Valion Bio, Inc 10-Q for FY2024 Q1
Valion Bio, Inc. (VBIO)
About this 10-Q
Valion Bio, Inc filed this 10-Q on May 15, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $334K
- down 11.2% from $376K a year earlier
- Net loss
- $1.48M
- compared with a net loss of $2.12M a year earlier
- Diluted EPS
- -$1.01
- compared with -$10.52 a year earlier
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
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Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices including zip code) |
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered The |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act (Check one):
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☐ Large accelerated Filer |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No
As of May 14, 2024,
Table of Contents
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PART I - FINANCIAL INFORMATION |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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28 |
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PART II - OTHER INFORMATION |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our condensed financial statements included in this Quarterly Report on Form 10‑Q are as follows:
This Quarterly Report on Form 10‑Q for the quarter ended March 31, 2024, should be read in conjunction with the Company’s Annual Report on Form 10‑K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 25, 2024.
The accompanying condensed financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10‑Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended March 31, 2024 are not necessarily indicative of the results that can be expected for the full year.
1
Tivic Health Systems, Inc.
Condensed Balance Sheets (Unaudited)
March 31, 2024 and December 31, 2023
(in thousands, except share and per share data)
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March 31, |
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December 31, |
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2024 |
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2023 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventory, net |
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Deferred offering costs |
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— |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right-of-use assets, operating lease |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Other accrued expenses |
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Operating lease liability, current |
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Total current liabilities |
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Operating lease liability |
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Total liabilities |
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and (Note 6) |
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Stockholders’ equity |
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Preferred stock, $ |
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— |
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— |
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Common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
2
Tivic Health Systems, Inc.
Condensed Statements of Operations (Unaudited)
Three Months Ended March 31, 2024 and 2023
(in thousands, except share and per share data)
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Three Months Ended |
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March 31, |
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2024 |
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2023 |
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Revenue |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Net loss |
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$ |
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Net loss per share - basic and diluted |
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$ |
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$ |
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Weighted-average number of shares - basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
3
Tivic Health Systems, Inc.
Condensed Statements of Stockholders’ Equity (Unaudited)
Three Months Ended March 31, 2024 and 2023
(in thousands except share and per share data)
For the Three Months Ended March 31, 2023
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Additional |
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Total |
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Preferred Stock |
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Common Stock |
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Paid-in |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balances at January 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock, net of issuance costs |
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— |
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Issuance of warrants |
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Stock-based compensation |
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— |
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Net loss |
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— |
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— |
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Balances at March 31, 2023 |
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— |
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$ |
— |
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$ |
— |
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$ |
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$ |
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$ |
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For the Three Months Ended March 31, 2024
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Additional |
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Total |
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Preferred Stock |
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Common Stock |
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Paid-in |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balances at January 1, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock for restricted stock award |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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Balances at March 31, 2024 |
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— |
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$ |
— |
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$ |
— |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
Tivic Health Systems, Inc.
Condensed Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2024 and 2023
(in thousands)
4
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Three Months Ended |
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March 31, |
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2024 |
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2023 |
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Cash flows from operating activities |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock based compensation |
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Depreciation |
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Amortization of right-of-use asset |
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Inventory allowances |
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— |
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Changes is operating assets and liabilities: |
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Accounts receivable |
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Inventory |
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Prepaid expenses and other current assets |
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Accounts payable |
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Accrued expenses |
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Lease liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities |
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Acquisition of property and equipment |
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— |
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Net cash used in investing activities |
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— |
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Cash flows from financing activities |
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Proceeds from issuance of common stock, net of issuance costs |
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— |
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Offering costs in advance of sale of common stock |
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Net cash provided by (used in) financing activities |
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Net increase (decrease) in cash and cash equivalents |
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Cash and cash equivalents |
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Beginning of period |
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End of period |
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$ |
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$ |
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Supplemental disclosure on noncash financing activities |
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Issuance of common stock warrant |
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$ |
— |
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$ |
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Deferred offering costs charged to additional paid-in-capital |
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$ |
— |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
5
Tivic Health Systems, Inc.
Notes to Unaudited Condensed Financial Statements
(amounts are as indicated)
1. Formation and Business of the Company
Tivic Health Systems, Inc. (the “Company”) was incorporated in the state of California on September 22, 2016 for the purpose of developing and commercializing non-invasive bioelectronic medicine. In June 2021, the Company was reincorporated as a Delaware corporation. The Company's first commercial product, ClearUP, is an FDA approved medical device for the treatment of sinus pain, pressure and nasal congestion. The Company is headquartered in Hayward, California.
2. Summary of Significant Accounting Policies
Basis of Presentation
Going Concern Uncertainty
During the three months ended March 31, 2024 and 2023, the Company incurred a net loss of $
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 establish collaborative arrangements; completion of any acquisitions or other strategic transactions; marketing activities and competing technological and market developments, including regulatory changes and overall economic conditions in our target markets. Our ability to generate revenue and achieve profitability requires us to successfully market and secure purchase orders for our products and services from existing as well as new customers. We also will be required to efficiently manufacture and deliver on those purchase orders. These activities, including our planned research and development efforts, may 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.
The Company recognizes it will need to raise additional capital to continue research and development and to fund its planned operations, clinical trials and, if regulatory approval is obtained, commercialization of future products. 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.
