notes payable for total proceeds of approximately $0.23 million. The notes are unsecured, have a term of twenty-three months, and accrue interest at a rate of 3% per annum.
All of the convertible notes payable issued in June 2021 (collectively, the “2021 Notes”) are generally convertible into the Company’s equity securities at a per share conversion price that will be computed on the basis of a Cap of $40 million or a Discount Rate of 25%, whichever results in the issuance of a greater number of equity securities to the investors. In the event that the Company consummates an initial public offering of its common stock prior to the occurrence of a Qualified Financing, a Change of Control or the Maturity (all as defined in the 2021 Notes), then the outstanding principal amount and, at the election of the Company, all accrued but unpaid interest thereon as of the date of conversion shall be converted into shares of common stock as of immediately prior to the consummation of the initial public offering at a per share price equal to the lesser of (i) 75% of the per share public offering price and (ii) the quotient resulting from dividing the $40 million Cap by the Company’s capitalization on a fully diluted basis, as of immediately prior to closing of the initial public offering. The 2021 Notes, in the aggregate principal amount of approximately $2,442,221, converted into an aggregate of 658,547 shares of our common stock in connection with the IPO, based on accrued interest of approximately $27,352 as of November 10, 2021, and a conversion price of $3.75 per share (75% of the IPO price per share).
Simple Agreements for Future Equity
From December 2016 through August 2018, we entered into Simple Agreements for Future Equity (the “SAFEs”) with accredited investors in the aggregate amount of $870,000. The SAFEs had a Discount Rate of 20%, and were converted into shares of our Series Seed-2 Preferred Stock in connection with our preferred stock financing, discussed in further detail below.
Preferred Stock Financing
From July 2019 through January 2020, we issued an aggregate of 2,794,979 shares of our Series Seed-1 Preferred Stock at a purchase price of $1.4034 per share for an aggregate purchase price of approximately $3.9 million to accredited investors pursuant to the terms of a Series Seed-1, Seed-2, Seed-3 and Seed-4 Preferred Stock Investment Agreement (the “Preferred Stock Financing”). In connection with the Preferred Stock Financing, the SAFEs were converted into an aggregate of 774,894 shares of our Series Seed-2 Preferred Stock at a conversion price of $1.1227 per share; the $7 Million Cap Notes, including accrued interest, were converted into an aggregate of 3,615,580 shares of our Series Seed-3 Preferred Stock at a conversion price of $0.5841 per share; the $14 Million Cap Notes, including accrued interest, were converted into an aggregate of 1,331,150 shares of our Series Seed-4 Preferred Stock at a conversion price of $1.1681 per share; and the May 2019 Note, including accrued interest, was converted into 391,997 shares of our Series Seed-4 Preferred Stock at a conversion price of $1.1681 per share.
All outstanding shares of Series Seed-1 Preferred Stock, Series Seed-2 Preferred Stock, Series Seed-3 Preferred Stock and Series Seed-4 Preferred Stock converted into shares of our common stock on a 4:1 basis (with any fractional shares resulting from the conversion to be cashed out by the Company) into an aggregate of 2,227,116 shares of common stock in connection with our IPO.
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Stock Option Exercises
From September through December 2020, employees purchased an aggregate of 24,479 shares of our common stock at an exercise price of $0.12, for total consideration of $2,937.48, upon the exercise of stock options granted pursuant to our 2017 Equity Incentive Plan. In March 2021, one employee purchased 50,000 shares of our common stock at an exercise price of $0.12 per share, for total consideration of $6,000, upon the exercise of stock options granted pursuant to our 2017 Equity Incentive Plan. In August 2021, six employees and one former employee purchased an aggregate of 346,980 shares of our common stock at a weighted average exercise price of $0.16 per share, for total consideration of approximately $55,800, upon the exercise of stock options granted pursuant to our 2017 Equity Incentive Plan. The shares of common stock issued upon exercise of these stock options were unregistered at the time of issuance, but were subsequently registered under the S-8 Registration Statement (File No. 333-261044), filed by the Company with the SEC on November 12, 2021, after completion of the IPO.