Reverse Stock Split
In August 2023, the Company’s Board of Directors and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to effect a
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stock, which was effected on August 23, 2023. There was no change to the par value, or authorized shares, of either the common stock or preferred stock, as a result of the reverse stock split. Fractional shares were
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ materially from those estimates. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents. As of March 31, 2024 and December 31, 2023, cash and cash equivalents totaled $
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount, net of allowances for credit losses and returns reserves. The allowance for credit losses is based on our assessment of the collectability of accounts. Management regularly reviews the adequacy of the allowance for credit losses by considering the age of each outstanding invoice, each customer’s expected ability to pay, and the collection history with each customer, when applicable, to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified. As of each March 31, 2024 and December 31, 2023, the allowance for credit losses balance was
Inventory
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. Inventories are reviewed periodically to identify slow-moving inventory based on anticipated sales activity. As of March 31, 2024 and December 31, 2023, the reserve for obsolescence was $
Deferred Offering Costs
Deferred offering costs are comprised of costs incurred in connection with financing arrangements that have not closed as of the end of the period. As of March 31, 2024, deferred offering costs of $
Property and Equipment
Property and equipment are recorded at cost net of accumulated depreciation. Depreciation is computed on a straight-line method over the estimated useful lives of the assets, to
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Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of these asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. When indications of impairment are present and the estimated undiscounted future cash flows from the use of these assets is less than the assets’ carrying value, the related assets will be written down to fair value. There were
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Revenue Recognition
The Company recognizes revenue from product sales in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”). The standard applies to all contracts with customers, except contracts that are within scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.
Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are in within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inceptions, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The Company sells its products through direct sales and resellers. Revenue is recognized when control of the promised goods is transferred to the customers or the resellers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Revenue associated with products holding rights of return are recognized when the Company concludes there is not a risk of significant revenue reversal in the future periods for the expected consideration in the transaction.
The Company may receive payments at the onset of the contract and before goods have been delivered. In such instances, the Company records a deferred revenue liability. The Company recognizes these contract liabilities as revenue after the revenue criteria are met. As of March 31, 2024 and December 31, 2023, the contract liability related to the Company’s deferred revenues approximated $
The Company relies on third parties to have procedures in place to detect and prevent credit card fraud, as the Company has exposure to losses from fraudulent charges. The Company records the losses related to chargebacks as incurred.
The Company has also elected to exclude from the measurement of the transaction price sales taxes remitted to governmental authorities.
The table below presents revenue by channel for the three months ended March 31, 2024 and 2023 (in thousands):
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Three Months Ended March 31, |
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Product Revenue by Sales Channel |
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2024 |
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2023 |
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Product Revenue |
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Direct-to-consumer |
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$ |
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$ |
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Reseller |
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Returns |
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Revenue |
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$ |
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$ |
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8
Sales Tax
Sales tax collected from customers and remitted to governmental authorities is accounted for on a net basis and therefore, is excluded from net sales.
Shipping and Handling
Shipping and handling fees paid by customers are recorded in revenue, with the related expenses recorded in cost of sales. There were
Shipping costs for delivery of product to customers in the three months ended March 31, 2024 and 2023 were $
Product Warranty
The Company generally offers a
Returns
The Company estimates a reserve for future product returns based on several factors, including historical returns as a percentage of revenue, an understanding of the reasons for past returns and any other known factors that indicate a return is imminent. Reserves for sales returns are estimated and recorded in the same period as the underlying revenue recognition as a deduction to arrive at net product sales and as a liability classified as "Other Accrued Expenses" on the balance sheet. As of March 31, 2024 and December 31, 2023, the reserve for sales returns was $
Sales and Marketing Expenses
Sales and marketing expenses are expensed as incurred and consist primarily of merchandising, customer service and targeted online marketing costs, such as display advertising, keyword search campaigns, search engine optimization and social media and offline marketing costs such as television, radio and print advertising. Sales and marketing expenses also include payroll costs and stock-based compensation expense for employees involved in marketing activities. Sales and marketing expenses are primarily related to growing the customer base.
Research and Development Expenses
Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies, depreciation on and maintenance of research equipment, the cost of services provided by outside contractors, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation, and general support services. All costs associated with research and development are expensed as incurred.
Stock-Based Compensation
The Company accounts for stock-based compensation arrangements with employees and non-employee consultants using a fair value method, which requires the recognition of compensation expense for costs related to all stock-based payments, including stock options. The fair value method requires the Company to estimate the fair value of stock-based payment awards to employees and non-employees on the date of grant using an option pricing model.
Stock-based compensation costs are based on the fair value of the underlying option calculated using the Black-Scholes option-pricing model and recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. The Company measures equity-based compensation awards granted to non-employees at fair value as the awards vest and recognizes the resulting value as compensation expense at each financial reporting period.
9
Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, expected dividend yield, expected term, risk-free rate of return, and the estimated fair value of the underlying common stock. Due to the lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The group of representative companies have characteristics similar to the Company, including stage of product development and focus on the life science industry. The Company uses the simplified method, which is the average of the final vesting tranche date and the contractual term, to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company uses an assumed dividend yield of
Net Loss per Common Share
The Company computes net loss per share of common stock in conformity with the two-class method required for participating securities. Diluted net loss per share is computed similar to basic net loss per share, except that the denominator is increased to include the number of additional shares for the potential dilutive effects of warrants, convertible preferred stock and stock options outstanding during the period calculated in accordance with the treasury stock method, or the two-class method, whichever is more dilutive. For all periods presented, basic and diluted net loss per share is the same, as inclusion of any additional share equivalents would be anti-dilutive.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents include a checking account and a money market account held at one national financial institution in the United States. At times, such deposits may be in excess of insured limits. Management believes that the financial institution at which the Company holds its deposits is financially sound, and accordingly, minimal credit risk exists with respect to the financial institution. The Company has not experienced any losses on its deposits of cash and cash equivalents. As of each March 31, 2024 and December 31, 2023, the Company had cash and cash equivalents balances exceeding FDIC insured limits by $
The Company extends credit to customers in the normal course of business and performs credit evaluations of its customers. Concentrations of credit risk with respect to accounts receivable exist to the full extent of amounts presented in the financial statements.
During the first quarter of 2024, the majority, or
For the three months ended March 31, 2024, the Company had
The lingering negative impacts of the COVID-19 pandemic, the ongoing conflicts between Russia and Ukraine as well as Israel and Hamas, economic uncertainty in human capital management and certain other macroeconomic factors including climate change, inflation, and rising interest rates. Additionally, events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. 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. We will continue to monitor material impacts on our business strategies and operating results.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The guidance, which becomes effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, requires public entities that are required to report segment information in accordance with Topic 280, Segment Reporting, to improve reportable segment
10
disclosures about significant segment expenses. We do not believe that ASU 2023-07 will have a material impact on our reporting as we operate in one reportable segment.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)- Improvements to Income Tax Disclosures. The guidance applies to all entities that are subject to Topic 740, Income taxes and becomes effective for public business entities for annual periods beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2024. The guidance requires enhanced disclosures related to income taxes including: additional information in the rate reconciliation; further breakdown of income taxes paid; and other disclosures that may help investors to better understand the entities tax landscape. We do not believe that ASU 2023-09 will have a material impact on our financial reporting.
3. Financial Instruments and Fair Value Measurements
The Company’s financial instruments consist of money market funds. The following tables show the Company’s cash equivalents carrying value and fair value at March 31, 2024 and December 31, 2023 (in thousands):
|
|
As of March 31, 2024 (unaudited) |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
Quoted |
|
|
Significant |
|
|
|
|
|||||
|
|
|
|
|
|
|
|
Priced in |
|
|
other |
|
|
Significant |
|
|||||
|
|
|
|
|
|
|
|
active |
|
|
observable |
|
|
unobservable |
|
|||||
|
|
Carrying |
|
|
Fair |
|
|
markets |
|
|
inputs |
|
|
inputs |
|
|||||
|
|
Amount |
|
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
|
|
As of December 31, 2023 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
Quoted |
|
|
Significant |
|
|
|
|
|||||
|
|
|
|
|
|
|
|
Priced in |
|
|
other |
|
|
Significant |
|
|||||
|
|
|
|
|
|
|
|
active |
|
|
observable |
|
|
unobservable |
|
|||||
|
|
Carrying |
|
|
Fair |
|
|
markets |
|
|
inputs |
|
|
inputs |
|
|||||
|
|
Amount |
|
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Cash equivalents – Cash equivalents of $
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
There have been no changes to the valuation methodologies utilized by the Company during the three months ended March 31, 2024 compared to the year ended December 31, 2023. The Company evaluates transfers between levels at the end of each reporting period. There were
4. Inventory, net (in thousands)
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
(unaudited) |
|
|
|
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Inventory at cost |
|
|
|
|
|
|
||
Less reserve for obsolescence |
|
|
( |
) |
|
|
( |
) |
Inventory, net |
|
$ |
|
|
$ |
|
||
11
|
|
March 31, |
|
|
December 31, |
|
||
Computers and equipment |
|
$ |
|
|
$ |
|
||
Manufacturing tools and dies |
|
|
|
|
|
|
||
Total property and equipment |
|
|
|
|
|
|
||
Less accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense was $
6. Commitments and Contingencies
Lease
The Company executed a noncancelable operating lease for approximately
Lease costs for the three months ended March 31, 2024 and 2023 were $
The Company’s weighted average remaining lease term and weighted average discount rate as of March 31, 2024 is shown below:
Remaining lease term (in years) |
|
|
|
|
Discount rate |
|
|
% |
Cash paid for amounts included in the measurement of operating lease liabilities were $
Future minimum maturities of lease liabilities recognized on the condensed balance sheets as of March 31, 2024 are as follows (in thousands):
Fiscal Year |
|
|
|
|
Remainder of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
Total minimum lease payments |
|
|
|
|
Less imputed interest |
|
|
( |
) |
Present value of lease payments |
|
$ |
|
|
ALOM Fulfillment Services Agreement
On November 25, 2022, the Company entered into a Fulfillment Services Agreement (the “ALOM Agreement”), with ALOM Technologies Corporation (“ALOM”). Pursuant to the ALOM Agreement, commencing on November 28, 2022, ALOM began providing, 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
12
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
Contingencies
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when future expenditures are probable and such expenditures can be reasonably estimated. The Company recorded
7. Other Accrued Expenses (in thousands)
|
|
March 31, |
|
|
December 31, |
|
||
Accrued payroll and related |
|
$ |
|
|
$ |
|
||
Delaware franchise tax |
|
|
|
|
|
|
||
Research study costs |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other accrued expenses |
|
$ |
|
|
$ |
|
||
8. Preferred Stock
There were no series of preferred stock designated and
The Company’s board of directors is authorized, without action by its stockholders, to designate and issue up to
9. Common Stock
At March 31, 2024 and December 31, 2023, there were
On February 13, 2023, the Company sold
On
13
have an initial exercise price of $
On
On