Stock Option Grants
From February 2020 through August 2020, we granted stock options to purchase an aggregate of 208,750 shares of our common stock, of which options to purchase an aggregate of 161,250 shares are outstanding. All such stock options have an exercise price of $1.00 per share. During the fourth quarter of 2020, we granted stock options to purchase an aggregate of 37,698 shares of our common stock, all of which are outstanding. All such stock options have an exercise price of $1.04 per share. In June 2021, we granted options to purchase 50,000 shares of our common stock, all of which are outstanding. All such stock options have an exercise price of $1.60 per share. These stock options were unregistered at the time of issuance, but were subsequently registered under the S-8 Registration Statement (File No. 333-261044), filed by the Company with the SEC on November 12, 2021, after completion of the IPO.
Restricted Stock Grants
On July 29, 2021, we issued 112,500 shares of restricted stock under our 2017 Equity Incentive Plan to our former CFO. These shares were unregistered at the time of issuance, but were subsequently registered under the S-8 Registration Statement (File No. 333-261044), filed by the Company with the SEC on November 12, 2021, after completion of the IPO.
Warrants
On July 1, 2021, we issued a warrant to purchase 50,000 shares of our common stock to a consultant as partial consideration for services provided to the Company, and issued an additional 50,000 warrants to purchase common stock in November 2021 after completion of the IPO. The warrants are exercisable upon issuance, have an exercise price of $1.04 per share and have a term of five years.
During the fiscal year ended December 31, 2021, there were no other unregistered sales of our securities.
During the nine months ended September 30, 2022, there were no other unregistered sales of our securities.
Applicable Exemptions
No underwriters were used in the foregoing transactions, and no discounts or commissions were paid for the transactions described in this item. All sales of securities described in this item were exempt from the registration requirements of the Securities Act in reliance on Section 4(a)(2) of the Securities Act, Rule 701 promulgated under the Securities Act or Regulation D promulgated under the Securities Act, relating to transactions by an issuer not involving a public offering. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
The registrant has filed the exhibits listed on the accompanying Exhibit Index of this registration statement.
(b) Financial Statement Schedules.
All financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or in the notes thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1.) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i.) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii.) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii.) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2.) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;
(3.) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and
(4.) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(b) The undersigned registrant hereby undertakes that:
(1.) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained
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in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2.) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
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EXHIBIT INDEX
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| Exhibit |
Exhibit description |
Incorporated |
Filing |
Filed |
||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||||
| 107 | Filing Fee Table | X | ||||||||||||
| * | To be filed by amendment. |
| # | Indicates management contract or compensatory plan. |
| † | Portions of the exhibit, marked by brackets, have been omitted because the omitted information (i) is not material and (ii) would likely cause competitive harm if publicly disclosed. |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hayward, State of California, on December 9, 2022.
| TIVIC HEALTH SYSTEMS, INC. | ||
| By: | /s/ Jennifer Ernst | |
| Jennifer Ernst | ||
| Chief Executive Officer | ||
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| NAME |
TITLE |
DATE | ||
| /s/ Jennifer Ernst Jennifer Ernst |
Chief Executive Officer (Principal Executive) | December 9, 2022 | ||
| * Veronica Cai |
Chief Financial Officer (Principal Financial and Accounting Officer) |
December 9, 2022 | ||
| * Sheryle Bolton |
Chair of the Board of Directors | December 9, 2022 | ||
| * Karen Drexler |
Director | December 9, 2022 | ||
| * Dean Zikria |
Director | December 9, 2022 | ||
| * By: |
/s/ Jennifer Ernst | |
| Jennifer Ernst, Attorney-in-Fact |
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement on Form S-1/A of our report dated March 31, 2022 relating to the financial statements of Tivic Health Systems, Inc. as of and for the years ended December 31, 2021 and 2020 appearing in this Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading “Experts” in such Prospectus.
/s/ Rosenberg Rich Baker Berman, P.A.
Somerset, New Jersey
December 8, 2022