Effective August 23, 2023, the Company's board of directors approved a reverse stock split of the Company's issued and outstanding shares of common stock, par value $
Common stockholders are entitled to dividends if and when declared by the Board of Directors subject to the rights of the preferred stockholders. As of March 31, 2024,
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Warrants to purchase common stock |
|
|
|
|
|
|
||
Options issued and outstanding |
|
|
|
|
|
|
||
Shares available for future stock option grants |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
10. Common Stock Warrants
Historically, the Company has entered into warrant agreements in connection with certain consulting agreements and equity offerings. In August 2023, the Company implemented a
14
In July 2021, the Company entered into a consulting agreement, pursuant to which
In November 2021, the Company issued warrants to purchase
In February 2023, the Company issued warrants to purchase
In July and August 2023, the Company issued a total of
The Company estimated the value of the warrants in 2023 using the
The fair value of the warrants issued in 2023 was estimated on the date of grant using the following assumptions:
|
|
2023 |
||
|
|
Minimum |
|
Maximum |
Expected life (in years) |
|
|
||
Expected volatility |
|
|
||
Risk-free interest rate |
|
|
||
Dividend yield |
|
|
||
A summary of the Company’s outstanding warrants as of March 31, 2024 is as follows:
Class of Shares |
|
Number of Warrants |
|
|
Exercise Price |
|
|
Expiration Date |
||
Common Stock |
|
|
|
|
$ |
|
|
|||
Common Stock |
|
|
|
|
$ |
|
|
|||
Common Stock |
|
|
|
|
$ |
|
|
|||
Common Stock |
|
|
|
|
$ |
|
|
|||
Common Stock |
|
|
|
|
$ |
|
|
|||
Common Stock |
|
|
|
|
$ |
|
|
|||
Common Stock |
|
|
|
|
$ |
|
|
|||
11. Equity Incentive Plans
In 2017, the Company adopted its 2017 Equity Incentive Plan (the “2017 Plan”).
15
On November 10, 2021, the 2017 Plan terminated and was replaced by the 2021 Plan (defined below), and future issuances of incentive instruments will be governed by the 2021 Plan. To the extent that outstanding awards under the 2017 Plan are forfeited or lapse unexercised, the shares of common stock subject to such awards will no longer be available for future issuance.
2021 Equity Incentive Plan
In 2021, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”). Options granted under the 2021 Plan may be Incentive Stock Options or Non-statutory Stock Options, as determined by the Compensation Committee of the Company’s board of directors, who is responsible for administering the 2021 Plan. Stock Purchase Rights may also be granted under the 2021 Plan. The term shall be no more than
In the case of an incentive stock option (i) granted to an employee who, at the time of grant of such option, owns stock representing more than
The options may include provisions permitting exercise of the option prior to full vesting. Any unvested shares upon termination shall be subject to repurchase by the Company at the original exercise price of the option.
As of March 31, 2024, there were
Stock options granted under the Company’s equity incentive plans generally vest over
The following table summarizes the stock option award activity for the three months ended March 31, 2024:
|
|
Outstanding |
|
|
Exercisable |
|
||
January 1, 2024 |
|
|
|
|
|
|
||
Granted |
|
|
|
|
|
— |
|
|
Vested |
|
|
— |
|
|
|
|
|
Canceled or expired |
|
|
( |
) |
|
|
( |
) |
Exercised |
|
|
— |
|
|
|
— |
|
March 31, 2024 |
|
|
|
|
|
|
||
The weighted-average exercise price as of March 31, 2024 for stock options outstanding and stock options exercisable was $
The following table sets forth the status of the Company's non-vested restricted common stock awards:
16
|
|
|
|
Weighted-Average |
|
||
|
|
Number of |
|
Grant Date |
|
||
|
|
Shares |
|
Fair Value Per Share |
|
||
January 1, 2024 |
|
|
— |
|
$ |
- |
|
Issuance of restricted common stock |
|
|
|
$ |
|
||
Vested |
|
|
— |
|
$ |
- |
|
Cancelled |
|
|
— |
|
$ |
- |
|
March 31, 2024 |
|
|
|
$ |
|
||
There were
Stock-Based Compensation
Total stock-based compensation recorded in the condensed statements of operations is allocated as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Research and development |
|
$ |
|
|
$ |
|
||
Sales and marketing |
|
|
— |
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
||
Total stock-based compensation |
|
$ |
|
|
$ |
|
||
12. Net Loss per Share
The following outstanding potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share for the periods presented due to their antidilutive effect:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Warrants to purchase common stock |
|
|
|
|
|
|
||
Common stock options issued and outstanding |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
17
13. Subsequent Events
On
The Offering closed on May 13, 2024. The securities were registered pursuant to the registration statement on Form S-1 (File No. 333-278383), which was initially filed with the SEC on March 29, 2024, and amended on April 29, 2024 and May 8, 2024, and declared effective on May 9, 2024.
Maxim acted as placement agent, on a “reasonable best efforts” basis, in connection with the Offering. On May 9, 2024, the Company and Maxim entered into a Placement Agency Agreement (the “Placement Agency Agreement”), pursuant to which, as
compensation for services rendered by Maxim in connection with the Offering, the Company agreed to pay Maxim an
aggregate cash fee of
The Company received gross proceeds from the Offering of approximately $
In conjunction with the closing of the Offering, the Company entered into a Warrant Agency Agreement with Equiniti Trust Company, LLC (“Equiniti”), pursuant to which Equiniti agreed to act as warrant agent with respect to the Common Warrants issued by the Company in the Offering.
In addition, the Company (i) has agreed not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of the Company’s (or its subsidiary’s) securities for a period of ninety days from the closing of the Offering, subject to certain exceptions and (ii) shall not effect or enter into an agreement to effect any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents (or a combination of units thereof) involving a variable rate transaction. Additionally, in connection with the Offering, each of the officers and directors of the Company entered into lock-up agreements, pursuant to which they agreed not to sell or transfer any of the Company securities they hold, subject to certain exceptions, during the 90-day period following the closing of the Offering.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with the interim condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10‑Q, as well as our audited financial statements and related notes as disclosed in our Annual Report on Form 10‑K for the fiscal year ended December 31, 2023. 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 Part II, Item 1A “Risk Factors” or in other parts of this Quarterly Report on Form 10‑Q, as well as those identified in the “Risk Factors” section of our Annual Report on Form 10‑K for the fiscal year ended December 31, 2023, each of which Risk Factors are incorporated in this Quarterly Report on Form 10-Q by reference. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. See “Forward-Looking Statements.”
Business Overview
Tivic Health is a health tech company focused on bioelectronic medicine. Bioelectronic medicine is a branch of the global neuromodulation market that 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 brainstimulators). 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. Tivic currently has two non-invasive bioelectronic platforms designed to deliver therapeutic benefits via manipulation of such signals without the use of traditional implanted technology.
Commercial Platforms
Tivic has developed two complementary platforms. Tivic’s first commercial platform is a handheld design that interfaces non-invasively with the trigeminal, sympathetic, and other facial and cranial nerve structures. This platform is the basis for Tivic’s existing product, currently marketed with FDA approval as ClearUP Sinus Pain Relief for the treatment of sinus pain and congestion.
The second platform is a research-stage platform directed to vagus nerve stimulation, which is currently undergoing clinical evaluation.
First Commercial Product
Tivic Health currently markets one commercial product under the brand name “ClearUP Sinus Pain Relief.” ClearUP is built on our patented, handheld neuromodulation design and was developed by Tivic Health for the treatment of sinus and allergy-related conditions. It uses ultra-low current electrical waves to relieve sinus pain and congestion symptoms that are prevalent in nasal allergies, sinus infections, chronicsinusitus, cold and flu and other disease conditions. ClearUP had U.S. FDA approval for the treatment of sinus pain and congestion, and is the first FDA-approved bioelectronic treatment of the foregoing indications. Additionally, ClearUP has E.U. CE Mark approval for the treatment of sinus pain, pressure and congestion.
The FDA initially provided clearance to our ClearUP product under a 510(k) as an allergy treatment in January 2019. 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.
A 2023 study with over 2,000 representative consumers conducted by Intellego Insights (commissioned by Tivic Health) identified that approximately 85 million U.S. adults experience inflammation-related symptoms related to allergies, congestion, head pain, and sinus issues. Of the consumers that participated in the study, 58% of sufferers try to avoid medication, if at all possible.
Customers can purchase ClearUP products directly from Tivic via our own website and through major online stores, including Amazon, Walmart, BestBuy, FSAStore and HSA Store. The Company has also entered distribution agreements with McKesson, Cardinal Health and Amerisource Bergen (now Cencora).
A sham-controlled clinical trial is in progress with the Icahn School of Medicine at Mount Sinai, to extend the use of Tivic’s handheld monopolar platform to the management of pain resulting from functional endoscopic sinus surgery and other facial surgeries. If successful, the Company may develop additional products addressing this clinical use case, which would require new regulatory clearances for a novel indication.
19
We have also previously evaluated the market opportunity for use of ClearUP as part of a migraine treatment toolkit. While we believe that both clinical and market rationale are positive for such use, we have, for the time being, determined to down-prioritize any clinical studies of migraine-related indications based on the aggressive competition among entrenched incumbents and limited uptake, to date, of existing devices for the treatment and/or prevention of migraine.
Recent Developments
May 2024 Public Offering
On May 13, 2024, we sold an aggregate of (i) 4,710,000 shares of common stock, (ii) Series A warrants to purchase up to 4,710,000 shares of common stock and (iii) Series B warrants to purchase up to 7,065,000 shares of common stock to certain investors in a registered public offering at a combined public offering price of $0.85 per share and accompanying warrants. We also issued Maxim Group LLC, who served as the placement agent for the offering, warrants to purchase 188,400 shares of common stock as partial compensation for services rendered in connection with the offering. The securities were registered pursuant to the registration statement on Form S-1 (File No. 333-278383), which was initially filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2024, and amended on April 29, 2024 and May 8, 2024, and declared effective on May 9, 2024.
We received gross proceeds from the offering of approximately $4.0 million, before deducting placement agent fees and other estimated offering expenses payable by the Company. Net proceeds to the Company from the Offering, after deducting the placement agent fees and expenses and estimated offering expenses (excluding proceeds to the Company, if any, from the future exercise of the warrant issued in connection with the offering), were approximately $3.5 million. See Note 13 to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q for additional information regarding this offering.
VNS Clinical Research
On May 8, 2024, we announced the final results of our pilot research study with The Feinstein Institutes for Medical Research at Northwell Health. Through this collaboration, we have confirmed the effectiveness of our patent-pending non-invasive cervical vagus nerve stimulation (“ncVNS”) approach, which induces responses in the autonomic, cardiac, and central nervous systems and can be expected to have clinical utility in several major disease areas.
Previous studies of non-invasive VNS devices have reported mixed results regarding autonomic nervous system changes. The magnitude of our ncVNS data imply potential for greater clinical effects and enhanced reproducibility. While these results were in healthy subjects, the data suggest our ncVNS approach may have clinical utility in several patient populations including those with epilepsy, post-traumatic stress disorder, and ischemic stroke, among others.
Operational Updates
In Q1 2024, we invested in our product, innovation and development as follows:
20
We have continued to intentionally maintain a small core team at this stage of the Company, including decreasing our headcount to reduce operating expenses. We have relied, and continue to rely, heavily on third-party service providers, including marketing agencies, contract manufacturing organizations, software-as-a-service platforms, clinical research organizations, academic research partnerships, finance and accounting support, and legal support to carry out our operations.
Results of Operations
Comparison of the Three Months Ended March 31, 2024 and 2023
The following table summarizes our results of operations (in thousands):
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
|
|
(unaudited) |
|
|||||||||
Revenue |
|
$ |
334 |
|
|
$ |
376 |
|
|
$ |
(42 |
) |
Cost of sales |
|
|
167 |
|
|
|
263 |
|
|
|
(96 |
) |
Gross profit |
|
|
167 |
|
|
|
113 |
|
|
|
54 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
256 |
|
|
|
490 |
|
|
|
(234 |
) |
Sales and marketing |
|
|
505 |
|
|
|
458 |
|
|
|
47 |
|
General and administrative |
|
|
887 |
|
|
|
1,281 |
|
|
|
(394 |
) |
Total operating expenses |
|
|
1,648 |
|
|
|
2,229 |
|
|
|
(581 |
) |
Loss from operations |
|
|
(1,481 |
) |
|
|
(2,116 |
) |
|
|
635 |
|
Net loss |
|
$ |
(1,481 |
) |
|
$ |
(2,116 |
) |
|
$ |
635 |
|
Revenue
Revenue is currently generated through the sale of our ClearUP device and ancillary products, including accessories and accelerated shipping charges, and is net of return reserves. Sales are currently made directly to consumers online through our own website, Amazon and Walmart. We also sell to major and specialty 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.
For the three months ended March 31, 2024, revenue decreased overall by $42 thousand, or 11.2%, compared to the same period in 2023, primarily due to a 35% decrease in unit sales, offset by a 35% increase in the per unit average sales price.
We expect some variability in sales due to reduction in marketing spend and price point positioning for target markets, with the net impact resulting in a higher gross profit and lower loss from operations.
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 continued 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 March 31, 2024, cost of sales decreased by $96 thousand, or 37%, compared to the same period in 2023, primarily driven by the decrease in sales volume. Variable cost was $133 thousand, or $74.32 per unit, for the three months ended March 31, 2024, compared to $192 thousand, or $69.81 per unit, for the same period in 2023. The decrease in variable cost was primarily driven
21
by lower manufacturing and fulfillment costs. Fixed costs were $38 thousand, or $21.04 per unit, for the three months ended March 31, 2024, compared to $71 thousand, or $25.61 per unit, for the same period in 2023. The decrease in the fixed cost was primarily due to lower product support 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, product return rates, new product launches and potential new manufacturing partners and suppliers. We expect our gross margin to improve with optimization of our product design, supply-chain, and any increase in 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 March 31, 2024, research and development expenses decreased by $234 thousand compared to the same period in 2023. The decrease was due to reduced headcount and certain expenses incurred in 2023 which did not recur in 2024. The emphasis of research and development activities in 2023 was primarily related to a large segmentation study to identify additional incremental market segments with high willingness to pay, product design in our next generation device, intellectual property protection, and the study at The Feinstein Institutes for Medical Research on vagus nerve stimulation.
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 modestly as we continue to expand our markets and distribution channels.
For the three months ended March 31, 2024, sales and marketing expenses increased by $47 thousand compared to the same period in 2023. The increase was due primarily to a four-month test program ending in February 2024 with InStep Health focused on education of healthcare professionals about the ClearUP solution.
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 remain relatively flat.
For the three months ended March 31, 2024, general and administrative expenses decreased by $394 thousand compared to the same period in 2023. The overall decreases were primarily attributable to reduced headcount, lower consulting and professional fee expenses, as well as other general administrative expenses.
22
Liquidity and Capital Resources
Sources of Liquidity
Since our formation in September 2016, we have devoted substantially all of our efforts to research and development, to regulatory clearance and to early market development and testing for our first product, released in September 2019 in the United States. We are not profitable and have incurred net losses and negative cash flows from our operations in each year since our inception. As of March 31, 2024, we had cash and cash equivalents of $1.7 million, working capital of $1.8 million and an accumulated deficit of $39.4 million. We have financed our operations to date primarily through issuances of SAFE instruments, convertible notes and convertible preferred stock and the proceeds from registered offerings of our securities. In 2021, we completed our IPO, generating net proceeds to the Company of approximately $14.9 million, and we borrowed $2.6 million by issuing convertible notes payable, the outstanding balance of all of which converted into shares of our common stock in connection with our IPO. On February 13, 2023, we completed the sale of 200,000 shares of our common stock in a firm commitment, fully underwritten registered public offering, resulting in net proceeds to the Company of approximately $3.6 million. From July 11, 2023 to August 9, 2023, we sold an aggregate of 1,169,230 shares of our common stock to certain investors in a series of registered public offerings, resulting in aggregate net proceeds to the Company of approximately $4.3 million. Additionally, in May 2024, we sold an aggregate of 4,710,000 shares of our common stock, together with Series A Warrants to purchase an aggregate of 4,710,000 shares of common stock and Series B Warrants to purchase an aggregate of 7,065,000 shares of common stock, to certain investors in a registered public offering, resulting in net proceeds to the company of approximately $3.5 million.
Although we have taken measures to decrease our operating expenses, we expect that our operating expenses may 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; and hire additional personnel. 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. Management expects to incur substantial additional operating losses for the foreseeable future to expand our markets, complete development or acquisition of new product lines, obtain regulatory approvals, launch and commercialize our products and continue research and development programs. 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 financial statements for the quarter ended March 31, 2024, included elsewhere in this Report, which raises substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance date of the financial statements.
Plan of Operation and Future Funding Requirements
We have used our capital resources primarily, to date, to fund marketing and advertising for ClearUP, development of both our trigeminal and our vagus nerve platforms and product candidates, evaluating and diligencing potential licensing and acquisition candidates, and the establishment of public company operating infrastructure and general operations. Although we have taken measures to decrease our operating expenses, we expect that our operating expenses may increase as we advance our vagus nerve platform, as well as discover, acquire, validate or 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 in our vagus nerve platform and clinical applications thereof in 2024.
Furthermore, we have incurred, and will continue to incur, costs associated with operating as a public company that we did not experience as a private company. We expect to continue to incur losses for the foreseeable future. At this time, due to the inherently unpredictable nature of research and new product adoption as well as other macroeconomic factors, 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 generate significant 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 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.
As previously disclosed, we encountered disruptions in our supply of various materials and components in 2022 due to the well-documented shortages and constraints in the global supply chain. Although we currently do not anticipate a supply shortage, unforeseen shortages may continue to pose a material risk for the Company in the near term or future. We regularly 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 and other economic factors) could result in an
23
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 or other strategic transactions that we believe will align with our growth plan, complement our product offerings and be in the best interest of the Company and our shareholders. If an acquisition or other strategic transaction is identified and pursued, a substantial portion of our cash reserves may be required to complete such acquisition or other strategic transaction. 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.
We have generated operating losses in each period since inception. We have incurred an accumulated deficit of $39.4 million through March 31, 2024. We expect to incur additional losses in the future as we expand both our 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.
We currently generate sales revenue direct-to-consumer though our own websites, Amazon.com and Walmart.com. We also sell to major and specialty U.S. online retailers such as BestBuy and FSAStore and through distributors including McKesson's affiliate Simply Medical, Cardinal Health and Cencora (formerly known as Amerisource Bergen). 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, foundation or government funding 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:
24
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 period indicated (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(unaudited) |
|
|
(unaudited) |
|
||
Cash used in operating activities |
|
$ |
(1,666 |
) |
|
$ |
(2,426 |
) |
Cash used in investing activities |
|
|
— |
|
|
|
(94 |
) |
Cash provided by (used in) financing activities |
|
|
(61 |
) |
|
|
4,170 |
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
(1,727 |
) |
|
$ |
1,650 |
|
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2024 was $1.7 million, which consisted primarily of a net loss of $1.5 million, decreased by non-cash charges of $96 thousand and a net increase of $281 thousand in our net operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of $54 thousand and amortization of right-of-use assets of $45 thousand. The change in our net operating assets and liabilities was primarily due to a decrease in accounts payable and accrued expenses of $396 thousand, an increase in accounts receivable of $100 thousand, and a decrease of $48 thousand in lease liabilities.
Net cash used in operating activities for the three months ended March 31, 2023 was $2.4 million, which consisted primarily of a net loss of $2.1 million, decreased by non-cash charges of $128 thousand and a net decrease of $438 thousand in our net operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of $84 thousand and amortization of right-of-use assets of $42 thousand.
Investing Activities
There was no cash used in investing activities for the three months ended March 31, 2024. Net cash used in investing activities during the three months ended March 31, 2023 was related to the purchases of property and equipment.
Financing Activities
Our financing activities used $61 thousand of cash during the three months ended March 31, 2024, which consisted of offering costs incurred in advance of the sale of our securities in the registered public offering that closed on May 13, 2024. For the three months ended March 31, 2023, our financing activities provided $4.2 million of cash, which consisted primarily of proceeds from the sale of 200,000 shares of our common stock, net of offering discounts and other costs.
25
Known Trends or Uncertainties
As discussed elsewhere in this Report, the world has continued to be been affected by the lingering effects of the COVID-19 pandemic, the ongoing conflicts between Russia and Ukraine as well as Israel and Hamas, economic uncertainty in human capital management (“HCM”) and certain other macroeconomic factors. Inflation has risen, Federal Reserve interest rates have increased over the last year, and the general consensus among economists continues to suggest that we should expect a higher recession risk to continue for the near term. Climate change continues to be an intense topic of public discussion and is adding additional challenges and financial burden due to impending preparations 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. Effects of the pandemic and recent economic volatility have negatively impacted our business in various ways over the last three years, including as a result of global supply chain constraints at least partially attributable to the pandemic. We will continue to monitor material impacts on our HCM strategies, including potential of employee attrition, amongst other things.
We encountered disruptions in our supply of various materials and components in 2022 due to the well-documented shortages and constraints in the global supply chain. We experienced increased pricing, longer lead-times, unavailability of product and limited supplies, protracted delivery dates, and shortages of certain parts and supplies that were necessary components for our products. As a result, we carried increased inventory balances in 2023 to ensure availability of necessary products and to secure pricing. Although we currently do not anticipate a supply shortage will continue to pose a material risk for the Company in the near term, 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 and other economic factors) 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 the price of our components increases significantly or 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.
The United States has recently implemented tariffs on certain imported goods, including on certain items imported from China. In addition, China has imposed tariffs on a wide range of American products and placed restrictions on the export of certain items, including gallium and germanium, in retaliation for these American tariffs. As a result, there is a concern that the imposition of additional tariffs by the United States could result in the adoption of additional tariffs or export restrictions by China and/or other countries. Any resulting trade war could negatively impact our business. The imposition of tariffs on items imported by us from China or other countries could increase our costs and could result in lowering our gross margin on products sold.
Additionally, U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the ongoing military conflicts between Russia and Ukraine and between Israel and Hamas. Although the length and impact of the ongoing military conflicts is highly unpredictable, the conflicts in Ukraine and the Middle East 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 or the conflict between Israel and Hamas 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. We are continuing to monitor the situations in Ukraine, the Middle East and globally to assess potential impacts on our business.
As a result of these global issues and other macroeconomic factors, 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 maintaining high interest rates 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.
26
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 future rates are unknown. 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 the ongoing conflicts between Russia and Ukraine, employee availability and wage increases, trade tariffs imposed on certain products from China and increased component and services pricing.
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 expires 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 costs recorded during the three month periods ended March 31, 2024 and 2023 were $51 thousand and $50 thousand, respectively.
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 for convenience after expiration of an advance notice period ranging from 0 to 60 days, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments. 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 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Critical Accounting Policies and Significant Judgments and 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, 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, 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 Annual Report on Form 10‑K for the fiscal year ended December 31, 2023, filed with the SEC on March 25, 2024.
Information regarding our significant accounting policies and estimates can also be found in Note 2 to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2 to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.
27
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and our interim Chief Financial Officer, after evaluating our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a 15(e) and 15d 15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and interim Chief Financial Officer, where appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and our interim Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to any legal proceedings, litigation or claims, nor are aware of any pending, threatened, or unasserted claims, which, if determined adversely to us, would have a material adverse effect on our business, financial condition, results of operations or cash flows. We may from time to time, be a party to litigation and subject to claims incident to the ordinary course of business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Item 1A. Risk Factors
Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”). The risks described in our Annual Report, as well as other risks and uncertainties, could materially and adversely affect our business, results of operations, and financial condition, which in turn could materially and adversely affect the trading price of shares of our common stock. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
During the quarter ended March 31, 2024, there were no unregistered sales of our securities that were not reported in a Current Report on Form 8-K.
Repurchases
The Company did not repurchase any of the Company's outstanding equity securities during the three months ended March 31, 2024.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended March 31, 2024,
29
Item 6. Exhibits
30
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Exhibit Number |
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Exhibit description |
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Incorporated |
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Filing Date |
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Filed herewith |
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3.1 |
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Amended and Restated Certificate of Incorporation, dated November 12, 2021. |
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8-K |
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11/15/2021 |
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3.2 |
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8-K |
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11/15/2021 |
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3.3 |
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Certificate of Amendment to the Amended and Restated Bylaws of the Company, dated July 5, 2023. |
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8-K |
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7/6/2023 |
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3.4 |
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8-K |
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8/22/2023 |
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4.1 |
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S-1/A |
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9/9/2021 |
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4.2 |
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S-1/A |
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9/9/2021 |
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4.3 |
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Warrant to Purchase Common Stock issued to Hannover International, Inc., dated July 1, 2021. |
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S-1/A |
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10/29/2021 |
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4.4 |
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8-K |
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2/13/2023 |
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4.5 |
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8-K |
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7/11/2023 |
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4.6 |
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8-K |
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7/19/2023 |
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4.7 |
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8-K |
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8/9/2023 |
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4.8 |
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8-K |
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5/13/2024 |
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4.9 |
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8-K |
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5/13/2024 |
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4.10 |
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8-K |
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5/13/2024 |
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4.11 |
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8-K |
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5/13/2024 |
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10.1 |
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8-K |
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5/13/2024 |
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10.2 |
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8-K |
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5/13/2024 |
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31.1 |
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X |
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31.2 |
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X |
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32.1 |
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* |
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101.INS |
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Inline XBRL Instance Document. |
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** |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
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** |
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104 |
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Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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** |
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31
* |
Furnished herewith. |
** |
The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document. |
SIGNATURE
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the Hayward, State of California, on May 15, 2024.
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Date: May 15, 2024 |
By: |
/s/ Jennifer Ernst |
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Jennifer Ernst |
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Title: Chief Executive Officer |
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(Principal Executive Officer) |
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Date: May 15, 2024 |
By: |
/s/ Kimberly Bambach |
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Title: Interim Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
32
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jennifer Ernst, certify that:
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Date: May 15, 2024
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By: |
/s/ Jennifer Ernst |
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Jennifer Ernst |
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kimberly Bambach, certify that:
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Date: May 15, 2024
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By: |
/s/ Kimberly Bambach |
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Kimberly Bambach |
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Interim Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Tivic Health Systems, Inc. (the “Company”) for the quarter ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jennifer Ernst, Chief Executive Officer of the Company, and Kimberly Bambach, Interim Chief Financial Officer of the Company, do each hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to her knowledge:
|
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Date: May 15, 2024 |
By: |
/s/ Jennifer Ernst |
|
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Jennifer Ernst |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
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|
Date: May 15, 2024 |
By: |
/s/ Kimberly Bambach |
|
|
Kimberly Bambach |
|
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Interim Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |