Pulse Biosciences
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549____________________________________________Form 10-K____________________________________________(Mark One)☒☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017or☐☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toCommission File Number 001-34899____________________________________________Pulse Biosciences, Inc.(Exact name of registrant as specified in its charter)____________________________________________​Nevada46-5696597(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification No.)​ 3957 Point Eden WayHayward, CA94545(Address of principal executive offices)(Zip Code)(Registrant’s telephone number, including area code): (650) 697-3939Securities registered pursuant to Section 12(b) of the Act: Title of Each ClassName of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per shareThe Nasdaq Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during 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 filingrequirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, tothe best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growthcompany” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☐Accelerated filer ☒Non-accelerated filer ☐ (Do not check if a smaller reporting company)Smaller reporting company ☐ Emerging growth company☒If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with anynew 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 ☒ Aggregate market value of registrant’s common stock held by non-affiliates of the registrant on June 30, 2017, based upon the closing price ofCommon Stock on such date as reported by Nasdaq Capital Market, was approximately $201,795,000. Shares of voting stock held by each officer anddirector have been excluded in that such persons may be deemed to be affiliates. This assumption regarding affiliate status is not necessarily a conclusivedetermination for other purposes.Number of shares outstanding of the issuer’s common stock as of February 28, 2018: 16,841,172DOCUMENTS INCORPORATED BY REFERENCE:Portions of the registrant’s definitive Proxy Statement relating to its 2018 Annual Meeting of Stockholders to be held on May 23, 2018 are incorporatedby reference into Part III of this Form 10-K where indicated. Such Proxy Statement will be filed with the U.S. Securities and Exchange Commissionwithin 120 days after the end of the fiscal year to which this report relates. Table of Contents TABLE OF CONTENTS PagePART I Item 1.Business3 Item 1A.Risk Factors17 Item 1B.Unresolved Staff Comments43 Item 2.Properties43 Item 3.Legal Proceedings43 Item 4.Mine Safety Disclosures43 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities44 Item 6.Selected Financial Data47 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations48 Item 7A.Quantitative and Qualitative Disclosures about Market Risk57 Item 8.Financial Statements and Supplementary Data58 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure80 Item 9A.Controls and Procedures80 Item 9B.Other Information81 PART III Item 10.Directors, Executive Officers and Corporate Governance82 Item 11.Executive Compensation82 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters82 Item 13.Certain Relationships and Related Transactions, and Director Independence82 Item 14.Principal Accounting Fees and Services82 PART IV Item 15.Exhibits, Financial Statement Schedules83 Item 16.Form 10-K Summary86 ​Signatures 87 2 Table of Contents SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K, or Annual Report, contains “forward-looking statements” that involve substantial risks anduncertainties. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,”“would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,”“ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements containthese words. These statements relate to future events or our future financial performance or condition and involve known andunknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement todiffer materially from those expressed or implied by these forward-looking statements.You should read this Annual Report and the documents that we reference elsewhere in this Annual Report completely and with theunderstanding that our actual results may differ materially from what we expect as expressed or implied by our forward-lookingstatements. In light of the significant risks and uncertainties to which our forward-looking statements are subject, you should notplace undue reliance on or regard these statements as a representation or warranty by us or any other person that we will achieveour objectives and plans in any specified timeframe, or at all. We discuss many of these risks and uncertainties in greater detail inthis Annual Report, particularly in Part I. Item 1A. “Risk Factors.” These forward-looking statements represent our estimates andassumptions only as of the date of this Annual Report regardless of the time of delivery of this Annual Report. Except as requiredby law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of newinformation, future events or otherwise after the date of this Annual Report.In this Annual Report on Form 10-K, references to “Pulse,” “Pulse Biosciences,” “we,” “us,” “our” and the “Company” refer toPulse Biosciences, Inc. and its wholly owned subsidiaries, unless expressly indicated or the context otherwise requires. Part I Item 1. BusinessGeneralPulse Biosciences is a clinical stage electroceutical, an electrical energy based therapeutic, company pursuing commercialapplications of its proprietary Nano-Pulse Stimulation (NPS) technology. NPS has the potential to significantly benefit patients ina wide variety of medical applications including applications in immuno-oncology and dermatology, and we may pursue manyother applications in the future.Nano-Pulse Stimulation is a non-thermal, precise, focal drug-free electroceutical treatment technology that initiates celldeath (the ceasing of biological cellular function) within treated tissue. NPS utilizes nanosecond (billionth of a second) rangepulsed electric fields to induce cell signaling and the activation of cellular pathways by creating transient nanopores (a nanometer(billionth of a meter) size hole) in cellular membranes and organelles. Once created, these temporary nanopores allow ions, such ascalcium (Ca+), potassium (K+), and sodium (Na+), to pass through these membranes, and in turn disrupt cellular function andinitiate cell death. NPS cell death has the potential to eliminate treated tissue cells with a minimal inflammatory response, leadingto a favorable healing process and the replacement of treated tissue cells with healthy tissue cells. NPS has demonstrated anexcellent safety profile in human clinical studies treating benign (non-cancerous) lesions with 71 patients receiving 736 treatmentcycles to date, where a cycle is defined as an electrode deployment in tissue and the delivery of a predefined series of NPS pulses,with no adverse events reported. These treatments have been in healthy skin and benign skin lesions in dermatology.In pre-clinical models of cancerous lesions, NPS has been shown to induce immunogenic cell death (ICD), a process thatleads to the exposure of the unique cancer cell antigens to the immune system, resulting in the generation of cytotoxic T-cells andthe mounting of an adaptive immune response targeted against those cells, without any observed toxic side effects. Based on thispre-clinical research, we believe NPS has the potential to offer a novel tumor treatment therapy, as a monotherapy and incombination with other therapies.The PulseTxTM System (PulseTx) is our proprietary NPS delivery platform comprised of a tunable nanosecond pulsegeneration system and interchangeable tissue applicators, designed to enable the application of NPS across a variety of tissuetreatment applications. We believe the unique biological response of cells to our novel NPS technology enables Pulse Biosciencesthe opportunity to pursue therapeutic applications across a wide array of tissues types, including cancerous lesions. The favorablehealing characteristics of NPS, on non-cancerous tissue afford opportunities in applications such as dermatology and aesthetics,while the ability to initiate ICD holds promise in key applications such as immuno-oncology. 3 Table of Contents Pulse Biosciences strategy is to deploy the PulseTx System in pilot clinical studies to help identify those applications whereNPS represents a high value opportunity. Based on the results of the planned pilot studies and the market opportunity, we willpursue the required regulatory clearances and ultimately commercialize these opportunities.Our Proprietary Nano-Pulse Stimulation TechnologyWe are developing a therapeutic tissue treatment platform based upon our proprietary NPS technology. NPS is a local, non-thermal, drug-free, and potentially drug compatible, treatment that can stimulate programmed cell death, a process in which cellssystematically eliminate themselves to make way for new cells. The NPS cell death process triggers a cascade of cellular eventsthat in preclinical models, results in tumor destruction and lasting immunity against future tumor growth.Programmed cell death is a normal process exhibited by many cells in the human body when they are no longer functioningproperly. It involves a slow “digestion” of cellular proteins and DNA in the cells that are then recognized and removed by theimmune system. When this process results in immunogenic cell death, it stimulates the immune system to generate an immuneresponse that actively seeks out and destroys any similar cells in the body. Pre-clinical studies suggest that NPS can stimulateprogrammed cell death in non-cancerous cells and ICD in cancer cells.We believe the unique characteristics of NPS to induce programmed cell death may translate to positive clinical outcomesand may establish NPS as a superior treatment modality across a variety of potential applications, including oncology,dermatology, and other minimally invasive applications where current treatment modalities do not provide benefits comparable tothose afforded by NPS.Cells are the most basic building units of life and are the primary components of tumors and lesions, cancerous and non-cancerous. The function of a cell is dependent on the proper functioning of the cellular organelles, which are a number of smallercellular structural subunits responsible for carrying out all cellular functions, and include, among others, the mitochondria(cellular energy production), Golgi complex (intracellular cellular transport functions), and endoplasmic reticulum (ER) (proteincoding and production). The disruption of the function of one or more of these cellular organelles can result in the dysfunction ofthe cell as a whole and initiate the programmed cell death process.It is this nanoporation effect discussed below on disruption of internal cellular membranes and organelle damage thatdifferentiates NPS technology from other energy-based therapies, such as irreversible electroporation (IRE) and radiofrequencyablation (RFA).NPS exerts an electrical force on water molecules, driving them into the lipid bilayer of the plasma cell membrane and themembranes of the intracellular organelles, producing transient water-filled nanopores. It is this nanoporation effect on internalcellular membranes that differentiates our technology from other energy-based therapies, such as irreversible electroporation (IRE)and radiofrequency ablation (RFA). The water molecule induced transient pores allow ions to passthrough them, and this can have several immediate effects includingthe release of calcium ions from the endoplasmic reticulum,termination of the mitochondrial membrane potential and disruptionof the Golgi apparatus. Downstream effects of NPS include initiatinga signaling cascade that we believe results in ICD in immunogeniclesions. ICD is a process by which cells are induced to die in amanner that activates the immune system to both clear the dyingtumor cell and enroll immune system cells, such as cytotoxic T cells(CD8+) to recognize and eliminate cells of the same tumor typeAlternatively, in non-immunogenic lesions, we believe NPS caninitiate a positive healing with minimal inflammatory response.The cellular response to NPS is believed to occur in the following steps:·Water induced transient nanopores form within the plasma and intracellular membranes immediately resulting in therelease of sequestered calcium into the cytoplasm and extracellular space within one second; 4 Table of Contents ·Phosphatidylserine (PS), a cell signaling compound, is externalized to the cell surface within several seconds and isone marker used by the immune system to target and phagocytose (digest, process and present to the immune system)unhealthy cells;·Reactive oxygen species (ROS) generation occurs within approximately one minute;·Pyknosis and DNA fragmentation are stimulated within approximately 10 minutes (pyknosis is the shrinking of a cellnucleus along with condensation of the tissue in a cell that is undergoing necrosis or programmed cell death);·Calreticulin protein is externalized to the cell surface to become a second marker used by the immune system to targetand phagocytose cells within approximately two hours;·Caspase activation occurs within approximately three hours (caspases are a family of cellular proteins that are normallyinactive but can be activated during programmed cell death to degrade other cellular proteins); and·We believe an adaptive immune response to the treated tumor can be triggered over a period of 14-28 days, asdemonstrated in pre-clinical models showing the presence of CD8 + T cells.Potential Benefits of NPS Technology:·Fast, precise, and selective treatment of cells in a focal area and demonstrated sparing of non-cellular tissue;·Induction of ICD, which can induce an adaptive immune response that targets malignant cells;·Focal elimination of unwanted tissue with a favorable healing profile;·Reduction of collateral damage to adjacent tissue because non-thermal NPS targets cells, and spares nearby non-cellular tissue;·Utilization as a monotherapy or in combination with other therapeutics such as checkpoint inhibitor therapies (αPD-1,αPD-L1, αCTLA-4).Side Effects of NPS TechnologyDuring the course of conducting human clinical studies in dermatology with the NPS investigational device, 71 patientsexperienced 736 NPS treatment cycles, with no adverse events reported and dermatologist-confirmed normal healing responsesover the time course of the studies. Subsequent histological review of the treated human tissues revealed a predictable andconsistent cellular healing response across a wide range of skin types and patient demographics. Our Proprietary NPS Delivery SystemThe PulseTx System refers to our newly designed clinical device that delivers our NPS therapies and treatments in ourongoing pre-clinical and clinical trials. The PulseTx is a first-of-its-kind nanosecond pulse generator with interchangeableapplicator systems designed to adapt NPS treatments and therapies across multiple clinical and research applications andanatomical targets The PulseTx is comprised of two primary components:·The PulseTx Generator: a novel and proprietary tunable pulse generator capable of delivering treatments with varyingpulse amplitude, duration, frequency and number. These are the key NPS parameters for stimulating cell death and ICDin tissue. The ability to tune these parameters with the PulseTx generator enables the customization of treatments andtherapies for a variety of applications and tissue types.·PulseTx Applicator Suite; a suite of interchangeable NPS treatment applicators that deliver NPS directly to the tissuebeing treated. We are designing a suite of single and multiple use PulseTx Applicators tailored to specific applications,including open or minimally invasive surface, surgery or solid tissue treatments.We believe that the design of the PulseTx System will allow the system to be deployed in a standard clinic or hospitalsetting, without the need for special facilities or installation requirements. The first human clinical studies in dermatology utilizedthe PulseTx device exclusively along with treatment applicators designed for skin treatments, and deployed a wide range of NPSpulse amplitude, duration, frequency and number settings with no system failures reported and positive physician reports for ease-of-use. We submitted a United States Food and Drug Administration (FDA) 510(k) for the PulseTx System for soft tissue ablationduring the first quarter of 2017. The strategy at that time was to obtain a general clearance for soft tissue ablation as a first step inour regulatory path, knowing that prior to commercialization of the PulseTx System we would require additional regulatoryapprovals for specific indications, either through the 510(k) process or through the Pre-Market Approval process. The decision topursue the 510(k) for soft tissue ablation at that time was based on timing of our clinical 5 Table of Contents development programs and the belief that it could provide a foundation for pursuing specific indications as we identified theindications we would initially pursue with the PulseTx System. After significant interaction with the FDA during the 510(k) reviewprocess we elected to withdraw our submission during the third quarter of 2017 after concluding that we would not be able toprovide sufficient and reasonable data requested by the FDA within the review process timeline.Based on continued communication with FDA, consultation with regulatory experts, recent clinical progress and our clinicalprogram plans, we have decided to focus our regulatory efforts on directly obtaining specific clinical indications as opposed tofirst pursuing a general soft tissue ablation clearance through the 510(k) process. Though we believe we can generate the datarequired for a soft tissue ablation clearance, at this time we do not feel it will provide the advantages it may have previously and isnot the most expeditious and efficient path to getting a product to market in the indications we feel are going to bring the mostvalue to stakeholders, specifically in immuno-oncology. It is our belief at this time that the most efficient and effective use of ourresources is to work with FDA in pursuit of a specific indication in immuno-oncology, and potentially other indications we maywish to pursue, such as dermatology. These specific indications may go through the 510(k), De Novo, or Pre-Market Approvalprocesses at FDA.ApplicationsOncologyWe believe that NPS may afford a new immunotherapy treatment modality in certain cancers, either as a standalone therapyor in combination with other therapies currently available and in development. It is well established that cancer cells can berecognized by the immune system. Under normal circumstances, these cancer cells will be detected by the immune surveillancesystem and eliminated. However, when cancer cells either evade or defeat the immune surveillance system, tumors grow and spreadin an unregulated manner resulting in malignancies and, over time, may even cause the lack or loss of response to treatments. We believe that NPS may offer a novel approach to treating tumors as a monotherapy and in combination with othertherapies. Pre-clinical research demonstrates that NPS can eliminate treated tumors, can disrupt the tumor microenvironment oftreated tumors and can induce immunogenic cell death in a drug-free manner. It is believed that ICD stimulates the immunesystem’s ability to detect tumor cell antigens and mount an immune response specifically against those tumor cells that weretreated with NPS.Specifically, when tumors are treated with NPS, the cellular transient nanopores in individual tumor cells triggerendoplasmic reticulum stress, the release of intracellular calcium, ROS is produced and the emission of danger-associatedmolecular patterns (DAMPs), signals that alert the innate immune system to unscheduled cell death. As a result, these tumor cellsundergo ICD, which is a unique form of cell death that is responsible for recruiting immune cells to the site of the NPS-treatedtumors for antigen processing and presentation.ICD is a desirable form of cell death in cancer therapy as it exhibits a preference for the cross-presentation of tumor cellantigens in the lymph nodes. The hallmark of ICD and cross-presentation is the generation of an adaptive immune responseincluding CD4+ helper-T cells and, more important for killing cancer cells, CD8+ cytotoxic-T cells. In effect, NPS may serve as anin situ personalized cancer vaccination against an individual’s own tumors. Furthermore, based on preclinical studies, we believethe microenvironment in NPS-treated tumors is modified and that the protective mechanisms surrounding the tumor are reducedand possibly eliminated.The ability of NPS to initiate an immune response against cancerous tumors and the related cancer microenvironment maylend itself more favorably to immunogenic cancers. Cancer immunogenicity reflects a tumor’s ability to stimulate an immuneresponse. It has been hypothesized that cancer immunogenicity increases with mutation rate, meaning the more mutations a tumorhas, the greater the chance of mutations generating an immune response. Cancers with the highest mutation rates includemelanoma, certain lung cancers, and bladder cancer. Relative to existing immune therapies, we believe that NPS therapy will activate the adaptive immune response specific toan individual’s tumors in a non-toxic, targeted manner. Given the many different approaches to modulating an immune responseand the ability of an immune response to access tumors, significant potential exists for NPS to be synergistic with existingtherapies and therapies in development. Our previously published pre-clinical work demonstrated the ability of NPS to treat and eliminate targeted melanoma tumorsand that NPS-treated tumor cells can be used as a vaccine to protect mice against fibrosarcoma subdermal allografts. Additionalpre-clinical studies conducted to date confirm the elimination of NPS treated tumors along with the generation of an adaptiveimmune response against various other tumor types. We continue to develop NPS, delineate the 6 Table of Contents immune response and explore additional applications in oncology using pre-clinical animal models in preparation for upcomingclinical studies.During 2017 we advanced our pre-clinical immuno-oncology research into companion animals and initiated our firstinvestigatory and feasibility study of NPS in veterinary medicine for the treatment of advanced canine oral melanoma. The studywas designed to investigate the safety, local tumor control and to look for signs of an immune response as a result of NPS treatmentin canines with oral melanoma at stage 3 or above, meaning those dogs with evidence of metastatic disease. The follow-up periodof this study was 112 days.In 2017 five animals were treated under a protocol with this study design. The five animals treated during 2017 underwent atotal of 11 procedures and 224 individual NPS treatment cycles. All cycles were successfully delivered using the PulseTx Systemand there were no serious adverse events reported during the study. The animals returned home the day of treatment. There was asingle adverse event noted in one dog several weeks after treatment, where the mandible bone was exposed inside the oral cavityand showed signs of damage where the tumor infiltrated the bone and was treated with NPS.The five canines treated had tumors ranging from 2.5cm to 6.1cm in their longest dimension. All NPS treatments resulted inacute reduction of the tumor volume, demonstrating that NPS can reduce tumor volume in this disease state. Two animals survivedthrough the 112-day follow-up period, with one animal having no visible tumor at last report, which was seven months post initialNPS treatment. Three of the five animals had progressive disease during the 112-day follow-up period and were euthanized prior tothe end of the study due to progressive disease. Though there were no definitive conclusions that can be drawn in this smallnumber of animals with regard to an immune response we did observe immune cell changes in the lymph nodes and peripheralblood of the two animals that completed the study follow up that provide some evidence of potential immune response to the NPStreatment. Based on the local tumor control results and the demonstrated safety profile of NPS we have observed across all of ourstudies, and the confidence established with our veterinary oncology clinicians during this study, we are preparing to commence afollow-on canine study evaluating NPS in the treatment of stage I and stage II canine oral melanoma and expect to initiate thestudy during 2018. We believe treating earlier in the disease progression will provide enhanced opportunities to demonstrate thepotential of NPS in treating the primary tumor and the initiation and progression of an immune response. We are in the early stages of planning to initiate our first human clinical oncology study in patients with unresectable in-transit melanoma. We continue working with our KOLs to finalize the study design in preparation for what will likely be aninvestigational device exemption filing with the FDA during the second half of 2018.Dermatology/AestheticsWe believe NPS has high potential to offer improved clinical outcomes for a broad range of dermatology conditions andaesthetic skin applications for which targeted removal of skin lesions is medically or cosmetically desirable. Current dermatologyprocedures to remove lesions or undesired skin tissue typically involve either excision (e.g. surgery) or the use of extreme heat(e.g. lasers or radiofrequency energy) or extreme cold (e.g. cryoablation). Our novel NPS non-thermal mechanism for removing undesired skin lesions has the potential for both minimizing collateraldamage to surrounding healthy tissue and minimizing the inflammatory response as compared to standard treatment modalities,both of which can help contribute to cosmetically desired appearance of the skin when the lesion is eliminated, and the skin ishealed. 7 Table of Contents During 2017 we completed our first-in-human study utilizing our NPS technology and the PulseTx in a healthy tissue, pre-abdominoplasty (commonly known as a “tummy tuck”) study. This human skin safety and dose response study allowed forevaluation of tissue effects of a wide range of NPS energy doses on healthy skin that was scheduled for subsequent removal. Over170 individual sections of skin were tested during the course of the study, with no adverse events reported over the maximum 90-day evaluation period. Treatments were well tolerated with standard local anesthesia. The analysis of investigator evaluations,clinical photographs, and microscopic examination of tissue samples consistently demonstrated a pattern of controlledprogrammed cell death of targeted tissue in the upper layer of the skin (the epidermis) where many skin lesions are located, and atissue sparing effect in the dermal skin layer. This finding of selective epidermal effects was consistent and apparent in the studyacross tested NPS delivery settings which adjusted pulse amplitude, frequency, duration and number of pulses. An independentdermatopathologist concluded NPS has a low risk of undesired dermal damage and noted a quantifiable restoration of a normalpopulation of the melanocytes that produce skin pigment in the epidermis. These important first studies of human safety andmechanisms of action in skin confirm a broad efficacy dose-response curve, and evidence of a wide range of settings that could beutilized to elicit desired responses in future studies of treating abnormal skin conditions, and a unique non-thermal cellularmechanism of action not seen with thermal-based energy treatments. In addition, a specialized immunohistochemistry stain calledCaspase-3 provided the first human evidence of programmed cell death, which clearly confirms a unique cellular mechanism ofaction that is more commonly seen with chemotherapeutic agents or radiation emitting devices.Based on the promising results from our NPS abdominoplasty dose-response study, during 2017 we initiated and completedtreatments and primary follow-up in a multi-center, 58-patient study of NPS for the treatment of a common benign skin lesion,Seborrheic Keratosis (SK). Each patient underwent treatment on three separate SK lesions with one lesion left untreated as acomparative control. Treatments were well tolerated with standard local anesthesia, and no adverse events were reported. Studyresults have been accepted for presentation at the 38th American Society for Laser Medicine & Surgery Annual Conference onEnergy-Based Medicine & Science being held in Dallas, Texas on April 11 to 15, 2018.We continue to evaluate potential clinical targets in dermatology and to assess the effects of NPS on various tissue and skintypes having recently completed a dose-response ranging study evaluating NPS clinical safety and histological effects on facialskin planned for excision in a subsequent facelift procedure. Patient tolerance of facial skin treatment was excellent, and there wereno adverse events reported for the entire range of tested energy settings. We intend to pursue clinical studies of NPS in dermatology applications during 2018 with the longer-term plan ofdemonstrating the benefits of NPS in a range of dermatology conditions. We have identified multiple, potentially high valueapplications in dermatology for which the non-thermal effects of NPS in skin lesion disorders may lead to improved patientexperiences and improved outcomes when compared to existing more destructive lesion removal methods. Potential applicationcandidates in dermatology beyond Seborrheic Keratosis include; sebaceous hyperplasia, keloid scars, warts, Basal Cell Carcinoma,Squamous Cell Carcinoma (SCC), and Actinic Keratosis. Key considerations in prioritizing our initial clinical applications forstudy include, a substantial market size for skin treatments that are more typically paid directly by patients, a likelihood offavorable clinical outcomes based on the continued analysis of our dose response study data and unique cellular mechanisms,comparisons to the current standards of care for lesion removal. In addition, these first human studies of NPS dose response forvarious skin conditions provide important experience that guide device design, dose-response decisions, and mechanism of actioninsights that will guide future use for oncology applications and provide important evidence of safety that will support futureregulatory filings. StrategyWe have consolidated several different entities working on nanosecond pulsed electric fields, and we now own or license 60issued patents and 66 filed patent applications in the United States and worldwide. This novel platform technology with IPprotection allows us to follow a broad, platform-based approach to introducing our NPS technology and related therapies anddevices.Our strategy is to:·Develop a general purpose NPS platform for use across a broad array of applications. We have developed andcontinue developing a versatile nanosecond pulse generation system, the PulseTx System, that can produce pulses ofvariable number, width, amplitude, and frequency and can be used with various applicator types and deployed into awide range of applications;·Demonstrate the unique benefits of our NPS technology and the PulseTx System across a number of compellingtreatment applications. We intend to conduct multiple clinical trials to demonstrate the unique ability of NPS to treattissues across a number of applications with the highest value to patients and clinicians. We believe that a 8 Table of Contents solid foundation of clinical data will provide the opportunity to pursue regulatory clearances and demonstrate toclinicians and patients the favorable treatment outcomes and patient experience afforded by our technology;·Commercialize applications where NPS has the highest value to clinicians and patients, from a patient outcome,market need, and time to market perspective.Intellectual PropertyWe believe that our current and any future patents and other proprietary rights we own or license are and will be essential toour business and create an important competitive advantage for us. We also rely on trade secrets, know-how, continuingtechnological innovations and licensing opportunities to develop, maintain and strengthen our competitive position. We seek toprotect our intellectual property, in part, through confidentiality agreements with our employees, consultants and other parties,patent registration and access control to sensitive information. Our success also will depend on the ability of our licensors toobtain, maintain (including making periodic filings and payments) and enforce confidentiality agreements and patent protectionfor their intellectual property, in particular, those patents and other intellectual property to which we have secured rights.We own or license 60 issued patents and 66 filed patent applications in the United States and worldwide to protect theintellectual property on which nanosecond pulsed electric field technology is based. Our United States issued patents are set toexpire between 2020 and 2034.As we expand our business internationally, we will seek patent, trademark and copyright protections as appropriate andavailable and conduct our business with the protections of confidentiality and trade secrets. Depending on the jurisdiction, wemay not be able to obtain the scope of protections we seek, in which event we will need to balance the available protectionsagainst the importance of such market to us.Research and DevelopmentWe are currently conducting research and development activities in pursuit of commercial applications for our NPStechnology but have not yet commercialized or recognized revenue from our technology. Therefore, the majority of our businessactivities are devoted to research, including clinical trials, related to our core technologies and development of devices andproducts based on those technologies. Research and development expenses totaled $9.6 million, $5.5 million, and $2.2 million forthe years ended December 31, 2017, 2016 and 2015. Research and development expenses are expected to increase substantiallyduring the fiscal year ending 2018, reflecting the increased growth in our operational activities and expansion of our clinical trialprograms. Our R&D development team incorporates data and feedback obtained from our clinical and research programs into thedevelopment of the PulseTx NPS System and further inform our clinical strategies. We believe that developing and leveragingrelationships among clinicians is a key element in driving the adoption of our technology in clinical studies in the short-term andenhances the potential for possible commercial systems in the future.CompetitionThe applications we intend to target are subject to intense competition from rapidly evolving companies and new scientificdiscoveries. We compete against well-established incumbent technologies offering products in oncology, dermatology andaesthetics, minimally invasive treatments, and veterinary applications. Given the broad scope of our technology, we facecompetition ranging from large manufacturers with multiple business lines to small companies with focused products, as well asproviders of other medical therapies and therapeutics for conditions that we intend to treat. Our future success will depend on ourability to establish and maintain a competitive position in current and future technologies.In immuno-oncology, we compete with multiple new technologies stimulating the immune system to target cancer. Anincreased understanding of the multiple mechanisms by which cancer or precancerous cells can evade the immune system hashelped researchers develop drugs including those that target immune inhibitors or stimulate T-cell production. For example,approved checkpoint inhibitor therapeutics are administered systemically and modulate the immune system in a more global way,which can lead to significant side effects including autoimmune diseases. Companies with approved checkpoint inhibitorsinclude: Bristol-Myers Squibb and Merck. CAR-T cell therapy has gained attention recently; including a first ever FDA approval;which refers to a therapy where T cells are removed from a patient and modified to express receptors on its surface that are specificto a cancer type. These cells are then cultured and infused back into the body.We compete with multiple tissue removal technologies. These technologies cause immediate cell necrosis, as compared 9 Table of Contents to programmed cell death, killing cells within seconds to hours following exposure and triggering inflammation. Our technologyis unique and differentiated in that NPS stimulates primarily intracellular cell death which we believe would be less traumatic totreated tissue and would result in less scarring or collateral damage to surrounding tissues. Tissue removal technologies includeRFA, microwave ablation, cryoablation, laser therapies and irreversible electroporation (IRE).IRE uses pulsed electric fields at a high voltage in hundreds of microsecond pulse widths. These pulses cause irreversibledamage to cell membranes, resulting in necrosis (death) of the tumor cells. However, this technology stimulates nerves and musclesin a manner that makes it common for clinicians to use general anesthesia and muscle blockade during treatment. In contrast, NPSutilizes nano pulses up to 1,000 times shorter than micro pulses. In pre-clinical and clinical studies of over 70 patients, NPS use infully conscious patients has not required the use of muscle blockade or general anesthesia. Moreover, our NPS technologytransiently permeabilizes internal organelles which can lead to a signaling cascade ending in immunogenic cell death as opposedto the primarily necrotic cell death associated with IRE pulsed energy, which is not associated with a lasting immune response.Tissue ablation companies for therapeutic applications include: Medtronic, Boston Scientific, AngioDynamics and St. JudeMedical. Ablation companies for dermatologic and aesthetic applications include: Alma Lasers, Cutera and Syneron Medical.Government RegulationIn general, medical device companies must navigate a challenging regulatory environment. The FDA regulates the medicaldevice market to ensure the safety and efficacy of these products. The FDA allows for two primary pathways for a medical device togain approval for commercialization: a successful pre-market approval, or PMA application or 510(k) clearance. A completelynovel product must go through the more rigorous premarket approval, or PMA, process if it cannot receive authorization through a510(k). The FDA has established three different classes of medical devices that indicate the level of risk associated with using adevice and consequent degree of regulatory controls needed to govern its safety and efficacy. Level I and Level II devices areconsidered lower risk and often can gain approval for commercial distribution by submitting a notification request to the FDA,generally known as the 510(k) process. The devices regarded as the highest risk by the FDA are designated Class III status andgenerally require the submission of a PMA application for approval to commercialize a product. These generally include life-sustaining, life-supporting, or implantable devices or devices without a known predicate technology already approved by theFDA.The 510(k) clearance path can be significantly less time-consuming than PMA approval, making this route preferable for amedical device company. Through a 510(k), a company must provide documentation that its device is safe and effective byshowing it is substantially equivalent to a device already cleared through a 510(k) or in distribution before May 28, 1976 forwhich the FDA has not yet required a PMA submission. The FDA has a 90-calendar day review goal from the date of the 510(k)submission to authorize or decline commercial distribution of the device. However, similar to the PMA process, approval may takelonger than this 90-day goal. If the FDA resolves that the product is not substantially equivalent to a predicate device, a clearancewill not be granted.A PMA application must be accompanied by substantial data that supports the safety and efficacy of the device, whichincludes the provision of preclinical, clinical, technical, manufacturing and labeling information. If the FDA deems the applicationacceptable to pass through the first level of scrutiny, it has 180 days to review the submission, but it can typically take longer (upto several years) as this regulatory body can request additional information or clarifications. The FDA may also impose additionalregulatory hurdles for a PMA, including the institution of an outside advisory panel of experts to assess the application or providerecommendations as to whether to approve the device. Although the FDA in the end approves or disapproves the device, in nearlyall cases the FDA follows the recommendation from the independent panel concerning approvability of the new device. As part ofthis process, the FDA will also inspect the manufacturing operations of the company requesting approval to verify compliancewith quality control regulations. Significant changes in the fabrication of a device, or alterations in the labeling or design of aproduct require new PMA applications or PMA supplements for a product originally approved under a PMA.Pervasive and Continuing RegulationAfter a device is placed on the market, numerous regulatory requirements continue to apply. These include:·The FDA’s Quality System Regulation (QSR) which requires manufacturers, including third-partymanufacturers, to follow stringent design, testing, control, documentation and other quality assuranceprocedures during all aspects of the manufacturing process; 10 Table of Contents ·labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses;·clearance or approval of product modifications that could significantly affect safety or efficacy or that wouldconstitute a major change in intended use;·medical device reporting (MDR), regulations, which require that manufacturers report to the FDA if their devicemay have caused or contributed to a death or serious injury or malfunctioned in a way that would likely causeor contribute to a death or serious injury if the malfunction were to recur; and·post-market surveillance regulations, which apply when necessary to protect the public health or to provideadditional safety and effectiveness data for the device.After a device receives 510(k) clearance or PMA approval, any modification that could significantly affect its safety oreffectiveness, or that would constitute a major change in its intended use, will require a new clearance or approval. The FDArequires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with amanufacturer’s determination. If the FDA disagrees with the determination not to seek a new 510(k) clearance or PMA, the FDAmay retroactively require a new 510(k) clearance or premarket approval. The FDA could also require a manufacturer to ceasemarketing and distribution and/or recall the modified device until 510(k) clearance or premarket approval is obtained. Also, inthese circumstances, it may be subject to significant regulatory fines, penalties, and warning letters.The MDR regulations require that we report to the FDA any incident in which our product may have caused or contributed toa death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause orcontribute to death or serious injury.The FDA has broad post-market and regulatory enforcement powers. We may be subject to unannounced inspections by theFDA and the Food and Drug Branch of the California Department of Public Health to determine our compliance with the QSR andother regulations, and these inspections may include the manufacturing facilities of our suppliers.Failure to comply with applicable regulatory requirements can result in enforcement action by FDA, which may include anyof the following sanctions:·warning letters, fines, injunctions, consent decrees and civil penalties;·repair, replacement, refunds, recall or seizure of our products;·operating restrictions, partial suspension or total shutdown of production;·refusing our requests for 510(k) clearance or premarket approval of new products, new intended uses or modificationsto existing products;·withdrawing 510(k) clearance or premarket approvals that have already been granted; and·criminal prosecution.Regulatory System for Medical Devices in EuropeThe European Union consists of 28-member states and has a coordinated system for the authorization of medical devices.The E.U. Medical Devices Directive, or MDD, sets out the basic regulatory framework for medical devices in the European Union.This directive has been separately enacted in more detail in the national legislation of the individual member states of theEuropean Union.The system of regulating medical devices operates by way of a certification for each medical device. Each certificated deviceis marked with Conformité Européene (CE) mark which shows that the device has a Certificat de Conformité. There are nationalbodies known as Competent Authorities in each member state which oversee the implementation of the MDD within theirjurisdiction. The means for achieving the requirements for CE mark varies according to the nature of the device. Devices areclassified in accordance with their perceived risks, similarly to the U.S. system. The class of a product determines the requirementsto be fulfilled before CE mark can be placed on a product, known as a conformity assessment. 11 Table of Contents Conformity assessments for our products are carried out as required by the MDD. Each member state can appoint Notified Bodieswithin its jurisdiction. If a Notified Body of one member state has issued a Certificat de Conformité, the device can be soldthroughout the European Union without further conformance tests being required in other member states.Health Insurance Portability and Accountability ActThe Health Insurance Portability and Accountability Act of 1996, or HIPAA, established for the first time comprehensivefederal protection for the privacy and security of health information. The HIPAA standards apply to three types of organizations, orCovered Entities: health plans, healthcare clearing houses, and healthcare providers which conduct certain healthcare transactionselectronically. Title II of HIPAA, the Administrative Simplification Act, contains provisions that address the privacy of health data,the security of health data, the standardization of identifying numbers used in the healthcare system and the standardization ofcertain healthcare transactions. The privacy regulations protect medical records and other protected health information by limitingtheir use and release, giving patients the right to access their medical records and limiting most disclosures of health informationto the minimum amount necessary to accomplish an intended purpose. The HIPAA security standards require the adoption ofadministrative, physical, and technical safeguards and the adoption of written security policies and procedures. HIPAA requiresCovered Entities to obtain a written assurance of compliance from individuals or organizations who provide services to CoveredEntities involving the use or disclosure of protected health information (“Business Associates”).On February 17, 2009, Congress enacted Subtitle D of the Health Information Technology for Economic and Clinical HealthAct, or HITECH, provisions of the American Recovery and Reinvestment Act of 2009. HITECH amends HIPAA and, among otherthings, expands and strengthens HIPAA, creates new targets for enforcement, imposes new penalties for noncompliance andestablishes new breach notification requirements for Covered Entities and Business Associates. Regulations implementing majorprovisions of HITECH were finalized on January 25, 2013 through publication of the HIPAA Omnibus Rule, or the Omnibus Rule.The Omnibus Rule contained significant changes for Covered Entities and Business Associates with respect to permitted uses anddisclosures of Protected Health Information.Under HITECH’s new breach notification requirements, Covered Entities must report breaches of protected healthinformation that has not been encrypted or otherwise secured in accordance with guidance from the Secretary of the U.S.Department of Health and Human Services, or the Secretary. Required breach notices must be made as soon as is reasonablypracticable, but no later than 60 days following discovery of the breach. Reports must be made to affected individuals and to theSecretary and in some cases, they must be reported through local and national media, depending on the size of the breach. We arecurrently subject to the HIPAA regulations. We are subject to audit under the U.S. Department of Health and Human Services, orHHS, HITECH-mandated audit program. We may also be audited in connection with a privacy complaint. We are subject toprosecution and/or administrative enforcement and increased civil and criminal penalties for non-compliance, including a new,four-tiered system of monetary penalties adopted under HITECH. We are also subject to enforcement by state attorneys generalwho were given authority to enforce HIPAA under HITECH. To avoid penalties under the HITECH breach notification provisions,we must ensure that breaches of protected health information are promptly detected and reported within the company, so that wecan make all required notifications on a timely basis. However, even if we make required reports on a timely basis, we may still besubject to penalties for the underlying breach.In addition to the federal privacy regulations, there are a number of state laws regarding the privacy and security of healthinformation and personal data that are applicable to clinical laboratories. The compliance requirements of these laws, includingadditional breach reporting requirements, and the penalties for violation vary widely and new privacy and security laws in thisarea are evolving. Requirements of these laws and penalties for violations vary widely. We believe that we have taken the stepsrequired of us to comply with health information privacy and security statutes and regulations in all jurisdictions, both state andfederal. However, we may not be able to maintain compliance in all jurisdictions where we do business. Failure to maintaincompliance, or changes in state or federal laws regarding privacy or security, could result in civil and/or criminal penalties andcould have a material adverse effect on our business.If we or our operations are found to be in violation of HIPAA, HITECH or their implementing regulations, we may be subjectto penalties, including civil and criminal penalties, fines, and exclusion from participation in U.S. federal or state health careprograms, and the curtailment or restructuring of our operations. HITECH increased the civil and criminal penalties that may beimposed against Covered Entities, their Business Associates and possibly other persons, and gave state attorneys general newauthority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’sfees and costs associated with pursuing federal civil actions.In addition to federal privacy regulations, there are a number of state laws governing confidentiality of health informationthat are applicable to our operations. New laws governing privacy may be adopted in the future as well. We have taken steps tocomply with health information privacy requirements that are applicable to us. 12 Table of Contents Federal, State and Foreign Fraud and Abuse LawsBecause of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, andactively enforce, a number of laws to eliminate fraud and abuse in federal healthcare programs. Our business is subject tocompliance with these laws. In March 2010, the Recipient Protection and Affordable Care Act, as amended by the Healthcare andEducation Affordability Reconciliation Act, which we refer to collectively as the Affordable Care Act, was enacted in the UnitedStates. The provisions of the Affordable Care Act are effective on various dates. The Affordable Care Act expands thegovernment’s investigative and enforcement authority and increases the penalties for fraud and abuse, including amendments toboth the Anti-Kickback Statute and the False Claims Act, to make it easier to bring suit under these statutes. The Affordable CareAct also allocates additional resources and tools for the government to police healthcare fraud, with expanded subpoena power forHHS, additional funding to investigate fraud and abuse across the healthcare system and expanded use of recovery auditcontractors for enforcement.Anti-Kickback Statutes. The federal healthcare programs’ Anti-Kickback Statute prohibits persons from knowingly andwillfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either thereferral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federalhealthcare program such as Medicare or Medicaid.The definition of “remuneration” has been broadly interpreted to include anything of value, including, for example, gifts,certain discounts, the furnishing of free supplies, equipment or services, credit arrangements, payment of cash and waivers ofpayments. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangementinvolving remuneration is to induce referrals of federal healthcare covered businesses, the statute has been violated. Penalties forviolations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare,Medicaid and other federal healthcare programs. In addition, some kickback allegations have been claimed to violate the FederalFalse Claims Act, discussed in more detail below.The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are otherwise lawful in businessesoutside of the healthcare industry. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit manyinnocuous or beneficial arrangements, Congress authorized the Office of Inspector General, or OIG, of HHS to issue a series ofregulations known as “safe harbors.” These safe harbors set forth provisions that, if all their applicable requirements are met, willassure healthcare providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of atransaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or thatprosecution will be pursued. However, conduct and business arrangements that do not fully satisfy an applicable safe harbor mayresult in increased scrutiny by government enforcement authorities such as OIG.Many states have adopted laws similar to the Anti-Kickback Statute. Some of these state prohibitions apply to referral ofrecipients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.Government officials have focused their enforcement efforts on the marketing of healthcare services and products, amongother activities, and recently have brought cases against companies, and certain individual sales, marketing and executivepersonnel, for allegedly offering unlawful inducements to potential or existing customers in an attempt to procure their business.Federal False Claims Act. Another development affecting the healthcare industry is the increased use of the federal FalseClaims Act, and in particular, action brought pursuant to the False Claims Act’s “whistleblower” or “qui tam” provisions. TheFalse Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented,a false or fraudulent claim for payment by a federal healthcare program. The qui tam provisions of the False Claims Act allow aprivate individual to bring actions on behalf of the federal government alleging that the defendant has violated the False ClaimsAct and to share in any monetary recovery. In recent years, the number of suits brought against healthcare providers by privateindividuals has increased dramatically. In addition, various states have enacted false claims laws analogous to the False ClaimsAct, and many of these state laws apply where a claim is submitted to any third-party payor and not just a federal healthcareprogram.When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actualdamages sustained by the government, plus civil penalties of between $5,500 and $11,000 for each separate instance of falseclaim. As part of any settlement, the government may ask the entity to enter into a corporate integrity agreement, which imposescertain compliance, certification and reporting obligations. There are many potential bases for liability under the False Claims Act.Liability arises, primarily, when an entity knowingly submits, or causes another to submit, a false claim for 13 Table of Contents reimbursement to the federal government. The federal government has used the False Claims Act to assert liability on the basis ofinadequate care, kickbacks and other improper referrals, and improper use of Medicare numbers when detailing the provider ofservices, in addition to the more predictable allegations as to misrepresentations with respect to the services rendered. In addition,the federal government has prosecuted companies under the False Claims Act in connection with off-label promotion of products.Our future activities relating to the reporting of wholesale or estimated retail prices of our products, the reporting of discount andrebate information and other information affecting federal, state and third-party reimbursement of our products and the sale andmarketing of our products may be subject to scrutiny under these laws.While we are unaware of any current matters, we are unable to predict whether we will be subject to actions under the FalseClaims Act or a similar state law, or the impact of such actions. However, the costs of defending such claims, as well as anysanctions imposed, could significantly affect our financial performance.The Sunshine Act. The Physician Payment Sunshine Act, or the Sunshine Act, which was enacted as part of the AffordableCare Act, requires all entities that operate in the United States and manufacturers of a drug, device, biologic or other medicalsupply that is covered by Medicare, Medicaid or the Children’s Health Insurance Program to report annually to the Secretary ofHHS: (i) payments or other transfers of value made by that entity, or by a third-party as directed by that entity, to physicians andteaching hospitals or to third parties on behalf of physicians or teaching hospitals; and (ii) physician ownership and investmentinterests in the entity. The payments required to be reported include the cost of meals provided to a physician, travelreimbursements and other transfers of value, including those provided as part of contracted services such as speaker programs,advisory boards, consultation services and clinical trial services. The final rule implementing the Sunshine Act required datacollection on payments to begin on August 1, 2013. The first annual report, comprised of data collected from August 1, 2013 toDecember 31, 2013, was due March 31, 2014. The statute requires the federal government to make reported information availableto the public starting September 2014, which it has. Failure to comply with the reporting requirements can result in significantcivil monetary penalties ranging from $1,000 to $10,000 for each payment or other transfer of value that is not reported (up to amaximum per annual report of $150,000) and from $10,000 to $100,000 for each knowing failure to report (up to a maximum perannual report of $1.0 million). Additionally, there are criminal penalties if an entity intentionally makes false statements in suchreports. We are subject to the Sunshine Act and the information we disclose may lead to greater scrutiny, which may result inmodifications to established practices and additional costs. Additionally, similar reporting requirements have also been enacted onthe state level domestically, and an increasing number of countries worldwide either have adopted or are considering similar lawsrequiring transparency of interactions with healthcare professionals.Foreign Corrupt Practices Act. The Foreign Corrupt Practices Act, or FCPA, prohibits any United States individual orbusiness from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreignofficial, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist theindividual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in theUnited States to comply with accounting provisions requiring us to maintain books and records that accurately and fairly reflectall transactions of the corporation, including international subsidiaries, if any, and to devise and maintain an adequate system ofinternal accounting controls for international operations.International Laws. In Europe, various countries have adopted anti-bribery laws providing for severe consequences, in theform of criminal penalties and/or significant fines, for individuals and/or companies committing a bribery offense. Violations ofthese anti-bribery laws, or allegations of such violations, could have a negative impact on our business, results of operations andreputation. For instance, in the United Kingdom, under the Bribery Act 2010, which went into effect in July 2011, a bribery occurswhen a person offers, gives or promises to give a financial or other advantage to induce or reward another individual to improperlyperform certain functions or activities, including any function of a public nature. Bribery of foreign public officials also fallswithin the scope of the Bribery Act 2010. Under the new regime, an individual found in violation of the Bribery Act of 2010, facesimprisonment of up to 10 years. In addition, the individual can be subject to an unlimited fine, as can commercial organizationsfor failure to prevent bribery.There are also international privacy laws that impose restrictions on the access, use, and disclosure of health information. Allof these laws may impact our business. Our failure to comply with these privacy laws or significant changes in the laws restrictingour ability to obtain required patient information could significantly impact our business and our future business plans.U.S. Healthcare ReformChanges in healthcare policy could increase our costs and subject us to additional regulatory requirements that mayinterrupt commercialization of our current and future solutions. Changes in healthcare policy could increase our costs, decreaseour revenues and impact sales of and reimbursement for our current and future solutions. The Affordable Care Act 14 Table of Contents substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts ourindustry. The Act contains a number of provisions that impact our business and operations, some of which in ways we cannotcurrently predict, including those governing enrollments in federal healthcare programs and reimbursement changes.There will continue to be proposals by legislators at both the federal and state levels, regulators and third-party payors toreduce costs while expanding individual healthcare benefits. Certain of these changes could impose additional limitations on theprices we will be able to charge for our current and future solutions or the amounts of reimbursement available for our current andfuture solutions from governmental agencies or third-party payors. While in general it is too early to predict specifically whateffect the Affordable Care Act and its implementation or any future healthcare reform legislation or policies will have on ourbusiness, current and future healthcare reform legislation and policies could have a material adverse effect on our business andfinancial condition.Third-Party ReimbursementPayment for patient care in the United States is generally made by third-party payors, including private insurers andgovernment insurance programs, such as Medicare and Medicaid. The Medicare program, the largest single payor in the UnitedStates, is a federal governmental health insurance program administered by the Centers for Medicare and Medicaid Services, orCMS, and covers certain medical care expenses for eligible elderly and disabled individuals. Because a large percentage of thepopulation with PAD includes Medicare beneficiaries, and private insurers may follow the coverage and payment policies ofMedicare, Medicare’s coverage and payment policies are significant to our operations.EnvironmentalWe are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture,storage, air emission, effluent discharge, handling and disposal of certain hazardous and potentially hazardous substances used inconnection with our operations. Although we believe that we have complied with these laws and regulations in all materialrespects and, to date, have not been required to take any action to correct any noncompliance, there can be no assurance that wewill not be required to incur significant costs to comply with environmental regulations in the future. InsuranceWe maintain product and clinical trial liability insurance coverage which includes a maximum of per claim and an annualaggregate policy limits, subject to self-insured retentions. The policy covers, subject to policy conditions and exclusions, claimsof bodily injury and property damage from any product manufactured by us or from trial-related adverse events.There is no assurance that our level of coverage is adequate. We may not be able to sustain or maintain our current level ofcoverage and cannot assure you that adequate insurance coverage will continue to be available on commercially reasonable terms,or at all. A successful product liability claim may exceed our existing coverages and may make future coverages significantly moreexpensive, if available at all.EmployeesAs of December 31, 2017, we had 33 full-time employees. Of these employees, 24 were in research and development andnine were in general and administration. Substantially all of our employees are located at our headquarters in Hayward, California.None of our employees are represented by labor unions or are covered by a collective bargaining agreement with respect to theiremployment. We have not experienced any work stoppages, and we consider our relationship with our employees to be good.Available InformationWe were incorporated in Nevada on May 19, 2014 under the name Electroblate, Inc. Electroblate, Inc. changed its name toPulse Biosciences, Inc. effective December 8, 2015. Our corporate offices are located at 3957 Point Eden Way, Hayward,California. Our telephone number is (510) 906-4600. Our website is located at www.pulsebiosciences.com. The information that can be accessed through our website is notincorporated into this Annual Report on Form 10-K, and the inclusion of our website address is an inactive textual reference only.Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filedor furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are 15 Table of Contents available free of charge through the “Investor Relations” section of our website as soon as reasonably practicable after weelectronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).Additionally, we use our website as a channel for distribution for important company information. Important information,including press releases, analyst presentations and financial information regarding us, as well as corporate governance information,is routinely posted and accessible on the “Investor Relations” section of the website, which is accessible by clicking “Investors”on the menu tab labeled “About Us” on our website home page. 16 Table of Contents Item 1A. Risk FactorsInvesting in our common stock involves a high degree of risk. You should consider carefully the risks and uncertaintiesdescribed below, together with all of the other information in this Annual Report on Form 10-K, including our financialstatements and related notes, which could have a material adverse effect on our business, financial condition, results ofoperations and prospects. The risks described below are not the only risks facing us. Risks and uncertainties not currently knownto us or that we currently deem to be immaterial also may materially affect our business, financial condition, results of operationsand prospects. Risks Relating to Our Business, Industry and Financial Condition Since we have a limited operating history and have not commenced any revenue producing operations, it is difficult toevaluate the future of our business. We are a clinical-stage medical technology company and have not yet commenced revenue-producing operations. To date,our operations on a consolidated basis have consisted of the continued development of our technologies and implementation ofthe early parts of our business plan. We have incurred significant operating losses in each year since our inception and we expectto continue to incur additional loses for the next several years. In addition, a high percentage of our expenses will continue to befixed; accordingly, our losses may be greater than expected and our operating results may suffer. We have limited historicalfinancial data upon which we may base our projected revenue and base our planned operating expenses. Our limited operatinghistory makes it difficult to evaluate our technology or prospective operations and business prospects. We currently have no commercial products or product revenue and may never become profitable. To date, we have not generated revenue and have relied on financing from the sale of equity securities to fund ouroperations. We expect that our future financial results will depend primarily on our success in obtaining approval for, launching,selling and supporting our PulseTxTM System or other products based on Nano Pulse Stimulation, or NPS; however, our technologyis still in development. We expect to expend significant resources on hiring of personnel, continued scientific and productresearch and development, potential product testing and preclinical and clinical investigation, intellectual property developmentand prosecution, marketing and promotion, capital expenditures, working capital, general and administrative expenses, and feesand expenses associated with our capital raising efforts. We expect to incur costs and expenses related to consulting costs,laboratory development costs, hiring of scientists, engineers, and other operational personnel, and the continued development ofrelationships with potential partners. We are incurring significant operating losses, we expect to continue to incur additional losesfor at least the next several years, and we cannot assure you that we will generate revenue or be profitable in the future. Our futureproducts may never be approved or become commercially viable or accepted for use. Even if we find commercially viableapplications for our technology, which may include licensing, we may never recover our research and development expenses.Investment in medical technology is highly speculative, because it entails substantial upfront capital expenditures andsignificant risk that any potential product will fail to demonstrate adequate efficacy or clinical utility. Investors should evaluate aninvestment in us in light of the uncertainties encountered by developing medical technology companies in a competitiveenvironment. There can be no assurance that our efforts will be successful or that we will ultimately be able to achieveprofitability. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.Our failure to become and remain profitable could adversely affect the market price of our common stock and could significantlyimpair our ability to raise capital, expand our business or continue to implement our business plan.We anticipate needing additional financing to execute our business plan and fund operations, which additional financingmay not be available on reasonable terms or at all. Our ability to continue as a going concern ultimately depends on our ability to generate cash flow from sales that aresufficient to fund operations or to find adequate financing to support our operations. Currently, we have no revenue, do not plan tohave revenue in the near term, and do not have arrangements in place for all the anticipated financing that would be required tofully implement our business plan. We plan to raise additional funds in the future.We cannot give any assurance that we will be able to obtain all the necessary funding that we may need. We believe that wewill require additional capital in the future to fully develop our technologies and planned products to the stage of a commerciallaunch. We have pursued and may pursue additional funding through various financing sources, including the 17 Table of Contents private sale of our equity and debt securities, licensing fees for our technology, joint ventures with capital partners and projecttype financing. If we raise funds by issuing equity or equity-linked securities, dilution to our stockholders will result. Any equitysecurities issued may also provide for rights, preferences or privileges senior to those of holders of our common stock. The terms ofdebt securities issued or borrowings could impose significant restrictions on our operations. We also may seek government basedfinancing, such as development and research grants. There can be no assurance that funds will be available on commerciallyreasonable terms, if at all.The incurrence of indebtedness or the issuance of certain equity securities could result in increased fixed paymentobligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issueadditional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions thatcould adversely affect our ability to conduct our business. In addition, the issuance of additional equity securities by us, or thepossibility of such issuance, may cause the market price of our common stock to decline. In the event that we enter intocollaborations or licensing arrangements to raise capital, we may be required to accept unfavorable terms. These agreements mayrequire that we relinquish, or license to a third party on unfavorable terms, our rights to technologies or product candidates that weotherwise would seek to develop or commercialize ourselves, or reserve certain opportunities for future potential arrangementswhen we might otherwise be able to achieve more favorable terms. In addition, we may be forced to work with a partner on one ormore of our products or market development programs, which could lower the economic value of those programs to us.If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, we may terminate ordelay the development of one or more of our products, delay clinical trials necessary to market our products, or delayestablishment of sales and marketing capabilities or other activities necessary to commercialize our products. If this were to occur,our ability to grow and support our business and to respond to market challenges could be significantly limited or we may beunable to continue operations, in which case you could lose your entire investment.If we lose key management personnel, our ability to identify, develop and commercialize new or next generation productcandidates will be impaired, could result in loss of markets or market share and could make us less competitive.We are highly dependent upon the principal members of our management team, including our Chief Executive Officer,Darrin Uecker, and the members of our scientific and engineering teams. These persons have significant experience and knowledgewith sub-microsecond pulsed electric fields and more broadly in life sciences and medical technologies. The loss of any teammember could impair our ability to design, identify, and develop new intellectual property and new scientific or product ideas.The loss of a key employee, the failure of a key employee to perform in his or her current position or our inability to attract andretain skilled employees could result in our inability to continue to grow our business or to implement our business strategy. Wecompete for qualified management and scientific personnel with other life science companies, academic institutions and researchinstitutions. Our employees could leave our company with little or no prior notice and may be free to work for a competitor. If oneor more of our senior executives or other key personnel were unable or unwilling to continue in their present positions, we may notbe able to replace them easily or at all, and other senior management may be required to divert attention from other aspects of thebusiness. In addition, we do not have “key person” life insurance policies covering any member of our management team or otherkey personnel. The loss of any of these individuals or any inability to attract or retain qualified personnel, including scientists,engineers and others, could prevent us from pursuing collaborations and materially and adversely affect our product developmentand introductions, business growth prospects, results of operations and financial condition. There is a limited talent pool of experienced professionals in our industry. If we are not able to retain and recruitpersonnel with the requisite technical skills, we may be unable to successfully execute our business strategy.The specialized nature of our industry results in an inherent scarcity of experienced personnel in the field. Our future successdepends upon our ability to attract and retain highly skilled personnel, including scientific, technical, commercial, business,regulatory and administrative personnel, necessary to support our anticipated growth, develop our business and perform certaincontractual obligations. Given the scarcity of professionals with the scientific knowledge that we require and the competition forqualified personnel among life science businesses, we may not succeed in attracting or retaining the personnel we require tocontinue and grow our operations. 18 Table of Contents Rapidly changing technology in life sciences could make the products we are developing obsolete. The life sciences industries are characterized by rapid and significant technological changes, frequent new productintroductions and enhancements and evolving industry standards. Our future success will depend on our ability to continuallydevelop and then improve the products that we design and to develop and introduce new products that address the evolving needsof our customers on a timely and cost-effective basis. We also will need to pursue new market opportunities that develop as a resultof technological and scientific advances. These new market opportunities may be outside the scope of our proven expertise or inareas which have unproven market demand. Any new products developed by us may not be accepted in the intended markets. Ourinability to gain market acceptance of new products could harm our future operating results.We expect to operate in a highly competitive market, we may face competition from large, well-established medical deviceand product manufacturers with significant resources, and we may not be able to compete effectively.The medical technology, medical device, biotechnology and pharmaceutical industries are characterized by intense anddynamic competition to develop new technologies and proprietary therapies. We may find ourselves in competition withcompanies that have competitive advantages over us, such as:·significantly greater name recognition;·established relations with healthcare professionals, customers and third-party payers;·established distribution networks;·additional lines of products, and the ability to offer rebates, higher discounts or incentives to gain a competitiveadvantage;·greater experience in conducting research and development, manufacturing, clinical trials, obtaining regulatoryapproval for products, and marketing approved products; and·greater financial and human resources for product development, sales and marketing, and patent litigation.We may also face increased competition in the future as new companies enter our markets and as scientific developmentssurrounding electro-signaling therapeutics continue to accelerate. While we will seek to expand our technological capabilities toremain competitive, research and development by others may render our technology or product candidates obsolete ornoncompetitive or result in treatments or cures superior to any therapy developed by us. As a result, we may not be able to competeeffectively against current and potential future competitors or their devices and products. We may rely on third parties for our sales, marketing, manufacturing and/or distribution, and these third parties may notperform satisfactorily. We do not currently conduct any aspects of sales, marketing, large-scale manufacturing or distribution. To be able tocommercialize our planned products, we may elect to internally develop all of the foregoing or utilize third parties with respect toone or more of these items. Our reliance on these third parties may reduce our control over these activities; however, reliance onthird parties does not relieve us of our responsibility to ensure compliance with all required legal, regulatory and scientificstandards. Any failure of these third parties to perform satisfactorily and in compliance with relevant laws and regulations couldlead to delays in the development of our planned products, including delays in our clinical trials, or failure to obtain regulatoryapproval for our planned products, or failure to successfully commercialize our planned products or other future products. Some ofthese events could be the basis for FDA or other regulatory action, including injunction, recall, seizure or total or partialsuspension of production.We do not have any corporate experience in establishing these capabilities, and therefore, we may be unsuccessful inachieving commercialization and earning revenues. We believe that setting up the commercialization aspects of a company willtake a substantial amount of capital and commitment of time and effort. We may seek development and marketing partners andlicense our technology to others in order to avoid our having to provide the marketing, manufacturing and distributioncapabilities within our organization. There can be no assurance that we will find any development and marketing partners orcompanies that are interested in licensing our technology. If we are unable to establish and maintain adequate sales, marketing,manufacturing and distribution capabilities, independently or with others, we will not be able to generate product revenue, andmay not become profitable. 19 Table of Contents If we are unable to manage the anticipated growth of our business, our future revenue and operating results may beharmed.We have experienced and continue to experience rapid growth in our business. Recent and future growth imposes significantadded responsibilities on management, including the need to identify, recruit, train and integrate additional employees. Rapidexpansion in personnel could mean that less experienced people carry out our research and development activities, manufactureour PulseTx System devices and market and sell our NPS technology, therapies and treatments, which could result in inefficienciesand unanticipated costs, reduced quality and disruptions to our operations. In addition, rapid and significant growth may strain ouradministrative and operational infrastructure, and the failure to continue to upgrade our technical, administrative, operating andfinancial control systems or the occurrence of unexpected expansion difficulties could have a material adverse effect on ourbusiness, financial condition and results of operations and our ability to timely execute our business plan. If we are unable tomanage our growth effectively, it may be difficult for us to execute our business strategy and our business could be harmed.Security breaches, loss of data and other disruptions to us or our third-party service providers could compromise sensitiveinformation related to our business or prevent us from accessing critical information and expose us to liability, which couldadversely affect our business and our reputation. In the ordinary course of our business, we, and our third-party service providers may collect and store sensitive data,including legally protected health information, personally identifiable information about our patients, information related to ourtrials, intellectual property, and our proprietary business and financial information. We manage and maintain our applications anddata utilizing a combination of on-site and vendor-owned systems. We face a number of risks related to our protection of, and ourservice providers’ protection of, this critical information, including loss of access, unauthorized disclosure and unauthorizedaccess, as well as risks associated with our ability to identify and audit such events.Although we take measures to protect sensitive information from unauthorized access or disclosure, our informationtechnology and infrastructure may be vulnerable to attacks by hackers or viruses or otherwise breached due to employee error,malfeasance or other activities. While we have not experienced any such attack or breach, if such an event were to occur, ournetworks would be compromised and the information we store on those networks could be accessed by unauthorized parties,publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims orproceedings, liability under laws that protect the privacy of personal information, such as the federal Health Insurance Portabilityand Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical HealthAct of 2009, or HITECH, and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations,including our ability to process tests, provide test results, provide services, conduct research and development activities, collect,process and prepare company financial information, provide information about our product candidates and manage theadministrative aspects of our business and could damage our reputation, any of which could adversely affect our business.In addition, the interpretation and application of federal and state consumer, health-related and data protection laws in theUnited States are often uncertain, contradictory and in flux. It is possible that these laws may be interpreted and applied in amanner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that wechange our practices, which could adversely affect our business. Complying with these various laws could cause us to incursubstantial costs or require us to change our business practices, systems and compliance procedures in a manner adverse to ourbusiness. 20 Table of Contents Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of anyproducts that we may develop. We face an inherent risk of product liability exposure related to the future sale of planned products and the use of plannedproducts in human clinical studies. For example, we may be sued if any of our product candidates, including any that aredeveloped in combination therapies, allegedly causes injury or is found to be otherwise unsuitable during product testing,manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defectsin design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. We may alsobe subject to liability for a misunderstanding of, or inappropriate reliance upon, the information we provide. If we cannotsuccessfully defend ourselves against claims that our planned products caused injuries, we may incur substantial liabilities.Regardless of merit or eventual outcome, liability claims may result in:·decreased demand for any planned products that we may develop;·injury to our reputation and significant negative media attention;·withdrawal of patients from clinical studies or cancellation of studies;·significant costs to defend the related litigation and distraction to our management team;·substantial monetary awards to patients;·loss of revenue; and·the inability to commercialize any products that we may develop.For example, if we pursue clinical trials in the field of oncology, patients with the types and stages of cancer targeted by ourNPS technology may already be in severe and advanced stages of disease, may have worsened conditions despite traditionaltherapies, may not be surgical candidates, and/or may have both known and unknown significant pre-existing and potentially life-threatening conditions. During the course of treatment, patients may suffer adverse events, including death, for reasons that may berelated to our NPS Technology or our PulseTx System. Such events could subject us to costly litigation, require us to paysubstantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintainregulatory approval to market those products, or require us to suspend or abandon our commercialization efforts. Even in acircumstance in which we do not believe that an adverse event is related to our product, the investigation into the circumstancemay be time-consuming or inconclusive. These investigations may interrupt our sales efforts, delay our regulatory approvalprocesses, or impact and limit the type of regulatory approvals our products could receive or maintain. As a result of these factors, aproduct liability claim, even if successfully defended, could harm our business.We currently maintain product liability insurance coverage, which may not be adequate to cover all liabilities that we mayincur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or inan amount adequate to satisfy any liability that may arise. 21 Table of Contents We may become involved in litigation that may materially adversely affect us.From time to time, we may be involved in a variety of claims, lawsuits, investigations and proceedings relating to securitieslaws, product liability, patent infringement, contract disputes and other matters relating to various claims that arise in the normalcourse of our business in addition to governmental and other regulatory investigations and proceedings. In addition, third partiesmay, from time to time, assert claims against us in the form of letters and other communications. Such matters can be time-consuming, divert management’s attention and resources, cause us to incur significant expenses or liability and/or require us tochange our business practices. Because of the potential risks, expenses and uncertainties of litigation, we may, from time to time,settle disputes, even where we have meritorious claims or defenses, by agreeing to settlement agreements. Because litigation isinherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on ourbusiness, financial condition, results of operations and prospects. See the section entitled “Legal Proceedings” for more detail onour current legal proceedings.Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited. We have incurred net losses since our inception and anticipate that we will continue to incur significant losses for theforeseeable future. If not utilized, the federal and state NOL carryforwards will begin to expire in various years beginning after2032. Under the Internal Revenue Code of 1986, as amended, or the Code, and certain similar state tax provisions, a corporation isgenerally allowed a deduction for net operating losses, or NOLs, carried over from a prior taxable year. Under those provisions, wecan carry forward our NOLs to offset our future taxable income, if any, until such NOLs are used or expire. The same is true of otherunused tax attributes, such as tax credits.In addition, under Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change” is subjectto limitations on its ability to utilize its pre-change net operating losses (“NOLs”) to offset future taxable income. We believe thatwe have had one or more ownership changes, and, as a result, a portion of our existing NOLs may be subject to limitation. Futurechanges in our stock ownership could result in additional limitations. We may not be able to utilize a material portion of our NOLseven if we attain profitability.Further, in December 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted into law. The change in the tax law will bepartially effective in 2017 and fully effective in 2018. The primary impacts to us include a decrease of the corporate income taxrate structure and NOL limitations. These changes will have a material impact to the value of deferred tax assets and liabilities andour future taxable income and effective tax rate. We are assessing the TCJA with professional advisers, and believe that the impactof the TCJA on our business may not be fully known for some time, until such analysis is complete, the full impact of the new taxlaw on us in future periods is uncertain, and no assurances can be made by us on any potential impacts. We have a substantial amount of goodwill and intangible assets which over time may have to be written down as we makethe required periodic assessments as to their value as reflected on our financial statements. A significant portion of our total assets are comprised of goodwill and intangibles that arose from our 2014 businessacquisitions. We review goodwill for impairment at least annually or whenever changes in circumstances indicate that the carryingvalue of the goodwill may not be recoverable. We also review our intangible assets for impairment at each fiscal year end or whenevents or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. If we take animpairment charge for either goodwill or intangible assets, the overall assets will be reduced. Such an impairment charge mayresult in a change in the perceived value of the company and ultimately may be reflected as a reduction in the market price of oursecurities. Additionally, an impairment charge may also adversely influence our ability to raise capital in the future.If we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internalcontrol over financial reporting in the future, we may not be able to accurately or timely report our financial condition or resultsof operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock. As a public company, we are required to maintain internal control over financial reporting and to report any materialweaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine theeffectiveness of our internal control over financial reporting and provide a management report on internal control over financialreporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such thatthere is a reasonable possibility that a material misstatement of our financial statements will not be 22 Table of Contents prevented or detected on a timely basis. Ensuring that we have adequate internal financial and accounting controls and proceduresin place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort. Our internalcontrol over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements in accordance with GAAP. We may not be able to complete our evaluation, testing and anyrequired remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknessesin our internal control over financial reporting, we will be unable to assert that our internal controls are effective.In connection with the audit of our financial statements as of and for the year ended December 31, 2016, we identified amaterial weakness in our internal control over financial reporting. The material weakness related to a lack of effective controls toadequately restrict access and segregate duties. We implemented measures and remediated the material weakness in 2017;however, we cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient toavoid potential future material weaknesses. The existence of one or more material weaknesses could preclude a conclusion that wemaintain effective internal control over financial reporting. Accordingly, there could continue to be a reasonable possibility that amaterial misstatement of our financial statements would not be prevented or detected on a timely basis.We are required to disclose changes made in our internal control and procedures on a quarterly basis. However, ourindependent registered public accounting firm will not be required to report on the effectiveness of our internal control overfinancial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer an “emerging growth company” asdefined in the Jumpstart Our Business Startups Act, or JOBS Act if we continue to take advantage of the exemptions contained inthe JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it isnot satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable usto avoid a material weakness in the future. If we are unable to assert that our internal control over financial reporting is effective, orwhen required in the future, if our independent registered public accounting firm is unable to express an opinion as to theeffectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness ofour financial reports and the market price of our common stock could be adversely affected, and we could become subject toinvestigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which couldrequire additional financial and management resources. Our facilities in California are located near known earthquake faults, and the occurrence of an earthquake or othercatastrophic disaster could cause damage to our facilities and equipment, which could require us to cease or curtail operations. Our facilities in the San Francisco Bay Area are located near known earthquake fault zones and are vulnerable to damagefrom earthquakes. We are also vulnerable to damage from other types of disasters, including fire, floods, power loss,communications failures and similar events. If any disaster were to occur, our ability to operate our business at our facilities wouldbe seriously, or potentially completely, impaired. In addition, the nature of our activities could cause significant delays in ourresearch programs and commercial activities and make it difficult for us to recover from a disaster. The insurance we maintain maynot be adequate to cover our losses resulting from disasters or other business interruptions. Accordingly, an earthquake or otherdisaster could materially and adversely harm our ability to conduct business. 23 Table of Contents Risks Related to Product DevelopmentWe currently do not have any products approved or cleared by the FDA or other similar foreign regulatory authorities forcommercial sale or any commercialized products. To date, we have invested a substantial amount of time and capital to research and develop the foundations of ourtechnology and potential applications. For us to develop any products that might ultimately be commercialized, we will have toinvest further time and capital in research and product development, medical and other regulatory compliance, and marketdevelopment. Therefore, we may never develop any products that can be commercialized. All of our development efforts willrequire substantial additional investment, which may never result in any revenue. Our efforts may not lead to approved orcommercially successful products for a number of reasons, including:·we may not be able to complete the science and develop any planned products for NPS;·we may not be able to obtain regulatory approvals for our planned products, or the approved indications may benarrower than we seek;·we may experience delays in our development program, clinical trials and the regulatory approval process;·our NPS technology may not prove to be safe or effective in clinical trials;·physicians may not receive any reimbursement from third-party payers, or the level of reimbursement may beinsufficient to support widespread adoption of any of our products;·any products that are approved may not be accepted in the marketplace by physicians or patients;·we may not be able to manufacture our products in commercial quantities or at an acceptable cost; and·rapid technological change or the appearance of a new competitive technology may make our technology andproducts obsolete.If we fail to obtain and maintain necessary regulatory clearances or approvals for our devices, or if clearances orapprovals for future devices and indications are delayed or not issued, our commercial operations would be harmed.Our devices are medical devices that are subject to extensive regulation by FDA in the United States and by regulatoryagencies in other countries where we plan to do business. Government regulations specific to medical devices are wide-rangingand govern, among other things:·device design, development and manufacture;·laboratory, preclinical and clinical testing, labeling, packaging, storage and distribution;·premarketing clearance and approval;·record keeping;·device marketing, promotion and advertising, sales and distribution; and·post-marketing surveillance, including reporting of deaths and serious injuries and recalls and correction andremovals.Before a new medical device, or a new intended use for, an existing device can be marketed in the United States, a companymust first submit and receive either 510(k) clearance or premarketing approval, or PMA from the FDA, unless an exemptionapplies. In the 510(k) clearance process, the FDA will determine that a proposed device is “substantially equivalent” to a devicelegally on the market, known as a “predicate” device, with respect to intended use, technology and safety and effectiveness, inorder to clear the proposed device for marketing. Clinical data is sometimes required to support substantial equivalence. The PMApathway requires an applicant to demonstrate the safety and effectiveness of the device based on extensive data, including, but notlimited to, technical, preclinical, clinical trial, manufacturing and labeling data. The PMA process is typically required for devicesthat are deemed to pose the greatest risk, such as life-sustaining, life- 24 Table of Contents supporting or implantable devices. Products that are approved through a PMA application generally need FDA approval beforethey can be modified. Similarly, some modifications made to products cleared through a 510(k) may require a new 510(k). Eitherprocess can be expensive, lengthy and unpredictable. We may not be able to obtain the necessary clearances or approvals or maybe unduly delayed in doing so, which could harm our business. Furthermore, even if we are granted regulatory clearances orapprovals, they may include significant limitations on the indicated uses for the device, which may limit the market for the device.For example, during September 2017, the FDA requested that we submit additional data in connection with our applicationseeking clearance of our PulseTx System for soft tissue ablation. Subsequent to this FDA request, we chose to withdraw ourapplication, so as to enable us to collect additional data and with the intent of submitting the data in a subsequent application. The FDA and the Federal Trade Commission, or FTC, also regulate the advertising and promotion of our devices to ensurethat the claims we make are consistent with our regulatory clearances, that there are adequate and reasonable data to substantiatethe claims and that our promotional labeling and advertising is neither false nor misleading in any respect. If the FDA or FTCdetermines that any of our advertising or promotional claims are misleading, not substantiated or not permissible, we may besubject to enforcement actions, including FDA warning letters, and we may be required to revise our promotional claims and makeother corrections or restitutions.FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirementscould result in enforcement action by the FDA or state agencies, which may include any of the following sanctions:·adverse publicity, warning letters, fines, injunctions, consent decrees and civil penalties;·repair, replacement, refunds, recall or seizure of our devices;·operating restrictions, partial suspension or total shutdown of production;·refusing our requests for 510(k) clearance or premarket approval of new devices, new intended uses or modificationsto existing devices;·withdrawing 510(k) clearance or premarket approvals that have already been granted; and·criminal prosecution.If any of these events were to occur, our business and financial condition would be harmed.Our efforts may never demonstrate the feasibility of our technology. Our research and development efforts remain subject to all of the risks associated with the development of new therapies,devices, treatment modalities, and related products based on our NPS technology. NPS applications are not yet fully developed.Development of the underlying technology, including the development of the PulseTx System, may be affected by unanticipatedtechnical or other problems, among other development and research issues, and the possible insufficiency of funds needed in orderto complete development of these products or devices. Safety, regulatory and efficacy issues, clinical hurdles or challenges alsomay result in delays and cause us to incur additional expenses that may increase our need for capital and result in additionallosses. In addition, the potential indications for NPS are numerous, and we may fail to pursue the most optimal indications. If wecannot complete, or if we experience significant delays in developing our technology, applications or products for use in potentialcommercial applications, particularly after incurring significant expenditures, our business may fail and investors may lose theentirety of their investment.The mechanism of action of NPS has not been fully determined or validated. The exact mechanism(s) of action(s) of NPS is not fully understood, and data is still being gathered regarding its use.Furthermore, there are only a relatively small number of scientists and researchers who can be considered experts in the use of thisemerging technology. A full understanding of a future product’s mechanism of action and a large stable of scientific experts aretypically believed to make product development less risky. The FDA or similar foreign regulatory authorities may view this asincreasing the potential risks, and diminishing the potential benefits, of products based on NPS technology. In addition, potentialpartners may view this as a limitation of the program, and it may be more challenging for us to obtain a partnership on favorableterms as a result. 25 Table of Contents NPS or our planned products may cause serious adverse side effects or have other properties that could delay or preventtheir regulatory approval, limit the commercial desirability of an approved label or result in significant negative consequencesfollowing any marketing approval. The risk of failure of clinical development is high. For example, the vast majority of our in vivo data has been a result ofanimal testing, and we have only recently completed our first pilot study in humans. It is difficult to predict when or if this or anyplanned products will prove safe enough to receive regulatory approval. Undesirable side effects caused by NPS or any of ourplanned products could cause us or regulatory authorities to interrupt, delay or halt clinical trials. They could result in a morerestrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authority. Additionally, if NPS or any of our planned products receive marketing approval but, we or others later identify undesirableside effects caused by such product, a number of potentially significant negative consequences could result, including:·we may be forced to recall such product and suspend the marketing of such product;·regulatory authorities may withdraw their approvals of such product;·regulatory authorities may require additional warnings on the label that could diminish the usage or otherwise limitthe commercial success of such products;·the FDA or other regulatory authorities may issue safety alerts, Dear Healthcare Provider letters, press releases orother communications containing warnings about such product;·the FDA may require the establishment or modification of Risk Evaluation Mitigation Strategies or a comparableforeign regulatory authority may require the establishment or modification of a similar strategy that may, forinstance, restrict distribution of our products and impose burdensome implementation requirements on us;·we may be required to change the way the product is administered or conduct additional clinical trials;·we could be sued and held liable for harm caused to subjects or patients;·we may be subject to litigation or product liability claims; and·our reputation may suffer.Any of these events could prevent us from achieving or maintaining market acceptance of the particular planned product, ifapproved.Our business is dependent upon physicians adopting our NPS technology, and if we fail to obtain broad adoption, ourbusiness would be adversely affected. If we obtain regulatory approval for an NPS application or product, our success will depend on our ability to educatephysicians regarding the benefits of NPS, such as our PulseTx System, over existing treatment modalities and to persuade them toprescribe PulseTx System treatments for their patients. We do not know if NPS will be successful over the long term, and marketacceptance may be hindered if physicians are not presented with compelling data demonstrating the efficacy of our servicecompared to alternative treatments. Any studies we, or third parties, may conduct comparing our NPS technology with alternativetreatments may be expensive, time consuming or may not yield positive results. Additionally, adoption will be directly influencedby a number of financial factors, including the ability of providers to attract cash reimbursement from patients or to obtainsufficient reimbursement from third party commercial payors, and the Centers for Medicare & Medicaid Services, or CMS, for theprofessional services they provide in administering NPS treatments. The efficacy, safety, performance and cost-effectiveness of ourNPS technology, PulseTx System or other potential products based on NPS technology, on a stand-alone basis and relative tocompeting services, will determine the availability and level of reimbursement received by us and providers. If physicians do notadopt and prescribe our future products, we may never become profitable. 26 Table of Contents We may find it difficult to enroll patients in our clinical trials. If we cannot enroll a sufficient number of eligible patientsto participate in the clinical trials, we may not be able to initiate or continue clinical trials, which could delay or preventdevelopment of our product candidates. Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. Thetiming of our clinical trials depends on the speed at which we can recruit patients to participate in testing our product candidatesas well as completion of required follow-up periods. In general, if patients are unwilling to participate in our trials because ofnegative publicity from adverse events in the life sciences industry or for other reasons, including competitive clinical trials forsimilar patient populations, the timeline for recruiting patients, conducting trials and obtaining regulatory approval of plannedproducts may be delayed. If there are delays in accumulating the required patients and patient data, there may be delays incompleting the trial. Further, if any of our clinical trial sites fail to comply with FDA-approved good clinical practices, we may beunable to use the data gathered at those sites. If our clinical investigators fail to carry out their contractual duties or regulatoryobligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due totheir failure to adhere to our clinical protocols or for other reasons, our clinical trials may be delayed. These delays could result inincreased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or terminationof the clinical trials altogether.Laboratory conditions differ from commercial conditions and field conditions, and the safety and effectiveness of ourplanned products may depend on the technique of the user. Observations and developments that may be achievable under laboratory circumstances may not be able to be replicated inbroader research and development phases, in commercial settings, or in the use of any of the planned products in the field.Furthermore, if commercialized, NPS will be administered by healthcare professionals and will require a degree of training andpractice to administer correctly. Treatment results achieved during the laboratory or in clinical trials conducted by us or otherinvestigators may not be representative of the results actually encountered during commercial use of our products due tovariability in administration technique. The training and skills of investigators in our clinical trials may not be representative ofthe training and skills of future product users, which could negatively affect treatment results. In addition, there may be a selectionbias in the patients and/or sites of administration chosen for any clinical trials that would positively affect treatment results.Issues with our firmware and software may negatively affect the function of our devices. The safety and effectiveness of NPS-based treatments and therapies may depend, in part, on the function of firmware run bythe microprocessors embedded in the device and associated software. This firmware and software is proprietary to us. While wehave made efforts to test the firmware and software extensively, it is potentially subject to malfunction which in turn may harm apatient. Further, it may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses,programming errors, or similar problems. Any of these might result in harm to a patient or the unauthorized release of confidentialmedical, business or other information of other persons or of ours. We may encounter manufacturing problems or delays that could result in lost revenue. Additionally, we currently rely onthird-party suppliers for critical materials needed to manufacture NPS devices such as the PulseTx System and relatedapplicators and, if we obtain regulatory approval, our planned products. Any problems experienced by these suppliers couldresult in a delay or interruption of their supply to us, and as a result, we may face delays in the development andcommercialization of planned products. We perform final assembly of our devices to support our current research and development activities at our facility inCalifornia. We believe we have adequate manufacturing capacity for these purposes. However, if demand for our planned productsincreases significantly, we will need to either expand our manufacturing capabilities or outsource to other manufacturers. We haveno corporate experience in commercial-scale manufacturing of our planned products, and we currently rely upon third-partysuppliers to manufacture and supply components for our NPS devices. The manufacture of these products in compliance with theFDA’s regulations requires significant expertise and capital investment, including the development of advanced manufacturingtechniques and process controls. Manufacturers of medical device products often encounter difficulties in production, includingdifficulties with production costs and yields, quality control, quality assurance testing, shortages of qualified personnel, as well ascompliance with strictly enforced FDA requirements, other federal and state regulatory requirements, and foreign regulations.We currently purchase components for our NPS devices under purchase orders and do not have long-term contracts with mostof the suppliers of these materials. If suppliers were to delay or stop producing our components, or if the prices 27 Table of Contents they charge us were to increase significantly, or if they elected not to sell to us, we would need to identify other suppliers. Wecould experience delays in manufacturing the devices while finding another acceptable supplier, which could impact our results ofoperations. We may not become commercially viable if our ultimate commercialized products or related treatments fail to obtain anadequate level of reimbursement by Medicare and other third-party payers. We believe that the commercial viability of our potential devices and products and related treatments, and therefore ourcommercial success as a company, may be affected by the availability of government reimbursement and medical insurancecoverage and reimbursement for newly approved medical therapies, technologies and devices. Insurance coverage andreimbursement is not assured. It typically takes a period of use in the market place before coverage and reimbursement is granted, ifit is granted at all. In the United States and other jurisdictions in Europe and other regions, physicians and other healthcareproviders generally rely on insurance coverage and reimbursement for their revenues, therefore this is an important factor in theoverall commercialization plans of a proposed product and whether it will be accepted for use in the marketplace. Withoutinsurance coverage and reimbursement for our planned products, we would expect to earn only diminished revenues, if anyrevenues are earned.Medicare, Medicaid, health maintenance organizations and other third-party payers are increasingly attempting to containhealthcare costs by limiting both the scope of coverage and the level of reimbursement of new medical technologies and products,and as a result, they may not cover or provide adequate payment for the use of our planned products. In order to obtain satisfactoryreimbursement arrangements, we may have to agree to a fee or sales price lower than the fee or sales price we might otherwisecharge. Even if Medicare and other third-party payers decide to cover procedures involving our proposed devices and products, wecannot be certain that the reimbursement levels will be adequate. Accordingly, even if our planned products are approved forcommercial sale, unless government and other third-party payers provide adequate coverage and reimbursement for our devicesand products, some physicians may be discouraged from using them, and our sales would suffer.Medicare reimburses for medical technologies and products in a variety of ways, depending on where and how the item isused. However, Medicare only provides reimbursement if CMS determines that the item should be covered and that the use of thedevice or product is consistent with the coverage criteria. A coverage determination can be made at the local level by the Medicareadministrative contractor, a private contractor that processes and pays claims on behalf of CMS for the geographic area where theservices were rendered, or at the national level by CMS through a national coverage determination. There are statutory provisionsintended to facilitate coverage determinations for new technologies, but it is unclear how these new provisions will beimplemented and it is not possible to indicate how they might apply to any of our proposed devices and products, as they are stillin the development stages. Coverage presupposes that the technology, device, or product has been cleared or approved by the FDAand further, that the coverage will be no broader than the approved intended uses of the device or product as approved or clearedby the FDA, but coverage can be narrower. A coverage determination may be so limited that relatively few patients will qualify fora covered use of a device or product.Obtaining a coverage determination, whether local or national, is a time-consuming, expensive and highly uncertainproposition, especially for a new technology, and inconsistent local determinations are possible. On average, Medicare coveragedeterminations for medical devices and products lag behind FDA approval. The Medicare statutory framework is also subject toadministrative rulings, interpretations and discretion that affect the amount and timing of reimbursement made under Medicare.Medicaid coverage determinations and reimbursement levels are determined on a state by state basis, because Medicaid, unlikeMedicare, is administered by the states under a state plan filed with the Secretary of the United States Department of Health andHuman Services (HHS). Medicaid generally reimburses at lower levels than Medicare. Moreover, Medicaid programs and privateinsurers are frequently influenced by Medicare coverage determinations. 28 Table of Contents We work with outside scientists and their institutions in developing product candidates. These scientists may have othercommitments or conflicts of interest, which could limit our access to their expertise and harm our ability to leverage ourdiscovery platforms. We work with scientific advisors and collaborators at academic research institutions in connection with our productdevelopment. These scientists and collaborators are not our employees, but they serve as either independent contractors orresearchers under research agreements that we have with their sponsoring clinic, academic institution or research institution. Suchscientists and collaborators may have other commitments that would limit their availability to us. Although our scientific advisorsgenerally agree not to do competing work, if an actual or potential conflict of interest between their work for us and their work foranother entity arises, we may lose their services. It is also possible that some of our valuable proprietary knowledge may becomepublicly known through these scientific advisors if they breach their confidentiality agreements with us, which would causecompetitive harm to our business. 29 Table of Contents Risks Related to Intellectual PropertyIf we or our licensors are unable to protect our/their intellectual property, then our financial condition, results ofoperations and the value of our technology and products could be adversely affected. Patents and other proprietary rights are essential to our business, and our ability to compete effectively with other companiesis dependent upon the proprietary nature of our technologies. We also rely upon trade secrets, know-how, continuingtechnological innovations and licensing opportunities to develop, maintain and strengthen our competitive position. We seek toprotect these, in part, through confidentiality agreements with certain employees, consultants and other parties. Our success willdepend in part on the ability of our licensors and us to obtain, to maintain (including making periodic filings and payments) andto enforce patent protection for the licensed intellectual property, in particular, those patents to which we have secured rights. We,and our licensors, may not successfully prosecute or continue to prosecute the patent applications which we have licensed. Even ifpatents are issued in respect of these patent applications, we or our licensors may fail to maintain these patents, may determine notto pursue litigation against entities that are infringing upon these patents, or may pursue such enforcement less aggressively thanwe ordinarily would for our own patents. Without adequate protection for the intellectual property that we own or license, othercompanies might be able to offer substantially identical products for sale, which could unfavorably affect our competitive businessposition and harm our business prospects. Even if issued, patents may be challenged, invalidated, or circumvented, which couldlimit our ability to stop competitors from marketing similar products or limit the length of term of patent protection that we mayhave for our products.Litigation or third-party claims of intellectual property infringement or challenges to the validity of our patents wouldrequire us to use resources to protect our technology and may prevent or delay our development, regulatory approval orcommercialization of our product candidates. If we are the target of claims by third parties asserting that our products or intellectual property infringe upon the rights ofothers we may be forced to incur substantial expenses or divert substantial employee resources from our business. If successful,those claims could result in our having to pay substantial damages or could prevent us from developing one or more productcandidates. Further, if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop ordelay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.If we or our collaborators experience patent infringement claims, or if we elect to avoid potential claims others may be ableto assert, we or our collaborators may choose to seek, or be required to seek, a license from the third-party and would most likely berequired to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we orour collaborators were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to thesame intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspectof our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable toenter into licenses on acceptable terms. This could harm our business significantly. The cost to us of any litigation or otherproceeding, regardless of its merit, even if resolved in our favor, could be substantial. Some of our competitors may be able to bearthe costs of such litigation or proceedings more effectively than we can because of their having greater financial resources.Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverseeffect on our ability to compete in the marketplace. Intellectual property litigation and other proceedings may, regardless of theirmerit, also absorb significant management time and employee resources.If we fail to comply with our obligations in the agreements under which we license development or commercializationrights to products or technology from third-parties, we could lose license rights that are important to our business. We hold licenses from ODURF and EVMS and from AMI-USC to intellectual property relating to the sub-microsecondelectric field technology, as well as applicator design and configuration, and pulse generators in addition to the intellectualproperty that we own for these things. For the continuance of the license with ODURF and EVMS, we must continue to complywith the various obligations set forth in the license. If we fail to meet these obligations, the licensor will have the right to terminatethe applicable license or modify certain terms of the license agreement. Generally, the loss of any one of our current licenses, orany other license we may acquire in the future, could harm our business, prospects, financial condition and results of operation. Inaddition, some of our licenses from third parties limit the field in which we can use the licensed technology. Therefore, in order forus to use such licensed technology in potential future applications that are outside 30 Table of Contents the licensed field of use, we may be required to negotiate new licenses with our licensors or expand our rights under our existinglicenses. We cannot assure you that we will be able to obtain such licenses or expanded rights on reasonable terms or at all. In theevent a dispute with our licensors were to occur, our licensors may seek to renegotiate the terms of our licenses, increase theroyalty rates that we pay to obtain and maintain those licenses, limit the field or scope of the licenses, or terminate the licenseagreements. In addition, we have limited rights to participate in the prosecution and enforcement of the patents and patentapplications that we have licensed. As a result, we cannot be certain that these patents and applications will be prosecuted andenforced in a manner consistent with the best interests of our business. Further, because of the rapid pace of technological changein our industry, we may need to rely on key technologies developed or licensed by third parties, and we may not be able to obtainlicenses and technologies from these third parties at all or on reasonable terms. The occurrence of these events may have a materialadverse effect on our business, financial condition or results of operations.Our intellectual property rights will not necessarily provide us with competitive advantages. The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rightshave limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The followingexamples are illustrative:·others may be able to make products that are similar to our product candidates but that are not covered by theclaims of the patents that we own or have exclusively licensed;·others may independently develop similar or alternative technologies without infringing our intellectual propertyrights;·issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, ormay be held invalid or unenforceable, as a result of legal challenges by our competitors;·we may obtain patents for certain products many years before we obtain marketing approval for products utilizingsuch patents, and because patents have a limited life, which may begin to run prior to the commercial sale of therelated product, the commercial value of our patents may be limited;·our competitors might conduct research and development activities in countries where we do not have patent rightsand then use the information learned from such activities to develop competitive products for sale in our majorcommercial markets;·we may fail to develop additional proprietary technologies that are patentable;·the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws ofthe United States, or we may fail to apply for or obtain adequate intellectual property protection in all thejurisdictions in which we operate; and·the patents of others may have an adverse effect on our business, for example by preventing us from marketing oneor more of our product candidates for one or more indications.Any of the aforementioned threats to our competitive advantage could harm our business.If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technologyand products could be adversely affected. In addition to patented technology, we rely upon, among other things, unpatented proprietary technology, processes, tradesecrets and know-how. Any involuntary disclosure to or misappropriation by third-parties of our confidential or proprietaryinformation could enable competitors to duplicate or surpass our technological achievements, potentially eroding our competitiveposition in our market. We seek to protect confidential or proprietary information in part by confidentiality agreements with ouremployees, consultants and third-parties. While we require all of our employees, consultants, advisors and any third-parties whohave access to our proprietary know-how, information and technology to enter into confidentiality agreements, we cannot becertain that this know-how, information and technology will not be disclosed or that competitors will not otherwise gain access toour trade secrets or independently develop substantially equivalent information and techniques. These agreements may beterminated or breached, and we may not have adequate remedies for any such termination or breach. Furthermore, these agreementsmay not provide meaningful protection for our trade secrets and know-how in the event of unauthorized use or disclosure. To theextent that any of our staff were previously employed by other 31 Table of Contents pharmaceutical, medical technology or biotechnology companies, those employers may allege violations of trade secrets and othersimilar claims in relation to their medical device development activities for us.If we are unable to protect the intellectual property used in our products, others may be able to copy our innovations whichmay impair our ability to compete effectively in our markets.The strength of our patents involves complex legal and scientific questions and can be uncertain. Our patents or patentapplications may be challenged or our patent applications may fail to result in issued patents and our existing or future patentsmay be too narrow to prevent third-parties from developing or designing around our intellectual property and in that event we maylose competitive advantage and our business may suffer. Further, the patent applications that we license or have filed may fail toresult in issued patents. The claims may need to be amended. Even after amendment, a patent may not issue and in that event wemay not obtain the use of the intellectual property that we seek and may lose competitive advantage which could result in harm toour business.We may become involved in future lawsuits to protect or enforce our patents or the patents of our licensors, which could beexpensive, time consuming and unsuccessful. Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we or ourlicensors may file infringement claims, which can be expensive and time consuming. In addition, in an infringement proceeding, acourt may decide that a patent of ours or of our licensors is not valid or is unenforceable, or may refuse to stop the other party fromusing the technology at issue on the grounds that our patents do not cover the technology in question. If we or any currentlicensors or future licensees or licensors with rights to prosecute, assert or defend patents related to our product candidates fail toappropriately prosecute and maintain patent protection for patents covering any of our product candidates, or if patents coveringany of our product candidates are asserted against infringers or defended against claims of invalidity or unenforceability in amanner which adversely affects such coverage, our ability to develop and commercialize any such product candidate may beadversely affected and we may not be able to prevent competitors from making, using and selling competing products. An adverseresult in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpretednarrowly and could put our patent applications at risk of not issuing.The United States Patent and Trademark Office may initiate interference proceedings to determine the priority of inventionsdescribed in or otherwise affecting our patents and patent applications or those of our collaborators or licensors. An unfavorableoutcome could require us to cease using the technology or to attempt to license rights to it from the prevailing party. Our businesscould be harmed if a prevailing party does not offer us a license on terms that are acceptable to us. Litigation or interferenceproceedings may fail and, even if successful, may result in substantial costs and distraction of our management and otheremployees. We may not be able to prevent, alone or with our licensors, misappropriation of our proprietary rights, particularly incountries where the laws may not protect those rights as fully as in the United States.Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets andother proprietary information, which would harm our competitive position. In addition to patents, we rely on trade secrets, technical know-how and proprietary information concerning our businessstrategy and product candidates in order to protect our competitive position, which are difficult to protect. As we collaborate withvarious third parties on the research and development of our planned products, we must, at times, share trade secrets with them. Inthe course of our research and development activities and our business activities, we rely on confidentiality agreements to protectour proprietary information. Such confidentiality agreements are used, for example, when we talk to vendors or potential strategiccollaborators. In addition, each of our employees and consultants is required to sign a confidentiality agreement and inventionassignment agreement upon joining our company. Our employees, consultants, contractors, business partners or outside scientificcollaborators might intentionally or inadvertently disclose our trade secret information in breach of these confidentialityagreements or our trade secrets may otherwise be misappropriated. Our collaborators might also have rights to publish data, and wemight fail to apply for patent protection prior to such publication. It is possible that a competitor will make use of suchinformation, and that our competitive position will be compromised. In addition, to the extent that our employees, consultants orcontractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resultingknow-how and inventions. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensiveand time consuming, and the outcome is unpredictable. In addition, courts outside the United States sometimes are less willingthan U.S. courts to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methodsand know-how, and our trade secrets cannot be enforced against such independently developed knowledge. If we cannot maintainthe confidentiality 32 Table of Contents of our proprietary technology and other confidential information, then our ability to obtain patent protection or to protect ourtrade secret information would be jeopardized, which would adversely affect our competitive position.We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosedconfidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of theirformer employers. Although we seek to protect our ownership of intellectual property rights by ensuring that our agreements with ourindependent contractors, collaborators and other third parties with whom we do business include provisions requiring such partiesto assign rights in inventions to us, we may also be subject to claims that former employees, collaborators or other third partieshave an ownership interest in our patents or other intellectual property. We may be subject to ownership disputes in the futurearising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates.Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail indefending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such asexclusive ownership of, or right to use, valuable intellectual property. Such an outcome could harm our business. Even if we aresuccessful in defending against such claims, litigation could result in substantial costs and be a distraction to management andother employees.We may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting and defending patents on product candidates in all countries throughout the world would beprohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive thanthose in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the sameextent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing ourinventions in all countries outside the United States, or from selling or importing products made using our inventions in and intothe United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patentprotection to develop their own products and further, may export otherwise infringing products to territories where we have patentprotection, but enforcement is not as strong as that in the United States. These products may compete with our current or futureproduct candidates, if any, and our patents or other intellectual property rights may not be effective or sufficient to prevent themfrom competing.Many companies have encountered significant problems in protecting and defending intellectual property rights in foreignjurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement ofpatents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which couldmake it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietaryrights generally. We believe this is caused by both the technical nature of the subject matter and a general enthusiasm for genericcompetition in developing countries, and is not a concern that is specific to any particular foreign jurisdiction. Proceedings toenforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from otheraspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications atrisk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiateand the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce ourintellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectualproperty that we develop or license.We have not yet registered some of our trademarks in all of our potential markets, and failure to secure those registrationscould adversely affect our business. If we apply to register our trademarks in all of our potential markets, our applications may not be allowed for registration,and our registered trademarks may not be maintained or enforced. In addition, in the U.S. Patent and Trademark Office and incomparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademarkapplications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against ourtrademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we mayencounter more difficulty in enforcing them against third parties than we otherwise would. 33 Table of Contents Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our existingand future products. Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of patent applications andthe enforcement or defense of issued patents. In 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signedinto law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affectthe way patent applications are prosecuted and also may affect patent litigation. These also include provisions that switched theUnited States from a “first-to-invent” system to a “first-to-file” system, allow third party submission of prior art to the USPTOduring patent prosecution and set forth additional procedures to attack the validity of a patent by the USPTO administered postgrant proceedings. Under a first-to-file system, assuming the other requirements for patentability are met, the first inventor to file apatent application generally will be entitled to the patent on an invention regardless of whether another inventor had made theinvention earlier. The USPTO developed new regulations and procedures to govern administration of the Leahy-Smith Act, andmany of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions,only became effective in 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation ofour business. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecutionof our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effecton our business, financial condition, results of operations and prospects. In addition, patent reform legislation may pass in the future that could lead to additional uncertainties and increased costssurrounding the prosecution, enforcement and defense of our patents and applications. Furthermore, the U.S. Supreme Court andthe U.S. Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws ofthe United States are interpreted. Similarly, foreign courts have made, and will likely continue to make, changes in how the patentlaws in their respective jurisdictions are interpreted. We cannot predict future changes in the interpretation of patent laws orchanges to patent laws that might be enacted into law by U.S. and foreign legislative bodies. Those changes may materially affectour patents or patent applications and our ability to obtain additional patent protection in the future. 34 Table of Contents Risks Related to Government Regulation We may never receive regulatory approval, including that from the FDA, for any of our planned products. We may never receive regulatory approvals, including from the FDA, for any potential therapies, devices or products in theUnited States or in any foreign market. For example, during September 2017, the FDA requested that we submit additional data inconnection with our application seeking clearance of our PulseTx System for soft tissue ablation. Subsequent to this FDA request,we chose to withdraw our application, so as to enable us to collect additional data and with the intent of submitting the data in asubsequent application. As such, it is highly speculative as to any timing for our planned products to be approved orcommercialized. Investors need to take a long-term approach to an investment in our securities, as the commercial realization ofour technology is speculative and well in the future.We will be subject to stringent domestic and foreign regulation in respect of any potential therapies, devices and products.Any unfavorable regulatory action may materially and adversely affect our future financial condition and business operationsand prospects. Our potential therapies, devices and products, further development activities and manufacturing and distribution, oncedeveloped and determined, will be subject to extensive, rigorous and ongoing regulation by numerous government agencies,including the FDA and similar foreign regulatory authorities. To varying degrees, each of these agencies monitors and enforces ourcompliance with laws and regulations governing the development, testing, manufacturing, labeling, marketing, distribution, andthe safety and effectiveness of our medical technology. The process of obtaining and maintaining marketing approval or clearancefrom the FDA and similar foreign regulatory authorities for new therapies, devices and products, or for enhancements, expansion ofthe indications or modifications to existing products, could:·take a significant, indeterminate amount of time;·require the expenditure of substantial resources;·involve rigorous pre-clinical and clinical testing, and possibly post-market surveillance;·involve modifications, repairs or replacements of our products;·require design changes of our products;·result in limitations on the indicated uses of our products; and·result in our never being granted the regulatory approval we seek. 35 Table of Contents If we experience any of these occurrences, our operations may suffer, we might experience harm to our competitive standingand result in further losses that adversely affect our financial condition. We will have ongoing responsibilities under FDA andinternational regulations, both before and after a product is approved and commercially released. Compliance with applicableregulatory requirements is subject to continual review and is monitored rigorously through periodic inspections. If an inspectionwere to conclude that we are not in compliance with applicable laws or regulations, or that any of our therapies or devices areineffective or pose an unreasonable health risk, the FDA or similar foreign regulatory authorities could ban such medical therapies,devices or products, detain or seize such devices or products, order a recall, repair, replacement, or refund of such devices orproducts, or require us to notify health professionals and others that the therapies, devices or products present unreasonable risks ofsubstantial harm to the public health. Additionally, the FDA or similar foreign regulatory authorities may impose other operatingrestrictions, enjoin and restrain certain violations of applicable law pertaining to therapies, devices and products and assess civil orcriminal penalties against our officers, employees, or us. The FDA and similar foreign regulatory authorities have been increasingits scrutiny of the industry and the government is expected to continue to scrutinize the industry closely with inspections andpossibly enforcement actions. Any adverse regulatory action, depending on its magnitude, may restrict us from effectivelymanufacturing, marketing and selling our therapies, devices and products. In addition, negative publicity and product liabilityclaims resulting from any adverse regulatory action could have a material adverse effect on our financial condition and results ofoperations.We will have to comply with complex statutes prohibiting fraud and abuse, and both we and physicians utilizing ourplanned products could be subject to significant penalties for noncompliance. There are many federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can resultin significant criminal and civil penalties. These federal laws include: the anti-kickback statutes which prohibit certain businesspractices and relationships, including the payment or receipt of remuneration for the referral of patients whose care will be paid byMedicare or other federal healthcare programs; the physician self-referral prohibition, commonly referred to as the Stark Law; theanti-inducement law, which prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce thatbeneficiary to use items or services covered by either program; the Civil False Claims Act, which prohibits any person fromknowingly presenting or causing to be presented false or fraudulent claims for payment by the federal government, including theMedicare and Medicaid programs and the Civil Monetary Penalties Law, which authorizes the imposition of civil penaltiesadministratively for fraudulent or abusive acts.Sanctions for violating these federal laws include criminal and civil penalties that range from punitive sanctions, damageassessments, money penalties, imprisonment, denial of Medicare and Medicaid payments, or exclusion from the Medicare andMedicaid programs, or both. As federal and state budget pressures continue, federal and state administrative agencies may alsocontinue to escalate investigation and enforcement efforts to root out waste and to control fraud and abuse in governmentalhealthcare programs. Private enforcement of healthcare fraud has also increased, due in large part to amendments to the Civil FalseClaims Act in 1986 that were designed to encourage private persons to sue on behalf of the government. A violation of any ofthese federal and state fraud and abuse laws and regulations could have a material adverse effect on our liquidity and financialcondition.To obtain the necessary device and marketing and manufacturing clearance or approval, as a pre-condition, we will haveto conduct various preclinical and clinical tests, which may be costly and time consuming, and may not provide results that willallow us to seek regulatory approval. The number of preclinical and clinical tests that will be required for regulatory clearance or approval varies depending onthe disease or condition to be treated, the method of treatment, the nature of the device, the jurisdiction in which we are seekingapproval and the applicable regulations. Regulatory agencies, including those in the United States, Canada, Europe and othercountries where medical devices and products are regulated, can delay, limit or deny approval of a product for many reasons. Forexample, regulatory agencies:·may not deem a therapy, technology or device to be safe or effective;·may interpret data from preclinical and clinical testing differently than we do;·may not approve our manufacturing processes;·may conclude that our device does not meet quality standards for durability, long-term reliability, biocompatibility,electromagnetic compatibility, or electrical safety; and 36 Table of Contents ·may change their approval policies or adopt new regulations.The FDA may make requests or suggestions regarding conduct of our clinical trials, resulting in an increased risk ofdifficulties or delays in obtaining regulatory approval in the US. As part of the process for regulatory approval, we may, from timeto time, elect to withdraw an application. For example, during September 2017, the FDA requested that we submit additional datain connection with our application seeking clearance of our PulseTx System for soft tissue ablation. Subsequent to this FDArequest, we chose to withdraw our application, so as to enable us to collect additional data and with the intent of submitting thedata in a subsequent application.Even if a potential device or product ultimately is cleared or approved by the different regulatory authorities, it may becleared or approved only for narrow indications which may render it commercially less viable. Even if a potential device or product of ours is cleared or approved, it may not be cleared or approved for the indications thatare necessary or desirable for a successful commercialization. Our preference will be to obtain as broad an indication as possible foruse in connection with the particular disease or treatment for which it is designed. However, the final classification may be morelimited than we originally seek. The limitation on use may make the device or product commercially less viable and more difficult,if not impractical, to market. Therefore, we may not obtain the revenues that we seek in respect of the proposed product, and wewill not be able to become profitable and provide an investment return to our investors.Even if we obtain clearance or approval to sell a potential product, we will be subject to ongoing requirements andinspections that could lead to the restriction, suspension or revocation of our clearance. We, as well as any potential collaborative partners such as manufacturers and distributors, will be required to adhere toapplicable FDA regulations regarding good manufacturing practice, which include testing, control, and documentationrequirements. We will be subject to similar regulations in foreign countries. Even if regulatory approval of a product is granted, theapproval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions ofapproval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of theproduct. Ongoing compliance with good manufacturing practice and other applicable regulatory requirements is strictly enforcedin the United States through periodic inspections by state and federal agencies, including the FDA, and in internationaljurisdictions by comparable agencies. Failure to comply with regulatory requirements could result in, among other things, warningletters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure to obtainpremarket clearance or premarket approval for devices, withdrawal of approvals previously obtained, and criminal prosecution.The restriction, suspension or revocation of regulatory approvals or any other failure to comply with regulatory requirements willlimit our ability to operate and could increase our costs.Any failure or delay in completing clinical trials or studies for our therapies, devices and products and the expense ofthose trials may adversely affect our business. Preclinical studies, clinical trials and post-clinical monitoring and trials required to demonstrate the safety and efficacy ofour potential devices and products are and will be time consuming and expensive. If we must conduct additional clinical trials orother studies with respect to any of our proposed product candidates to those that are initially contemplated, if we are unable tosuccessfully complete any clinical trials or other studies, or if the results of these trials or studies are not positive or are onlymodestly positive, we may be delayed in obtaining marketing approval for the planned products, we may not be able to obtainmarketing approval, or we may obtain approval for indications that are not as broad as we seek. Our research and productdevelopment costs also will increase if we experience delays in testing or approvals. The completion of clinical trials for ourproposed therapies, devices and products could be delayed because of our inability to manufacture or obtain from third-partiesmaterials sufficient for use in preclinical studies and clinical trials; delays in patient enrollment and variability in the number andtypes of patients available for clinical trials; difficulty in maintaining contact with patients after treatment, resulting in incompletedata; poor effectiveness of proposed devices and products during clinical trials; unforeseen safety issues or side effects; andgovernmental or regulatory delays and changes in regulatory requirements and guidelines. If we incur significant delays in ourclinical trials, our competitors may be able to bring their products to market before we do, which could result in harming ourability to commercialize our planned products. If we experience any of these occurrences our business will be materially harmed. 37 Table of Contents Because we and one of our licensors have used federal funding in the development of certain aspects of our technology, thefederal government retains ‘march-in’ rights in connection with results derived from these grants. March-in rights give the federal government the right to grant to other entities, which may include competitors, licenses or totake a license for itself if the government funded the development of a patent. The march-in right applies to patents that have beenissued. The march-in right is intended to be used only if there is a threat to public health and safety that the owner of the patent isnot equipped to handle. The march-in right may also be used to remove the exclusive rights belonging to a patent holder if thepatent for which the government provided funding is not suitable for public use. If march-in rights are used by the government, theentities using the patent are required to pay royalties to the patent holder, which amount would be subject to negotiation. Becausefederal funding was used for some aspects of the company’s technology that will be the subject of some of our patents, thecompany could be subject to the march-in right and lose its exclusivity of those patents, and may suffer direct competition if anylicense is granted by the government under the march-in right to a competitor.Our employees, collaborators and other personnel may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading. We are exposed to the risk of fraud or other misconduct by our employees, collaborators, vendors, principal investigators,consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with theregulations of the FDA and similar foreign regulatory authorities, provide accurate information to the FDA and similar foreignregulatory authorities, comply with data privacy and security and healthcare fraud and abuse laws and regulations in the UnitedStates and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales,marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to preventfraud, misconduct, kickbacks, self-dealing and other abusive practices. Additionally, laws regarding data privacy and security,including HIPAA, as amended by HITECH, as well as comparable laws in non-U.S. jurisdictions, may impose obligations withrespect to safeguarding the privacy, use, security and transmission of individually identifiable health information such as geneticmaterial.Various laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, salescommission, customer incentive programs and other business arrangements. Any misconduct could also involve the improper useof information obtained in the course of clinical trials, which could result in regulatory sanctions and cause harm to our reputation.We adopted a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employeemisconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown orunmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from afailure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful indefending ourselves or asserting our rights, those actions could have a significant impact on our business, including theimposition of significant fines or other sanctions. 38 Table of Contents Risks Related to Owning Our Common Stock The price of our common stock has been, and we expect it to continue to be, highly volatile, and you may be unable to sellyour shares at or above the price you paid to acquire them. The market price of our common stock has been highly volatile, and we expect it to continue to be highly volatile for theforeseeable future in response to many risk factors listed in this section, and others beyond our control, including:·results of clinical trials of our planned products or those of our competitors;·actions by regulatory bodies, such as the FDA, that have the effect of delaying or rejecting approvals of our plannedproducts;·actual or anticipated fluctuations in our financial condition and operating results;·announcements by our customers, partners or suppliers relating directly or indirectly to our products, services ortechnologies;·announcements of technological innovations by us or our competitors;·overall conditions in our industry and market;·changes in laws or regulations applicable to our planned products;·announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, capitalcommitments or achievement of significant milestones;·additions or departures of key personnel;·competition from existing products or new products that may emerge;·fluctuations in the valuation of companies perceived by investors to be comparable to us;·disputes or other developments related to proprietary rights, including patents, litigation matters or our ability toobtain intellectual property protection for our technologies;·announcements or expectations of additional financing efforts;·sales of our common stock by us or our stockholders;·stock price and volume fluctuations attributable to inconsistent trading volume levels of our shares;·reports, guidance and ratings issued by securities or industry analysts; and·general economic and market conditions.If any of the foregoing occurs, it may cause our stock price or trading volume to decline. Stock markets in general, and themarket for companies in our industry in particular have experienced price and volume fluctuations that have affected and continueto affect the market prices of equity securities of many companies. These fluctuations often have been unrelated ordisproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well asgeneral economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations,may negatively impact the market price of our common stock. Investors may not realize any return on their investment in us andmay lose some or all of their investment. In the past, companies that have experienced volatility in the market price of their stockhave been subject to securities class action litigation. Securities litigation against us could result in substantial costs and divertour management’s attention from other business concerns, which could seriously harm our business. 39 Table of Contents Sales or purchases of shares of our common stock may adversely affect the market for our common stock. If we or our stockholders, particularly our directors, executive officers and significant stockholders, sell or purchase, registerfor sale, or indicate an intent to sell or purchase, shares of our common stock in the public market, it may have a material adverseeffect on the market price of our common stock.We maintain a shelf registration statement on Form S-3 pursuant to which we may, from time to time, sell up to an aggregateof $150.0 million of our common stock, preferred stock, depositary shares, warrants, debt securities or units. We may also issueshares of common stock or securities convertible into or exercisable for our common stock from time to time in connection withfinancings, acquisitions, investments or otherwise. Any such issuances would result in dilution to our existing stockholders andcould cause our stock price to fall. We do not know whether an active, liquid and orderly trading market will be maintained for our common stock and as aresult it may be difficult for you to sell your common stock. Prior to our initial public offering in May 2016, there was no public market for our common stock. Although our commonstock is listed on The Nasdaq Capital Market, the market for our shares has demonstrated varying levels of trading activity. As aresult of these and other factors, you may not be able to sell your common stock quickly or at or above the price paid to acquire thestock or at all. Further, an inactive market may also harm our ability to raise capital by selling additional common stock and mayharm our ability to enter into strategic collaborations or acquire companies or products by using our common stock asconsideration.Concentration of ownership by our principal stockholders may limit your ability to influence the outcome of directorelections and other transactions requiring stockholder approval. A significant percentage of our outstanding stock is held by a limited number of investors, including Robert W. Duggan. Mr.Duggan, who was appointed Chairman of the Board effective November 2, 2017, beneficially owns approximately 35% of ouroutstanding common stock. As a result, such persons will have significant influence over corporate actions requiring stockholderapproval, including the following actions: ·to elect or defeat the election of our directors;·to amend or prevent amendment of our articles of incorporation or bylaws;·to effect or prevent a merger, sale of assets or other corporate transaction; and·to control the outcome of any other matter submitted to our stockholders for vote.Such persons’ stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting toobtain control of our company, which in turn could reduce our stock price or prevent our stockholders from realizing a premiumover our stock price.Management currently beneficially holds a small percentage of our common stock. Other than their positions as directors orofficers, and the restriction on the stockholders being able to call a special meeting limited to holders of 10% or more of theoutstanding shares of common stock, our management will not be able to greatly influence corporate actions requiring stockholderapproval.Robert W. Duggan’s significant ownership position may deter or prevent efforts by other companies to acquire us, whichcould prevent our stockholders from realizing a control premium. Robert W. Duggan, who was appointed Chairman of the Board effective November 2, 2017, beneficially owns approximately35% of our outstanding common stock. As a result of Robert W. Duggan’s significant ownership and position as Chairman of theBoard, other companies may be less inclined to pursue an acquisition of us and therefore we may not have the opportunity to beacquired in a transaction that stockholders might otherwise deem favorable, including transactions in which our stockholdersmight realize a substantial premium for their shares. 40 Table of Contents Robert W. Duggan could sell or transfer a substantial number of shares of our common stock, which could depress theprice of our securities or result in a change in control of our company. Robert W. Duggan is not subject to any contractual restrictions with us on his ability to sell or transfer our common stock onthe open market, in privately negotiated transactions or otherwise, and these sales or transfers could create substantial declines inthe price of our securities or, if these sales or transfers were made to a single buyer or group of buyers, could contribute to a transferof control of our company to a third party. Sales by Robert W. Duggan of a substantial number of shares, or the expectation of suchsales, could cause a significant reduction in the market price of our common stock.Four of our directors resigned in November 2017 and we added four new directors to our board of directors at such time,which may lead to changes in our operations.Four new directors were elected to our board of directors, and four existing directors resigned from our board of directors, onNovember 2, 2017. One of the new directors, Robert W. Duggan, who was appointed Chairman of the Board, beneficially ownsapproximately 35% of our outstanding common stock. Because of these recent additions and resignations, our board of directorshas not worked together as a group for an extended period of time. This change in the composition of our board of directors maylead to changes in our operations as these new directors analyze our business and contribute to the formulation of businessstrategies and objectives. Our operating results could be adversely affected as we adjust to new business strategies and objectives.We have incurred and will continue to incur costs as a result of operating as a public company and our management hasbeen and will be required to devote substantial time to public company compliance initiatives. As a public company, listed in the United States, we have incurred and will continue to incur significant legal, accountingand other expenses due to our compliance with regulations and disclosure obligations applicable to us, including compliance withthe Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules implemented by the SEC and the NASDAQ. The SECand other regulators have continued to adopt new rules and regulations and make additional changes to existing regulations thatrequire our compliance.Stockholder activism, the current political environment, and the current high level of government intervention andregulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliancecosts and impact, in ways we cannot currently anticipate, the manner in which we operate our business. Our management and otherpersonnel have and will continue to devote a substantial amount of time to these compliance programs and monitoring of publiccompany reporting obligations and, as a result of the new corporate governance and executive compensation related rules,regulations, and guidelines prompted by the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, andfurther regulations and disclosure obligations expected in the future, we will likely need to devote additional time and costs tocomply with such compliance programs and rules. New laws and regulations as well as changes to existing laws and regulationsaffecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act, and rules adoptedby the SEC and NASDAQ, will likely result in increased costs to us as we respond to their requirements. We are currentlyevaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate the amountof additional costs we may incur or the timing of such costs.Furthermore, these and future rules and regulations could make it more difficult or more costly for us to obtain certain typesof insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverageor incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make itmore difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as ourexecutive officers. We are an “emerging growth company” under the JOBS Act of 2012 and we cannot be certain if the reduced disclosurerequirements applicable to emerging growth companies will make our common stock less attractive to investors.We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, andwe may take advantage of certain exemptions from various reporting requirements that are applicable to other public companiesthat are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestationrequirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in ourperiodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executivecompensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict ifinvestors will find our common stock less attractive because we may rely on these 41 Table of Contents exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for ourcommon stock and our stock price may be more volatile.We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our revenuesexceed $1.07 billion, if we issue more than $1.0 billion in non-convertible debt in a three-year period, or if the market value of ourcommon stock that is held by non-affiliates exceeds $700 million as of any June 30.Because of the exemptions from various reporting requirements provided to us as an “emerging growth company,” we maybe less attractive to investors as an investment opportunity and it may be difficult for us to raise additional capital as and when weneed it. Investors may be unable to compare our business with other companies in our industry if they believe that our reporting isnot as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, ourfinancial condition and results of operations may be materially and adversely affected.If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business,our market price and trading volume could decline.The trading market for our common stock will depend on the research and reports that securities or industry analysts publishabout us or our business. We do not have any control over these analysts. We currently have no analysts covering us and there canbe no assurance that analysts will cover us or provide favorable coverage. If one or more of the analysts who cover us downgradeour stock or change their opinion of our stock, our market price would likely decline. If one or more of these analysts ceasecoverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which couldcause our share price or trading volume to decline.We have not paid dividends in the past and have no plans to pay dividends.We plan to reinvest all of our earnings, to the extent we have earnings, into our product research and development. We donot plan to pay any cash dividends with respect to our securities in the foreseeable future. We cannot assure you that we would, atany time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as adividend. Therefore, you should not expect to receive cash dividends on our outstanding common stock.Our charter documents and Nevada law may inhibit a takeover that stockholders consider favorable.Provisions of our articles of incorporation and bylaws and applicable provisions of Nevada law may delay or discouragetransactions involving an actual or potential change in control or change in our management, including transactions in whichstockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to bein their best interests. Some of the following provisions in our articles and bylaws that implement these are:·5,000,000 shares of “blank check” preferred stock, which may be issued at the discretion of the board of directors,without further approval of the stockholders;·stockholders may not vote by written consent;·special meetings require a member of the board of directors or a 10% or greater stockholder to call;·advance notice provisions for director nominations, or other business to be brought, by a stockholder at a meeting ofthe Company’s stockholders;·no cumulative voting rights for the holders of common stock in the election of directors; and·vacancies in the board of directors may be filled by the affirmative vote of a majority of directors then in office, even ifless than a quorum.These provisions may have the effect of entrenching our board of directors and management team or make it more difficultfor stockholders to take other corporate actions, and may deprive you of the opportunity to sell your shares to potential acquirersat a premium over prevailing prices. 42 Table of Contents Item 1B. Unresolved Staff Comments None. Item 2. PropertiesWe lease approximately 15,700 square feet of premises located in Hayward, California, which is used for our corporateheadquarters and principal operating facility. The term of this lease is sixty-two (62) months and commenced on July 1, 2017. Wehave the right to extend this lease for five years upon written notice not more than twelve months nor less than nine months priorto the expiration of the original lease term.We believe that our existing facilities will be sufficient to meet our needs in the foreseeable future. Item 3. Legal Proceedings.We and certain of our directors have received subpoenas from the Securities and Exchange Commission requestingdocuments and other information in connection with an investigation into trading in our stock in advance of our September 2017announcement of the stock purchase agreement executed between us and Robert Duggan. We are cooperating with theinvestigation. We cannot provide any assurance as to the outcome of the investigation or that such outcome will not have amaterial adverse effect on our reputation, business, prospects, results of operations, or financial condition.From time to time, we may be involved in a variety of claims, lawsuits, investigations and proceedings relating to securitieslaws, product liability, patent infringement, contract disputes and other matters relating to various claims that arise in the normalcourse of our business in addition to governmental and other regulatory investigations and proceedings. In addition, third partiesmay, from time to time, assert claims against us in the form of letters and other communications. We currently believe that theseordinary course matters will not have a material adverse effect on our business; however, the results of litigation and claims areinherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us because of defense andsettlement costs, diversion of management resources and other factors. Item 4. Mine Safety DisclosuresNot applicable. 43 Table of Contents Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock is listed on The Nasdaq Capital Market and has been traded under the symbol “PLSE” since May 18,2016. Prior to that date, there was no established public trading market for our common stock. As a result, we have set forthquarterly information with respect to the high and low prices for our common stock starting with the second quarter of 2016. Thefollowing table sets forth the range of high and low closing sales prices per share for our common stock as reported on theNASDAQ from May 18, 2016 through December 31, 2017:2016HighLow2nd Quarter$4.54 $4.08 3rd Quarter$6.43 $4.40 4th Quarter$6.50 $5.21 2017HighLow1st Quarter$33.45 $5.96 2nd Quarter$37.60 $17.61 3rd Quarter$33.58 $10.26 4th Quarter$30.33 $18.81 Holders of RecordAs of February 28, 2018, there were approximately 37 stockholders of record of our common stock. We believe the actualnumber of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners, butwhose shares are held in “street” name by brokers and other nominees. This number of holders of record also does not includestockholders whose shares may be held in trust by other entities. Dividend PolicyWe have never declared or paid any cash dividend on our common stock and have no present plans to do so. We intend toretain earnings for use in the operation and expansion of our business. Sales of Unregistered SecuritiesPrivate Placements On February 7, 2017, we entered into a securities purchase agreement with Robert W. Duggan and MakyZanganeh (the “Investors”), pursuant to which we agreed to issue and sell to the Investors an aggregate of 819,673 shares ofour common stock at a price per share of $6.10, for net proceeds of approximately $5.0 million.On September 24, 2017, we entered into a securities purchase agreement with Robert W. Duggan, pursuant to which weagreed to issue and sell to Robert W. Duggan an aggregate of 2,000,000 shares of our common stock at a price per share of$15.02, for net proceeds of approximately $29.9 million (collectively with the sale of shares to the Investors on February 7,2017, the “Private Placements”). Pursuant to these Private Placements we sold shares of our common stock to “accredited investors,” as that term isdefined in the Securities Act of 1933, in reliance on the exemption from registration afforded by Section 4(a)(2) of theSecurities Act and Rule 506 of Regulation D promulgated under the Securities Act and corresponding provisions of statesecurities or “blue sky” laws. The investors represented that they were acquiring the shares of our common stock forinvestment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof.Pursuant to each purchase agreement, we agreed to file registration statements to cover the resale of such 44 Table of Contents shares of common stock and to keep such registration statement effective until the date on which all of the shares of ourcommon stock are either sold pursuant to the registration statement or can be sold publicly without restriction or limitationunder Rule 144 under the Securities Act of 1933. On June 30, 2017, we filed a registration statement on Form S-3 coveringthe resale of the shares of our common stock in satisfaction of such requirement with respect to the February PrivatePlacement. With respect to the September Private Placement, we plan to prepare and file with the Securities and ExchangeCommission a registration statement to register for resale of the shares during 2018. 45 Table of Contents Performance GraphThe performance graph included in this Annual Report on Form 10-K shall not be deemed “filed” for purposes of Section 18of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing of PulseBiosciences, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth byspecific reference in such filing.The following graph shows a comparison from May 18, 2016 (the date our common stock commenced trading on the NasdaqCapital Market through December 31, 2017 of the cumulative total return for our common stock, the Nasdaq Composite Index andthe Nasdaq Biotechnology Index. Such returns are based on historical results and are not intended to suggest future performance.Data for The Nasdaq Composite Index and the Nasdaq Biotechnology Index assume reinvestment of dividends. 46 Table of Contents Item 6. Selected Financial Data The following selected consolidated balance sheets as of December 31, 2017, 2016, 2015 and 2014, and the relatedconsolidated statements of operations data for the year ended December 31, 2017, 2016 and 2015, and the consolidated balancesheet data as of December 31, 2017 and 2016, are derived from, and qualified by reference to, our audited consolidated financialstatements included elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations data for the periodfrom May 19, 2014 (inception) through December 31, 2014 and selected consolidated balance sheet data as of December 31, 2015and 2014 are derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K. Ourhistorical results are not necessarily indicative of the results to be expected for any future period. The following selected financialdata should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.During the years ended December 31, 2016 and 2015, patent legal costs of $0.5 million and $0.4 million, respectively, werereclassified from research and development costs to general and administrative costs. These changes did not impact loss fromoperations or net loss. These reclassifications are reflected in the table below. May 19, 2014 (inception) through Year Ended December 31, December 31,(in thousands, except per share amounts) 2017 2016 2015 2014Revenue $ — $ — $ — $ —Operating expenses: General and administrative 15,503 3,415 1,621 43 Research and development 9,646 5,506 2,181 26 Amortization of intangible assets 665 665 666 111 Costs of business acquisitions — — — 120 Total operating expenses 25,814 9,586 4,468 300 Other income: Interest income 247 68 — —Total other income 247 68 — —Loss from operations, before income taxes (25,567) (9,518) (4,468) (300)Income tax benefit — — (1,657) (23)Net loss $(25,567) $(9,518) $(2,811) $(277) Net loss per share: Basic and diluted net loss per share $(1.73) $(0.86) $(0.37) $(0.11)Weighted average shares used to compute net loss per commonshare — basic and diluted 14,754 11,009 7,565 2,511 As of December 31, 2017 2016 2015 2014Cash, cash equivalents and investments $38,069 $16,395 $3,606 $7,009 Working capital 36,268 15,647 3,337 6,866 Total assets 49,821 26,314 14,325 17,896 Total liabilities 3,826 1,016 660 1,821 Total stockholders' equity 45,995 25,298 13,665 16,074 47 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion and analysis of our financial condition and results of operations together with ourconsolidated financial statements and the related notes thereto included in Item 8 under the heading “Financial Statements andSupplementary Data”. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Kcontains forward-looking statements that involve risks and uncertainties, including statements regarding our expected financialresults in future periods. The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,”“plans,” “projects,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although notall forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectationsdisclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actualresults or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statementsthat we make. You should read the “Risk Factors” section of this Form 10-K for a discussion of important factors that could causeactual results to differ materially from the results described in or implied by the forward-looking statements contained in thefollowing discussion and analysis. We do not assume any obligation to update any forward-looking statements.OverviewWe are a medical technology company developing a non-thermal tissue treatment platform technology based upon ourproprietary Nano-Pulse Stimulation (NPS) technology and pursuing applications in oncology, dermatology, general tissuetreatment and veterinary medicine. NPS is a novel patented technology which leverages nano-second duration energy pulses thathave demonstrated effective local tumor control and the initiation of an adaptive immune response in pre-clinical studies. Webelieve NPS has the potential to compare favorably with current therapies and treatments in a variety of clinical applications. Weare currently conducting research and development activities in pursuit of commercial applications for our NPS technology, butwe have not yet commercialized or recognized revenue from our technology.Plan of OperationWe plan to establish ourselves as a medical technology company with a local, non-thermal, and drug-free treatment platformthat initiates cell death in targeted tissue by a process of cell signaling and also induces a systemic adaptive immune response tothe targeted tissue. In order to accomplish this, we plan to:·Improve our technology by continuing our research and product development efforts. We expect to developinterchangeable tissue applicators to target different tissue types that will leverage the novel characteristics of ourtechnology platform.·Further explore and understand the benefits of NPS with the objectives of broadening the currently planned cosmeticand therapeutic applications and identifying new applications. We anticipate that results of our clinical studies willenable us to recognize certain unmet medical needs that may be addressed by our technology.·Continue to protect and expand our intellectual property portfolio with respect to NPS technology, which we expectwill increase our ability to deter competitors and position our company for favorable licensing and partneringopportunities.·Partner with medical or biomedical device companies for certain applications which we anticipate may accelerateproduct development and acceptance into target market areas and allow us to gain the sales and marketing advantagesof the distribution infrastructure.Critical Accounting Policies and Use of EstimatesThe following discussion and analysis of financial condition and results of operations is based upon our consolidatedfinancial statements, which have been prepared in conformity with accounting principles generally accepted in the United Statesof America. Certain accounting policies and estimates are particularly important to the understanding of our financial position andresults of operations and require the application of significant judgment by management or can be materially affected by changesfrom period to period in economic factors or conditions that are outside of the company’s control. As a result, these issues aresubject to an inherent degree of uncertainty. In applying these policies, management uses its judgment to determine theappropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historicaloperations, future business plans and the projected financial results, the terms of existing contracts, trends in the industry andinformation available from other outside sources. 48 Table of Contents Long-Lived AssetsWe review long-lived assets, consisting of property and equipment and intangible assets, for impairment at each fiscal yearend or when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values.Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimatedundiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimatedfuture cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fairvalue of the assets. Assets to be disposed of are separately presented in the consolidated balance sheet and reported at the lower ofthe carrying amount or fair value less costs to sell, and are no longer depreciated.GoodwillWe record goodwill when the consideration paid in a business acquisition exceeds the fair value of the net tangible assetsand the identified intangible assets acquired. We review goodwill for impairment at least annually or whenever changes incircumstances indicate that the carrying value of the goodwill may not be recoverable.Stock-Based CompensationWe periodically issue stock options to officers, directors, employees and consultants for services rendered. Such issuancesvest and expire according to terms established at the issuance date. Stock-based payments to officers, directors and employees,including grants of employee stock options, are recognized in the financial statements based on their fair values. Stock optiongrants, which are generally time vested, are measured at the grant date fair value and charged to operations on a straight-line basisover the vesting period. We estimate the grant date fair value of stock options, using the Black-Scholes option-pricing model on astraight-line basis over the requisite service period of the award.The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value ofstock-based awards. The assumptions used in our option-pricing model represent management’s best estimates. These estimates arecomplex, involve a number of variables, uncertainties and assumptions and the application of management’s judgment, so thatthey are inherently subjective. If factors change and different assumptions are used, our stock-based compensation expense couldbe materially different in the future. These assumptions are estimated as follows:Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes valuation model on the implied yieldbased on the U.S. Treasury yield curve in effect at the time of grant.Expected Term. The expected term represents the period that our stock-based awards are expected to be outstanding.Because of the limitations on the sale or transfer of our common stock as a privately held company before our IPO, we did notbelieve our historical exercise pattern was indicative of the pattern we would experience as a publicly traded company post IPO.We have consequently used the Staff Accounting Bulletin No. 110 (“SAB 110”) simplified method to calculate expected term,which is the average of the contractual term and vesting period. We plan to continue using the SAB 110 simplified method untilwe have sufficient trading history as a publicly traded company.Volatility. We determine the price volatility factor based on the historical volatilities of comparable public companies in asimilar industry. We intend to continue to consistently apply this process using the same or similar public companies until asufficient amount of historical information regarding the volatility of our own common stock share price becomes available, orunless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companieswhose share prices are publicly available would be utilized in the calculation.Dividend Yield. The expected dividend assumption is based on our current expectations about our anticipated dividendpolicy. We currently do not expect to issue any dividends.In addition to assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate tocalculate stock-based compensation for our awards. We will continue to use judgment in evaluating the assumptions related to ourstock-based compensation on a prospective basis. As we continue to accumulate additional data, we may have refinements to ourestimates, which could materially impact our future stock-based compensation expense.Income TaxesWe account for income taxes using the asset and liability method, whereby deferred tax assets and liability account balancesare determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured usingthe enacted rates and laws that will be in effect when the differences are expected to reverse. 49 Table of Contents We provide a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. Ifwe determine that we would be able to realize deferred tax assets in the future in excess of the recorded amount, an adjustment tothe deferred tax assets would be credited to operations in the period such determination was made. Likewise, should we determinethat we would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets wouldbe charged to operations in the period such determination was made.We account for uncertainties in income tax law under a comprehensive model for the financial statement recognition,measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns asprescribed by FASB Accounting Standards Codification (“ASC”) 740-10, “Accounting for Uncertainty in Income Taxes.” The taxeffects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reportingdate. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized. We are subject to U.S. federal income taxes and income taxes in California. As our net operating losses have yet to beutilized, previous tax years remain open to examination by federal authorities and other jurisdictions in which we currentlyoperate or have operated in the past. We are not currently under examination by any tax authority.During 2015, operating losses incurred resulted in the realization of deferred tax assets that exceeded deferred tax liabilities.The tax benefit recorded during 2015 reflects the benefit resulting from the deferred tax assets, partially offset by the net differencebetween the deferred tax liabilities and the valuation allowance recorded. The effect of this treatment in 2015 resulted in therealization of a $1.7 million tax benefit and the elimination of the deferred tax liabilities.Segment and Geographical InformationWe operate and manage our business as one reportable and operating segment. Our Chief Executive Officer, who is the chiefoperating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluatingfinancial performance. Primarily all of our long-lived assets are based in the United States.Components of Results of OperationsOperating ExpensesWe generally recognize operating expenses as they are incurred in two general categories, general and administrative costsand research and development costs, as well as non-cash amortization of intangible assets. Our operating expenses also includenon-cash components related to depreciation and amortization of property and equipment and stock-based compensation costs,which are allocated, as appropriate, to general and administrative costs and research and development costs.·General and administrative expenses consist of salaries and related expenses for executive, finance, legal, humanresources, information technology and administrative personnel, professional fees, patent filing fees and costs,insurance costs and other general corporate expenses. We expect general and administrative expenses to increase in thefuture as we hire personnel and incur additional costs to support the expansion of our research and developmentactivities and our operation as a public company, including higher legal, accounting, insurance, compliance,compensation and other costs.·Research and development expenses consist of salaries and related expenses and consulting costs related to the design,development and enhancement of our potential future products, prototypes material and devices, including rent. Weexpect research and development costs to increase in the future as we conduct clinical trials, develop next generationPulseTxTM systems and pursue commercial applications of our NPS technology.ReclassificationDuring the years ended December 31, 2016 and 2015, patent legal costs of $0.5 million and $0.4 million, respectively, werereclassified from research and development costs to general and administrative costs. These changes did not impact loss fromoperations or net loss. These reclassifications have been reflected in tables and discussion in the Results of Operations sectionbelow. 50 Table of Contents Results of OperationsComparison of the Years ended December 31, 2017 and 2016Our consolidated statements of operations as discussed herein are presented below: Year Ended December 31, (in thousands) 2017 2016 $ ChangeRevenue $ — $ — $ —Operating expenses: General and administrative 15,503 3,415 12,088 Research and development 9,646 5,506 4,140 Amortization of intangible assets 665 665 —Total operating expenses 25,814 9,586 16,228 Other income: Interest income 247 68 179 Total other income 247 68 179 Loss from operations, before income taxes (25,567) (9,518) 16,049 Income tax benefit — — —Net loss $(25,567) $ (9,518) $16,049 General and AdministrativeGeneral and administrative expenses increased by $12,088,000 to $15,503,000 in 2017 from $3,415,000 in 2016 dueprimarily to $8,462,000 of increased stock-based compensation expense, $1,931,000 of increased professional and consultingcosts, $949,000 of increased compensation costs, $215,000 of increased insurance costs, $152,000 of increased office suppliescosts, $103,000 of increased travel expenses and $69,000 of increased depreciation and amortization expense. Stock-basedcompensation increased principally due to the higher Black-Scholes values and grant date intrinsic value ascribed to options andrestricted stock units, respectively, granted during 2017 and due to the acceleration of former board of director stock options.Headcount increases during 2017 also contributed to increased stock-based compensation as well as compensation costs morebroadly. Professional, consulting and insurance costs increased primarily as a result of increased costs incurred due to operationsand reporting obligations as a public company, and increased legal costs related to our intellectual property. The increase in officesupplies costs was due to the Company’s move to new office space in the third quarter of 2017. Travel expenses increased as aresult in the increase in clinical trials being conducted in 2017. Depreciation and amortization expense increased due to increasedleasehold improvements purchased and installed in the Hayward Facility around mid-2017. General and administrative expensesare expected to increase substantially during 2018 to support the increased level of clinical and development activities, inaddition to increased operational compliance activities. Research and DevelopmentResearch and development expenses increased by $4,140,000 to $9,646,000 in 2017 from $5,506,000 in 2016 due primarilyto $1,594,000 of increased stock-based compensation expense, $1,151,000 of increased compensation costs, $883,000 ofincreased clinical trial expense, $288,000 of increased consulting and outside services costs, $184,000 of increased depreciationand amortization expense and $75,000 of increased lab supplies, partially offset by $144,000 of decreased sponsored researchexpenses. Stock-based compensation increased principally due to the higher Black-Scholes values and grant date intrinsic valueascribed to options and restricted stock units, respectively, granted during 2017. Compensation costs increased as a result ofheadcount increases. Clinical trial costs increased due to the Company’s clinical study of NPS for the treatment of seborrheickeratosis that was initiated and conducted during 2017. Consulting and outside services and lab supplies increased due toincreased product development activities, including those around the 510(k) submission to the FDA. Depreciation andamortization expense increased due to increased leasehold improvements purchased and installed in the Hayward Facility aroundmid-2017. Sponsored research expenses decreased mainly due to the timing of sponsored research activities conducted by OldDominion University Research Foundation (“ODURF”) during 2017 compared to 2016. Research and development expenses areexpected to continue to increase substantially during 2018 as we expand our clinical study activities by initiating additionalstudies, continue development and enhancement of our PulseTx System in preparation for additional clinical trials andcommercialization, and pursue regulatory clearance for our technology. 51 Table of Contents Interest IncomeInterest income increased by $179,000 to $247,000 in 2017 from $68,000 due primarily to the increased interest incomeearned on higher cash equivalent and investment balances as a result of the proceeds received from the private placements closedduring 2017.Comparison of the Years ended December 31, 2016 and 2015Our consolidated statements of operations as discussed herein are presented below: Year Ended December 31, (in thousands) 2016 2015 $ ChangeRevenue $ — $ — $ —Operating expenses: General and administrative 3,415 1,621 1,794 Research and development 5,506 2,181 3,325 Amortization of intangible assets 665 666 (1)Total operating expenses 9,586 4,468 5,118 Other income: Interest income 68 — 68 Total other income 68 — 68 Loss from operations, before income taxes (9,518) (4,468) 5,050 Income tax benefit — (1,657) (1,657)Net loss $(9,518) $ (2,811) $6,707 General and AdministrativeGeneral and administrative expenses increased by $1,794,000 to $3,415,000 in 2016, from $1,621,000 in 2015. The increasewas due primarily to $908,000 of increased compensation costs, $277,000 of increased stock-based compensation expense,$219,000 of increased insurance costs, $151,000 of increased professional and consulting services, $84,000 of increasedintellectual property-related legal costs, $58,000 of increased travel costs and $62,000 of increased supplies. Compensation,including stock-based compensation costs, increased due to increased headcount. Insurance, professional and consulting services,travel costs and supplies increased primarily as a result of fees incurred in preparation for and operating as a public company.Intellectual property-related legal costs increased as a result of ongoing research and development.Research and DevelopmentResearch and development expenses increased by $3,325,000 to $5,506,000 in 2016, from $2,181,000 in 2015. The increasewas due primarily to $1,194,000 of increased consulting and outside services, $1,157,000 of increased prototype and developmentsupplies, $813,000 of increased compensation costs, $192,000 of increased stock-based compensation expense and $67,000 ofincreased facility costs, partially offset by $123,000 of decreased sponsored research expenses. Consultant and outside servicesand prototype and development supplies increased due to increased product development activities and the costs associated withmanufacturing pre-production prototypes. Compensation, including stock-based compensation costs, increased due to increasedheadcount. Facility costs increased as we expanded our research facility to support increased research and development activitiesduring 2016 compared to the prior year. Sponsored research expenses decreased primarily due to higher grant funding provided in2015 compared to 2016 related to the sponsored research agreement entered into with Old Dominion University ResearchFoundation (“ODURF”).Income Tax BenefitWe recognized an income tax benefit of $1,657,000 in 2015, due primarily to income tax benefit realized from deferred taxassets stemming from the net operating losses generated during 2015, net of the deferred tax liabilities as of December 31, 2015. 52 Table of Contents Liquidity and Capital ResourcesTo date, we have not generated any revenues from product sales, and management does not expect to generate revenues fromproduct sales for the next few years. Since inception, we have funded our business plan through the issuance of equity securitiesand grants from governmental agencies. Over the next few years, we intend to invest in research and development to developcommercially viable products and to assess the feasibility of potential future products. Additionally, we expect that our generaland administrative expenses will increase as we continue to incur substantial incremental costs associated with being a publiccompany.In May and June 2016, we completed our IPO from which we received total net proceeds of $20.3 million, includingproceeds from the exercise of the overallotment option granted to the underwriters, net of underwriting discounts and commissionsand other offering costs.In February 2017, we entered into a securities purchase agreement with Robert W. Duggan and Maky Zanganeh (the“Investors”), pursuant to which we, in this private placement, agreed to issue and sell to the Investors an aggregate of 819,673shares of our common stock at a price per share of $6.10 (the “Shares”) for net proceeds of approximately $5 million (the “PrivatePlacement”).In September 2017, we entered into a securities purchase agreement with Robert W. Duggan, a significant stockholder of ourcompany and Chairman of the Board effective November 2, 2017, pursuant to which we issued and sold to Robert W. Duggan anaggregate of 2,000,000 shares our common stock at a price per share of $15.02 for net proceeds of approximately $29.9 million. Atthe time of the transaction, Mr. Duggan owned approximately 27% of our then outstanding securities, and approximately 35% ofour outstanding common stock as of December 31, 2017.Our consolidated statements of cash flows as discussed herein are presented below: Year Ended December 31,(in thousands) 2017 2016 2015Net cash used in operating activities $(11,087) $(8,051) $(3,317)Net cash used in investing activities $(22,998) $(14,381) $(86)Net cash provided by financing activities $35,382 $20,915 $ —Net increase (decrease) in cash $1,297 $(1,517) $(3,403)At December 31, 2017, we had cash, cash equivalents and investments of $38.1 million. We believe that our existing cash,cash equivalents and investments will be sufficient to fund our projected operating requirements for at least the next 12 monthsfrom the filing date of our Form 10-K for the fiscal year ended December 31, 2017; however, we plan to raise additional capital inthe future. These expectations are based on our current operating and financing plans which are subject to change. Until we areable to generate sustainable product revenues at profitable levels, we expect to finance our future cash needs through public orprivate equity offerings, debt financings or corporate collaboration and licensing arrangements. Such additional funds may not beavailable on terms acceptable to us or at all, particularly in light of recent market conditions. If we raise funds by issuing equity orequity-linked securities, the ownership of our stockholders will be diluted and the holders of new equity securities may havepriority rights over our existing stockholders. If adequate funds are not available, we may be required to curtail operationssignificantly or to obtain funds by entering into agreements on unattractive terms. Our inability to raise capital could have amaterial adverse effect on our business, financial condition and results of operations.Operating ActivitiesDuring 2017, we used cash of $11.1 million in operating activities. The difference between cash used in operating activitiesand net loss consisted primarily of stock-based compensation, landlord incentives received for leasehold improvements,depreciation and amortization, increased accounts payable and accrued expenses, partially offset by increased prepaid expensesand other current and non-current assets and decreased deferred rent.During 2016, we used cash of $8.1 million in operating activities. The difference between cash used in operating activitiesand net loss consisted primarily of stock-based compensation and depreciation and amortization, increased accrued expenses,partially offset by increased prepaid expenses and other current assets and deferred offering costs.During 2015, we used cash of $3.3 million in operating activities. The difference between cash used in operating activitiesand net loss consisted primarily of depreciation and amortization and stock-based compensation, and changes in deferred incometaxes. 53 Table of Contents Investing ActivitiesDuring 2017, we used cash of $23.0 million for investing activities for the purchase of available-for-sale securities, leaseholdimprovements and equipment.During 2016, we used cash of $14.4 million for investing activities for the purchase of available-for-sale securities and officeand laboratory equipment.During 2015, we used cash of $86,000 for investing activities for the purchase of office and laboratory equipment.Financing ActivitiesDuring 2017, cash provided from financing activities was $35.4 million due to the net proceeds received from our privateplacements and the issuance of common stock from the exercise of stock options and warrants.During 2016, cash provided from financing activities was $20.9 million due to the net proceeds received from our IPO, afterdeducting underwriting discounts and commissions and other offering costs. During 2015, we did not have any cash flows from financing activities.Contractual ObligationsFrank Reidy Research Center AgreementAs provided for in the license agreement with ODURF and Eastern Virginia Medical School, effective on November 6, 2014,we sponsored certain approved research activities at ODURF’s Frank Reidy Research Center under a sponsored research agreement.In June 2017, we agreed to sponsor $740,000 in research from July 1, 2017 to June 30, 2018. During the years ended December 31,2017 and 2016, we incurred costs relating to the sponsored research agreement equal to $770,000 and $914,000, respectively. Asof December 31, 2017, there was $370,000 of approved budget remaining under this research agreement.In addition, during 2017, we agreed to provide $300,000 in research funding to researchers affiliated with ODURF andEastern Virginia Medical School matching funds made available to those researchers by the Virginia Biosciences Health ResearchCorporation. Our sponsorship affords access to certain intellectual property, if any, developed during the project. As of December31, 2017, there was approximately $150,000 remaining under this sponsorship. Operating LeaseWe leased approximately 4,300 square feet of corporate offices and research facilities in Burlingame, California, at a monthlycost of approximately $21,000. This lease expired on June 30, 2017.In January 2017, we entered into a new lease agreement (the “Lease”) for premises consisting of approximately 15,700rentable square feet located in Hayward, California (the “Premises”). 54 Table of Contents We took possession of the Premises in late June 2017 and moved into the Premises in July 2017. The Premises is being usedfor our corporate headquarters and principal operating facility. The term of the Lease is sixty-two (62) months which commencedon July 1, 2017. Base rent was abated for the first two (2) months of the Lease term and thereafter will be $42,400 per month duringthe first year of the Lease term, with specified annual increases thereafter until reaching approximately $50,300 per month duringthe last two (2) months of the Lease term. We paid a refundable security deposit of approximately $101,000. The landlordprovided us with an improvement allowance in the amount of approximately $135.00 per rentable square foot of the Premises,which was applied towards the costs of construction of the initial improvements in the Premises. We also agreed to reimburse thelandlord in the event that certain expenses are incurred by the landlord during the Lease term. We have the right to extend theLease term by five (5) years upon written notice not more than twelve (12) months nor less than nine (9) months prior to theexpiration of the original Lease term, with monthly payments equal to the “Fair Rental Value” as defined in the Lease. Our leaseobligations as of December 31, 2017 for less than one year, one to three years, three to five years and more than five years isapproximately $0.5 million, $1.1 million, $1.0 million and $0, respectively.The following table summarizes our contractual obligations as of December 31, 2017 (in thousands): Payments Due by Period(in thousands) Total Less Than 1 Year 1 to 3 Years 3 to 5 Years More Than 5 YearsRent Obligation $2,574 $518 $1,090 $966 $ —Off-Balance Sheet ArrangementsAt December 31, 2017, we did not have any transactions, obligations or relationships that could be considered off-balancesheet arrangements.In the ordinary course of business, we enter into standard indemnification arrangements. Pursuant to these arrangements, weindemnify, hold harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party inconnection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party withrespect to its technology, or from claims relating to our performance or non-performance under a contract. The maximum potentialamount of future payments we could be required to make under these agreements is not determinable because it involves claimsthat may be made against us in future periods, but have not yet been made. To date, we have not incurred costs to defend lawsuitsor settle claims related to these indemnification agreements.We also enter and have entered into indemnification agreements with our directors and officers that may require us toindemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited byapplicable law. In addition, we may have obligations to hold harmless and indemnify third parties involved with our fundraisingefforts and their respective affiliates, directors, officers, employees, agents or other representatives against any and all losses,claims, damages and liabilities related to claims arising against such parties pursuant to the terms of agreements entered intobetween us and such third parties in connection with such fundraising efforts. No liability associated with such indemnificationagreements has been recorded as of December 31, 2017.JOBS Act Accounting ElectionUnder the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequentto the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected notto avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new orrevised accounting standards as other public companies that are not emerging growth companies.Trends, Events and UncertaintiesResearch and development of new technologies are, by their nature, unpredictable. Although we undertake developmentefforts with commercially reasonable diligence, there can be no assurance that the net proceeds from our financings will besufficient to enable us to develop our technology to the extent needed to generate future sales to sustain our operations. If we donot continue to have enough funds to sustain our operations, we will consider other options to continue our path tocommercialization of NPS, including, but not limited to, additional financing through follow-on stock offerings, debt financings,or co-development agreements and /or other alternatives.We cannot assure investors that our technology will be adopted or that we will ever achieve sustainable revenues sufficientto support our operations. Even if we are able to generate revenues, there can be no assurances that we will be able to achieveprofitability or positive operating cash flows. There can be no assurances that we will be able to secure additional 55 Table of Contents financing in the future on acceptable terms or at all. If cash resources are insufficient to satisfy our ongoing cash needs, we wouldbe required to scale back or discontinue our technology and product development programs, or obtain funds, if available, althoughthere can be no assurances, through the sale, licensing or strategic alliances that could require us to relinquish rights to ourtechnology and intellectual property, or to curtail, suspend or discontinue our operations entirely.Other than as discussed above and elsewhere in this Annual Report on Form 10-K, we are not currently aware of any trends,events or uncertainties that are likely to have a material effect on our financial condition in the near term, although it is possiblethat new trends or events may develop in the future that could have a material effect on our financial condition. 56 Table of Contents Item 7A. Quantitative and Qualitative Disclosures About Market RiskWe are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impactour financial position due to adverse changes in financial market prices and rates.Interest Rate and Market RiskOur exposure to interest rate and market risk is confined to our cash, cash equivalents and investments, all of which havematurities of less than two years. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs andfiduciary control of our cash and investments. We also seek to maximize income from our investments without assumingsignificant risk. To achieve our goals, we maintain a portfolio of cash equivalents and investments in a variety of securities of highcredit quality. The securities in our investment portfolio are not leveraged, are classified as available-for-sale, and are, due to theirrelatively short-term nature, subject to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of theshort-term maturities of our investments, we do not believe that a hypothetical 10% change in market interest rates would have amaterial negative impact on the value of our investment portfolio.Foreign Exchange RiskThe majority of our expense and capital purchasing activities are transacted in U.S. dollars. We do not have any internationaloperations. We may incur foreign exchange gains or losses in the future. 57 Table of Contents Item 8. Financial Statements and Supplementary DataPULSE BIOSCIENCES, INC.Index to Consolidated Financial Statements Page NumberCONSOLIDATED FINANCIAL STATEMENTS ​Report of Independent Registered Public Accounting Firm 59​Consolidated Balance Sheets 60​Consolidated Statements of Operations and Comprehensive Loss 61​Consolidated Statements of Stockholders’ Equity 62​Consolidated Statements of Cash Flows 63​Notes to Consolidated Financial Statements64 58 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofPulse Biosciences, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Pulse Biosciences, Inc. (as defined in Note 2 to theconsolidated financial statements) (the "Company") as of December 31, 2017 and 2016, the related consolidated statements ofoperations and comprehensive loss, stockholders’ equity and cash flows, for each of the three years in the period ended December31, 2017, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, theconsolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31,2017, in conformity with accounting principles generally accepted in the United States of America.Basis for OpinionThese consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express anopinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered withthe Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect tothe Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities andExchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to erroror fraud. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financialreporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not forthe purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly,we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on atest basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overallpresentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ Gumbiner Savett Inc.We have served as the Company's auditor since 2015.Santa Monica, CaliforniaMarch 16, 2018 59 Table of Contents PULSE BIOSCIENCES, INC.Consolidated Balance Sheets(in thousands, except par value) December 31, 2017 2016ASSETS Current assets: Cash and cash equivalents $3,386 $2,089 Investments 34,683 14,306 Prepaid expenses and other current assets 412 268 Total current assets 38,481 16,663 Property and equipment, net 2,570 317 Intangible assets, net 5,878 6,543 Goodwill 2,791 2,791 Other asset 101 —Total assets $49,821 $26,314 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $782 $265 Accrued expenses 1,034 751 Deferred rent, current 397 —Total current liabilities 2,213 1,016 Deferred rent 1,613 —Total liabilities 3,826 1,016 Commitments and contingencies (Note 12) Stockholders’ equity: Preferred stock, $0.001 par value;authorized – 5,000 shares; no shares issued and outstanding — —Common stock, $0.001 par value;authorized – 45,000 shares; issued and outstanding – 16,819 shares and 13,315 shares at December 31, 2017 and 2016, respectively 17 13 Additional paid-in capital 84,202 37,898 Accumulated other comprehensive loss (51) (7)Accumulated deficit (38,173) (12,606)Total stockholders’ equity 45,995 25,298 Total liabilities and stockholders’ equity $49,821 $26,314 See accompanying notes to the consolidated financial statements. 60 Table of Contents PULSE BIOSCIENCES, INC.Consolidated Statements of Operations and Comprehensive Loss(in thousands, except per share data)Year Ended December 31,201720162015Revenue$ —$ —$ —Operating expenses:General and administrative15,503 3,415 1,621 Research and development9,646 5,506 2,181 Amortization of intangible assets665 665 666 Total operating expenses25,814 9,586 4,468 Other income:Interest income247 68 —Total other income247 68 —Loss from operations, before income taxes(25,567)(9,518)(4,468)Income tax benefit — —(1,657)Net loss(25,567)(9,518)(2,811)Other comprehensive loss:Unrealized loss on available-for-sale securities, net of tax(44)(7) —Comprehensive loss$(25,611)$ (9,525)$ (2,811)Net loss per shareBasic and diluted net loss per share$(1.73)$(0.86)$(0.37)Weighted average shares used to compute net loss per common share —basic and diluted14,754 11,009 7,565 See accompanying notes to the consolidated financial statements. 61 Table of Contents PULSE BIOSCIENCES, INC.Consolidated Statements of Stockholders’ Equity(in thousands) Additional AccumulatedOther Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Loss Deficit EquityBalance, December 31, 2014 7,565 $8 $16,343 $ — $(277) $16,074 Stock-based compensation expense — — 402 — — 402 Net loss — — — — (2,811) (2,811)Balance, December 31, 2015 7,565 $8 $16,745 $ — $(3,088) $13,665 Shares issued upon closing of initial publicoffering, net of issuance costs of $2,711 5,750 5 20,283 — — 20,288 Stock-based compensation expense — — 870 — — 870 Unrealized loss on available-for-sale securities,net of tax — — — (7) — (7)Net loss — — — — (9,518) (9,518)Balance, December 31, 2016 13,315 $13 $37,898 $(7) $(12,606) $25,298 Shares issued upon closing of privateplacements, net of issuance costs of $199 2,820 3 34,840 — — 34,843 Issuance of shares upon exercise of warrants 522 — 50 — — 50 Issuance of shares upon exercise of stockoptions 162 1 488 — — 489 Stock-based compensation expense — — 10,926 — — 10,926 Unrealized loss on available-for-sale securities,net of tax — — — (44) — (44)Net loss — — — — (25,567) (25,567)Balance, December 31, 2017 16,819 $17 $84,202 $(51) $(38,173) $45,995 See accompanying notes to the consolidated financial statements. 62 Table of Contents PULSE BIOSCIENCES, INC.Consolidated Statements of Cash Flows(in thousands) Year Ended December 31, 2017 2016 2015Cash flows from operating activities: Net loss $(25,567) $(9,518) $(2,811)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 336 94 51 Amortization of intangible assets 665 665 666 Stock-based compensation 10,926 870 402 Net premium amortization on available-for-sale securities 26 4 —Landlord incentive for tenant improvements 2,119 — —Change in deferred income taxes — — (1,657)Changes in operating assets and liabilities: Prepaid expenses and other current assets (144) (135) (12)Deferred offering costs — (280) (347)Accounts payable 517 3 125 Accrued expenses 245 246 305 Other asset (101) — —Deferred rent (109) — —Deferred grant revenue — — (39)Net cash used in operating activities (11,087) (8,051) (3,317)Cash flows from investing activities: Purchases of property and equipment (2,551) (64) (86)Purchase of available-for-sale securities (43,595) (19,067) —Maturities of available-for-sale securities 23,148 4,750 —Net cash used in investing activities (22,998) (14,381) (86)Cash flows from financing activities: Proceeds from exercises of stock options and warrants 539 — —Proceeds from issuance of common stock from private placements, net ofissuance costs 34,843 — —Proceeds from issuance of common stock from initial public offering, net ofissuance costs — 20,915 —Net cash provided by financing activities 35,382 20,915 —Net increase (decrease) in cash 1,297 (1,517) (3,403)Cash and cash equivalents at beginning of period 2,089 3,606 7,009 Cash and cash equivalents at end of period $3,386 $2,089 $3,606 Supplemental disclosure of noncash investing and financing activities: Reclassification of deferred offering costs to additional paid-in capital upon initialpublic offering $ — $627 $ —Equipment purchased in accrued expenses $38 $18 $104 See accompanying notes to the consolidated financial statements. 63 Table of Contents PULSE BIOSCIENCES, INC.Notes to Consolidated Financial Statements 1. Description of the BusinessPulse Biosciences, Inc., incorporated in Nevada on May 19, 2014, is a medical technology company developing commercialclinical applications for its proprietary Nano-Pulse Stimulation (“NPS”) technology. NPS is a novel patented technology thatleverages nano-second duration energy pulses that have demonstrated effective local tumor control and the initiation of anadaptive immune response in pre-clinical studies. The Company is pursuing a number of potential clinical applications for NPS,including oncology and dermatology where the Company believes NPS may provide greater benefits compared to currenttherapies and treatments. The Company’s headquarters and research facility are located in Hayward, California.The Company’s activities are subject to significant risks and uncertainties, including the need for additional capital. TheCompany has not yet commenced any revenue-generating operations, does not have any cash flows from operations, and will needto raise additional capital to finance its operations. However, there can be no assurances that the Company will be able to obtainadditional financing on acceptable terms and in the amounts necessary to fully fund its operating requirements. 2. Summary of Significant Accounting Policies Principles of ConsolidationThe accompanying consolidated financial statements are prepared in accordance with accounting principles generallyaccepted in the United States (“U.S. GAAP”) and include the financial statements of the Company and its wholly-ownedsubsidiaries. Intercompany balances and transactions have been eliminated in consolidation.Use of EstimatesThe preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates andassumptions that affect the amounts reported in the Financial Statements and accompanying notes to the FinancialStatements. Estimates include, but are not limited to, the valuation of cash equivalents and investments, clinical trial accruals, thevaluation and recognition of share-based compensation and useful lives assigned to long-lived assets. Actual amounts could differfrom these estimates.Concentration of Credit RiskFinancial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cashequivalents and investments. The Company places its cash equivalents and investments with high credit quality financialinstitutions and, by policy, limits the amounts invested with any one financial institution or issuer. Deposits held with banks mayexceed the amount of insurance provided on such deposits. The Company has not experienced any losses since inception.Fair Value of Financial InstrumentsThe Company believes the carrying amounts of its financial instruments, including cash equivalents, prepaid expenses andother current assets, accounts payable and accrued expenses, approximate fair value due to the short-term nature of suchinstruments.Cash, Cash Equivalents and InvestmentsThe Company considers all highly liquid investments purchased with an original maturity of three months or less to be cashequivalents. The Company has designated all investments as available-for-sale and therefore, such investments are reported at fairvalue, with unrealized gains and losses recognized in accumulated other comprehensive income (loss) (“OCI”) in stockholders’equity. The cost of marketable securities is adjusted for the amortization of premiums and discounts to expected maturity. Premiumand discount amortization is included in other income, net. Realized gains and losses, as well as interest income, on available-for-sale securities are also included in other income, net. The Company includes all of its available-for-sale securities in current assets. 64 Table of Contents All of the Company’s investments are subject to a periodic impairment review. The Company recognizes an impairment losswhen a decline in the fair value of its marketable investments below the cost basis is judged to be other-than-temporary. Factorsconsidered in determining whether a loss is temporary include the length of time and extent to which the marketable investmentsfair value has been less than the cost basis, the financial condition and near-term prospects of the investee, extent of the lossrelated to credit of the issuer, the expected cash flows from the security, the Company’s intent to sell the security and whether ornot the Company will be required to sell the security before the recovery of its amortized cost. No impairment losses were incurredduring the periods presented.Property and EquipmentLeasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated usefullife. Equipment is recorded at cost and depreciated using the straight-line method over their estimated useful lives, ranging fromthree to five years.Intangible AssetsThe Company’s intangible assets consist of acquired patents and licenses, which are being amortized over their estimateduseful lives of twelve years.Long-Lived AssetsThe Company reviews long-lived assets, consisting of property and equipment and intangible assets, for impairment duringeach fiscal year or when events or changes in circumstances indicate the carrying value of these assets may exceed their current fairvalues. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to theestimated undiscounted future cash flows expected to be generated by the asset. No impairment losses were incurred during theperiods presented.GoodwillThe Company records goodwill when the consideration paid in a business acquisition exceeds the fair value of the nettangible assets and the identified intangible assets acquired. The Company reviews goodwill for impairment at least annually orwhenever changes in circumstances indicate that the carrying value of the goodwill may not be recoverable. As of December 31,2017, there has been no impairment of goodwill.Stock-Based CompensationThe Company recognizes the cost of stock-based compensation in the financial statements based upon fair value. The fairvalue of stock options is determined as of the grant date using the Black-Scholes option pricing model. The fair value of restrictedstock and restricted stock unit (RSU) awards is determined based on the number of units granted and the closing price of theCompany’s common stock on the grant date. The fair value of each purchase under the employee stock purchase plan (ESPP) isestimated at the beginning of the offering period using the Black-Scholes option pricing model. The Company’s determination ofthe fair value of equity-settled awards is impacted by the price of the Company's common stock as well as changes in assumptionsregarding a number of complex and subjective variables. These variables include, but are not limited to, the expected term thatawards will remain outstanding, expected common stock price volatility over the term of the awards, risk-free interest rates andexpected dividends. The fair value of an award is recognized over the period during which service is required to be performed inexchange for the award, the requisite service period (usually the vesting period) on a straight-line basis.Equity instruments issued to non-employees are recorded at their fair value on the measurement date and are subject toperiodic adjustments as the underlying equity instruments vest. The fair value of these equity instruments are expensed over theservice period.Estimates of the fair value of equity-settled awards as of the grant date using valuation models, such as the Black-Scholesoption pricing model, are affected by assumptions regarding a number of complex variables. Changes in the assumptions canmaterially affect the fair value of the award and ultimately how much stock-based compensation expense is recognized. Theseinputs are subjective and generally require significant analysis and judgment to develop. The Company determines the volatilityfactor based on the historical volatilities of comparable public companies in similar industries. The risk-free interest rate is basedon the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award. Forall stock options granted to date, the Company used the Staff Accounting Bulletin, No. 110 (SAB 110) simplified method tocalculate the expected term, which is the average of the contractual term and vesting 65 Table of Contents period. Prior to the Company’s IPO, the fair value of common stock was determined by reference to either recent or anticipatedcash transactions involving the sale of the Company’s common stock. The Company recognizes the fair value of stock-based compensation costs in general and administrative costs and inresearch and development costs, as appropriate, in the Company’s consolidated statements of operations.Research and Development CostsResearch and development costs consist primarily of compensation costs, fees paid to consultants and outside serviceproviders and organizations (including research institutes at universities), development prototypes and other expenses relating tothe acquisition, design, development and testing of the Company’s product candidates. Research and development costs incurredby the Company are expensed as incurred, unless the achievement of milestones, the completion of contracted work, or otherinformation indicates that a different expensing schedule is more appropriate.Patent CostsThe Company is the owner of numerous domestic and foreign patents. Due to the significant uncertainty associated with thesuccessful development of one or more commercially viable products based on the Company’s research efforts and any relatedpatent applications, patent costs not related to acquired patents, including patent-related legal fees, filing fees and other costs,including internally generated costs, are expensed as incurred. During the years ended December 31, 2017, 2016 and 2015, patentcosts totaled $0.8 million, $0.5 million and $0.4 million, respectively. Patent costs are included in general and administrativecosts in the consolidated statements of operations and comprehensive loss.Income TaxesThe Company accounts for income taxes under an asset and liability approach for financial accounting and reporting forincome taxes. Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differencesbetween the financial statements and the tax basis of assets and liabilities.The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to berealized. In the event the Company determines that it would be able to realize its deferred tax assets in the future in excess of itsrecorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination wasmade. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future,an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.The Company is subject to U.S. federal income taxes and income taxes in California. As the Company’s net operating losseshave yet to be utilized, previous tax years remain open to examination by federal authorities and other jurisdictions in which theCompany currently operates or has operated in the past. The Company is not currently under examination by any tax authority.The Company accounts for uncertainties in income tax law under a comprehensive model for the financial statementrecognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income taxreturns as prescribed by U.S. GAAP. The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustainedby the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, thenno benefits of the position are recognized. At December 31, 2017 and 2016, the Company had not recorded any liability foruncertain tax positions. The Company includes interest and penalties related to uncertain tax positions as a component of incometax expense.Comprehensive LossComprehensive loss consists of net loss and unrealized gains or losses on available-for-sale investments. The Companydisplays comprehensive loss and its components as part of the consolidated statements of operations and comprehensive loss.Net Loss per ShareThe Company’s basic net loss per share is calculated by dividing the net loss by the weighted average number of shares ofcommon stock outstanding for the period. Diluted net loss per share is computed by giving effect to all potential dilutive commonstock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock and commonstock warrants are considered common stock equivalents. Potential common shares that have an anti-dilutive 66 Table of Contents effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted net loss pershare.Basic and diluted net loss per common share is the same for all periods presented because all warrants and stock optionsoutstanding are anti-dilutive.The following outstanding stock options, warrants and restricted stock units to purchase common stock were excluded fromthe computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutiveeffect:Year Ended December 31,201720162015Common stock warrants249,709 874,610 299,625 Common stock options2,598,659 1,229,355 875,221 Restricted stock units229,774 ——Total3,078,142 2,103,965 1,174,846 Segment and Geographical InformationThe Company operates and manages its business as one reportable and operating segment. The Company’s Chief ExecutiveOfficer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocatingresources and evaluating financial performance. All of the Company’s assets are based in the United States.ReclassificationCertain items in the prior period financial statements have been reclassified to conform to the presentation in the currentperiod financial statements. During the years ended December 31, 2016 and 2015, patent legal costs of $0.5 million and $0.4million, respectively, were reclassified from research and development expenses to general and administrative expenses. Thesechanges did not impact loss from operations or net loss.Recent Accounting PronouncementsRecently Adopted Accounting StandardsDuring March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting. ThisASU simplifies the accounting for share-based payment transactions, including the income tax consequences, classification ofawards as either equity or liabilities, and classification on the statement of cash flows. This ASU requires that excess tax benefitsand deficiencies be recognized as income tax benefit or expense in the income statement. The Company adopted this ASU as ofJanuary 1, 2017. The adoption of this ASU did not have a significant impact on the Company’s financial statements.During January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying theAccounting for Goodwill Impairment, which simplifies the accounting for goodwill impairment. This ASU removes Step 2 of thegoodwill impairment test, which requires hypothetical purchase price allocation. A goodwill impairment will now be the amountby which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The new guidancealso requires disclosure of the amount of goodwill at reporting units with zero or negative carrying amounts. ASU 2017-04 iseffective for the Company beginning January 1, 2020. The Company elected to early adopt this standard when performing itsannual goodwill impairment test in 2017. The adoption of this ASU did not have a significant financial impact on the Company’sfinancial statements.During May 2017, the FASB issued ASU 2017-09, Compensation — Stock Compensation (Topic 718): Scope ofModification Accounting. This standard provides clarification on when modification accounting should be used for changes to theterms or conditions of a share-based payment award. This standard does not change the accounting for modifications but clarifiesthat modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or awardclassification and would not be required if the changes are considered non-substantive. The amendments in this ASU are effectivefor the Company effective beginning January 1, 2018, with early adoption permitted. This ASU 67 Table of Contents should be applied prospectively on and after the effective date. The Company adopted this ASU during 2017. The adoption of thisASU did not have a significant financial impact on the Company’s financial statements.Recently Issued Accounting StandardsDuring May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, requiring an entity torecognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Thisupdated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits theuse of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued an update to defer theeffective date of this update to periods beginning after December 15, 2017. This updated standard becomes effective for theCompany in the first quarter of fiscal year 2018. The Company expects to adopt this standard upon commencing revenuegenerating activities. Since the Company has not recognized or generated revenue to date, it does not expect the adoption of thispronouncement on January 1, 2018 to have any impact to its financial statements.During February 2016, the FASB issued ASU No. 2016-02, Leases, which amends the existing accounting standards forleases. The new standard requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet(with the exception of short-term leases). For lessees, leases will continue to be classified as either operating or financing in theincome statement. This ASU becomes effective for the Company in the first quarter of fiscal year 2019 and early adoption ispermitted. This ASU is required to be applied with a modified retrospective approach and requires application of the new standardat the beginning of the earliest comparative period presented. The Company generally does not finance purchases of equipment orother capital, but does lease its facilities. While the Company is continuing to assess all potential impacts of this standard, itexpects that most of its lease commitments will be subject to the updated standard and recognized as lease liabilities and right-of-use assets upon adoption. 3. Investments and Fair Value of Financial InstrumentsInvestmentsThe Company’s investments have been classified and accounted for as available-for-sale. The Company’s investmentsconsisted of the following (in thousands):December 31, 2017CostGross UnrealizedGainsGross UnrealizedLossesFair ValueCommercial paper$7,216 $—$(6)$7,210 Corporate bonds19,524 —(33)19,491 Asset-backed securities7,994 —(12)7,982 Total assets measured at fair value$34,734 $—$(51)$34,683 December 31, 2016CostGross UnrealizedGainsGross UnrealizedLossesFair ValueCorporate bonds$13,295 $1 $(7)$13,289 Asset-backed securities1,017 ——1,017 Total assets measured at fair value$14,312 $1 $(7)$14,306 The contractual maturities of the Company’s investments were as follows (in thousands): December 31,Investments 2017 2016Due in one year $30,096 $14,306 Due in one to two years 4,587 —Total $34,683 $14,306 Fair Value of Financial InstrumentsThe Company determines the fair value of its financial instruments based on a fair value hierarchy that prioritizes the inputsto valuation techniques used to measure fair value into three levels: 68 Table of Contents Level 1 - Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company hasthe ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include money marketfunds.Level 2 - Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability orindirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputsinclude commercial paper, corporate bonds and asset-backed securities.Level 3 - Unobservable inputs in which there is little or no market data for the asset or liability which requires the reportingentity to develop its own assumptions. The Company did not classify any of its investments within Level 3 of the fair valuehierarchy.The following table sets forth the fair value of the Company’s financial assets measured on a recurring basis (in thousands): December 31, 2017 Assets Classification Level 1 Level 2 Level 3 Total Money market funds Cash and cash equivalents $2,758 $— $— $2,758 Commercial paper Investments — 7,210 7,210 Corporate bonds Investments — 19,491 — 19,491 Asset-backed securities Investments — 7,982 — 7,982 Total assets measured at fair value $2,758 $34,683 $— $37,441 December 31, 2016Assets Classification Level 1 Level 2 Level 3 Total Money market funds Cash and cash equivalents $1,726 $— $— $1,726 Corporate bonds Investments — 13,289 — 13,289 Asset-backed security Investments — 1,017 — 1,017 Total assets measured at fair value $1,726 $14,306 $— $16,032 During year ended December 31, 2017 and 2016, the Company did not record impairment charges related to its marketableinvestments. During the year ended December 31, 2017 and 2016, the Company did not have any transfers between Level 1, Level2 or Level 3 of the fair value hierarchy. Additionally, the Company did not have any financial assets and liabilities measured atfair value on a non-recurring basis as of December 31, 2017 or December 31, 2016.4. Property and Equipment, NetProperty and equipment, net consisted of the following (in thousands): December 31, 2017 2016Leasehold improvements $2,257 $—Laboratory equipment 484 425 Furniture, fixtures and equipment 231 17 Software 79 20 3,051 462 Less: Accumulated depreciation and amortization (481) (145) $2,570 $317 During June 2017, the Company prepared to move into new office space in Hayward, California, and its landlord provided$2.1 million for leasehold improvements pursuant to the tenant allowance clause in the lease agreement between the Company andits landlord which has been capitalized and amortized over the shorter of the lease term or estimated useful life.Depreciation and amortization expense for the years ended December 31, 2017, 2016 and 2015 was $336,000, $94,000 and$51,000, respectively. 69 Table of Contents 5. Intangible Assets, NetIntangible assets primarily consist of a license to utilize certain patents, know-how and technology relating to NPS forbiomedical applications acquired from Old Dominion University Research Foundation, Eastern Virginia Medical School, and theUniversity of Southern California. In addition, the Company entered into a Sponsored Research Agreement with Old DominionUniversity’s Frank Reidy Research Center for Bioelectrics, a leading research organization in the field, which includes certainintellectual property rights arising from the research.Intangible assets, net consisted of the following (in thousands): December 31, 2017 2016Acquired patents and licenses $7,985 $7,985 Less: Accumulated amortization (2,107) (1,442) $5,878 $6,543 A schedule of the amortization of intangible assets for the five years ending December 31, 2018 through 2022 and thereafteris as follows (in thousands): Year Ending December 31: 2018 $665 2019 666 2020 665 2021 666 2022 665 Thereafter 2,551 $5,878 6. GoodwillIn 2014, the Company acquired three companies (the “acquisitions”) for aggregate consideration of $5.5 million. Inaccordance with ASC Topic 805, Business Combinations, the Company recorded goodwill of $2.8 million in connection with theacquisitions as the consideration paid exceeded the fair value of the net tangible assets and the intangible assets acquired.The Company reviews goodwill for impairment at least annually or whenever changes in circumstances indicate that thecarrying amount of goodwill may not be recoverable. Based on the Company’s annual impairment test as of December 31, 2017,2016 and 2015, the Company determined that no impairment of goodwill existed, and was not aware of any indicators ofimpairment at such date.7. Accrued ExpensesAccrued expenses consisted of the following (in thousands): December 31, 2017 2016Compensation expense $685 $261 Professional fees 211 285 Other 73 205 Supplies 65 — $1,034 $751 70 Table of Contents 8. Stockholders’ Equity and Stock-Based CompensationPreferred StockThe Company has authorized a total of 5,000,000 shares of preferred stock, par value $0.001 per share, none of which wereoutstanding at December 31, 2017 and 2016. The Company’s Board of Directors has the authority to issue preferred stock and todetermine the rights, preferences, privileges, and restrictions, including voting rights, without any further vote or action by theCompany’s stockholders.Common StockThe Company has authorized a total of 45,000,000 shares of common stock, par value $0.001 per share.Initial Public OfferingDuring May 2016 through June 2016, the Company closed its initial public offering (“IPO”), whereby the Company sold5,749,846 shares of common stock at $4.00 per share. The Company received net proceeds of approximately $20.3 million fromthe IPO, including proceeds from the exercise of the overallotment option granted to the underwriters, net of underwritingdiscounts and commissions and other offering costs.Private PlacementsOn February 7, 2017, the Company entered into a securities purchase agreement with Robert W. Duggan and MakyZanganeh (the “Investors”), pursuant to which the Company, in a private placement, issued and sold to the Investors an aggregateof 819,673 shares of the Company’s common stock, par value $0.001 per share, at a price per share of $6.10, for net proceeds ofapproximately $4,965,000.On September 24, 2017, the Company entered into a securities purchase agreement with Robert W. Duggan, pursuant towhich the Company, in a private placement, issued and sold to Robert W. Duggan an aggregate of 2,000,000 shares of theCompany’s common stock, par value $0.001 per share, at a price per share of $15.02, for net proceeds of approximately$29,878,000. In connection with this private placement, the Company granted certain registration rights to Robert W. Duggan,pursuant to which, among other things, the Company intends to prepare and file with the Securities and Exchange Commission aregistration statement to register for resale of these shares during 2018.Common Stock WarrantsDuring the year ended December 31, 2016, in connection with the closing of the Company’s initial public offering, theCompany issued warrants as compensation to the underwriters of its initial public offering to purchase a total 574,985 shares of itscommon stock at a price of $5.00 per share. These warrants are exercisable for a period of five years. These warrants were valuedpursuant to the Black-Scholes option-pricing model based on the following assumptions: fair value of common stock – $4.12 to$4.27 per share; risk free interest rate: 1.22% – 1.38%; expected volatility – 80%; expected dividend yield – 0%; and expectedterm – 5 years. A summary of warrant activity for the year ended December 31, 2017 is presented below: Weighted Average Weighted Remaining Number of Average Contractual Shares Exercise Price Life (in Years)Warrants outstanding at December 31, 2016 874,610 $4.20 4.53 Issued — — Exercised (624,901) 4.23 Expired/terminated — — Warrants outstanding and exercisable at December 31, 2017 249,709 $4.14 3.56 During the year ended December 31, 2017, warrants to purchase 624,901 shares of common stock were either cash or netexercised, resulting in the issuance of approximately 522,451 shares of common stock.The intrinsic value of exercisable in-the-money stock warrants was approximately $4.9 million as of December 31, 2017. 71 Table of Contents Equity Plans 2017 Equity Incentive Plan and 2017 Inducement Equity Incentive PlanThe Board of Directors (the “Board”) of the Company previously adopted, and the Company’s stockholders approved, theCompany’s 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan has a 10-year term, and provides for the grant of stock options, stock appreciation rights, restricted stock,restricted stock units, performance units, and performance shares to employees, directors and consultants of the Company andany parent or subsidiary of the Company, as the Compensation Committee of the Board of Directors may determine. Subjectto an annual evergreen increase and adjustment in the case of certain capitalization events, 1,500,000 shares of theCompany’s common stock are authorized for issuance pursuant to awards under the 2017 Plan. In addition, shares remainingavailable under the Company’s 2015 Equity Incentive Plan, as amended (the “2015 Plan”), and shares reserved but not issuedpursuant to outstanding equity awards that expire or terminate without being exercised or that are forfeited or repurchased bythe Company will be added to the shares of common stock available for issuance under the 2017 Plan. The 2017 Plan isadministered by the Board’s Compensation Committee. ​As of December 31, 2017, there were no shares of common stockavailable for issuance under the 2017 Plan. In January 2018, the Company’s Board voted to increase the number of shares ofcommon stock available under the 2017 Plan by 672,915 shares.In November 2017, the Board of the Company adopted the 2017 Inducement Equity Incentive Plan (the “InducementPlan”) and reserved 1,000,000 shares of the Company’s common stock for issuance pursuant to equity awards granted underthe Inducement Plan. The Inducement Plan was adopted without stockholder approval.The Inducement Plan has a 10-year term, and provides for the grant of equity-based awards, including nonstatutory stockoptions, restricted stock units, restricted stock, stock appreciation rights, performance shares and performance units, and itsterms are substantially similar to the Company’s 2017 Equity Incentive Plan, including with respect to treatment of equityawards in the event of a “merger” or “change in control” as defined under the Inducement Plan. Options issued under theInducement Plan may have a term up to ten years and have variable vesting provisions. New hire grants generally vest 25%upon the first anniversary of the grant and 1/12 quarterly thereafter, over the subsequent twelve quarters. Equity-based awardsissued under the Inducement Plan are only issuable to individuals not previously engaged as employees or non-employeedirectors of the Company prior to the Inducement Plan’s adoption date. As of December 31, 2017, 907,000 shares of commonstock were available for issuance under the Inducement Plan.2017 Employee Stock Purchase Plan The Board of the Company previously adopted, subject to stockholder approval, the Company’s 2017 Employee StockPurchase Plan (the “2017 ESPP”). At the Annual Meeting, the stockholders approved the 2017 ESPP.The 2017 ESPP is a broad-based plan that provides employees of the Company and its designated affiliates with theopportunity to become stockholders through periodic payroll deductions that are applied towards the purchase of Companycommon shares at a discount from the then-current market price. Subject to adjustment in the case of certain capitalizationevents, a total of 250,000 common shares of the Company are available for purchase under the 2017 ESPP. As ofDecember 31, 2017, no shares had been issued from the 2017 ESPP, and 250,000 shares of common stock was reserved forissuance. In January 2018, the Company’s Board voted to increase the number of shares of common stock available under the2017 ESPP by 252,343 shares. 72 Table of Contents A summary of stock option activity under the 2015 Plan, 2017 Plan and Inducement Plan for the year endedDecember 31, 2017 is presented below: Weighted Weighted Average Average Remaining Number of Exercise Contractual Shares Price Life (in Years)Stock options outstanding at December 31, 2016 1,229,355 $3.82 7.6 Issued 1,552,986 25.67 Exercised (162,991) 3.12 Expired/terminated (20,691) 9.14 Stock options outstanding at December 31, 2017 2,598,659 $16.88 Vested and expected to vest at December 31, 2017 2,598,659 $16.88 8.2 Stock options exercisable at December 31, 2017 831,687 $10.99 6.3 The exercise prices of stock options outstanding and exercisable are as follows at December 31, 2017: Options Outstanding Options Exercisable Weighted average Numberremaining contractualWeighted average NumberWeighted averageExercise Priceoutstandinglife (in years)exercise price vestedexercise price$2.67 - $4.28835,773 6.4$ 3.72 514,280 $ 3.53$4.67 - $7.55261,400 8.75.17 75,074 5.15 $12.25 - $19.99118,000 9.619.14 4,603 12.25 $21.55 - $30.991,383,486 9.226.85 237,730 28.94 2,598,659 8.2$ 16.88 831,687 $ 10.99The intrinsic value of stock options exercised during the year ended December 31, 2017, 2016 and 2015 was $3.8 million,$0 and $0, respectively.The intrinsic value of exercisable in-the-money stock options at December 31, 2017 was approximately $11.8 million.The fair value of employee stock options was estimated using the Black-Scholes option-pricing model utilizing thefollowing assumptions: Year Ended December 31, 2017 2016 2015Expected term in years 0.42 - 6.08 6.08 3.5 - 6.25Expected volatility 70% - 90% 80% 89% - 90%Risk-free interest rate 1.00%-2.20% 1.16%-1.45% 0.88% - 1.89%Dividend yield — — —The fair value of the stock options granted to employees and directors during the years ended December 31, 2017, 2016 and2015, calculated pursuant to the Black-Scholes option-pricing model, was $26.8 million, $1.2 million and $3.1 million,respectively. 73 Table of Contents The fair value of ESPP was estimated using the Black-Scholes option-pricing model utilizing the following assumptions: Year Ended December 31, 2017Expected term in years 0.5 - 1.3Expected volatility 95%Risk-free interest rate 1.1% - 1.2%Dividend yield —Total stock-based compensation expense consisted of the following (in thousands): Year Ended December 31, 2017 2016 2015General and administrative $9,136 $674 $397 Research and development 1,790 196 5 Total stock-based compensation expense $10,926 $870 $402 The fair value of restricted stock unit (“RSUs”) awards is determined based on the number of units granted and the closingprice of the Company’s common stock as of the grant date. The estimated fair value of RSUs is recognized on a straight-line basisover the requisite service period. During 2017, the Company granted 160,974 RSUs to an officer, with a cliff vest in June 2018.The stock-based compensation expense related to these RSUs was approximately $2.9 million during 2017. As of December 31,2017, there was $2.1 million of unrecognized compensation expense related to these RSUs.During the year ended December 31, 2017, the Company granted 68,800 RSUs to certain employees which vest 50% onJune 1, 2019 with the remaining 50% vesting on June 1, 2021. In the event of a change in control, these RSUs vest 100%. Thestock-based compensation expense recorded in 2017 related to these RSUs was approximately $0.1 million. As of December 31,2017, there was $1.2 million of unrecognized compensation expense related to these RSUs.In November 2017, the Board of Directors of the Company accepted resignations of certain members of its board of directorsresulting in the full vesting of their outstanding equity awards. This resulted in the Company recording an additional $1.2 millionof stock-based compensation expense for the year ended December 31, 2017.At December 31, 2017, there was $22.1 million of unrecognized compensation cost related to unvested stock-basedcompensation arrangements, which is expected to be recognized over a weighted average period of 3.0 years. 9. Research Grants and AgreementsSponsored Research AgreementThe Company entered into a Sponsored Research Agreement (“SRA”) with Old Dominion University Research Foundation(“ODURF”) during 2014 pursuant to which the Company sponsors research activities performed by ODURF’s Frank Reidy Center.ODURF is compensated by the Company for its conduct of each study in accordance with the budget and payment terms set forthin the applicable task order. During the years ended December 31, 2017 and 2016, the Company agreed to sponsor $740,000 and$1.0 million, respectively, in research during the subsequent 12-month period to be funded through monthly payments made uponODURF certifying, to the Company’s reasonable satisfaction, that ODURF has met its obligations pursuant to the specified taskorder and statement of work. The principal investigator may transfer funds with the budget as needed without the Company’sapproval so long as the obligations of ODURF under the task order and statement of work remain unchanged and unimpaired. Asof December 31, 2017, there was $370,000 of approved budget remaining under this research agreement.In addition, during the year ended December 31, 2017, the Company agreed to provide $300,000 in research funding toresearchers affiliated with ODURF and Eastern Virginia Medical School matching funds made available to those researchers by theVirginia Biosciences Health Research Corporation. The Company’s sponsorship affords access to certain intellectual property, ifany, developed during the project. As of December 31, 2017, there was approximately $150,000 remaining available under thissponsorship.During the years ended December 31, 2017, 2016 and 2015, the Company incurred costs relating to the SRA equal to $0.8million, $0.9 million and $1.0 million, respectively. 74 Table of Contents 10. Income TaxesThe income tax provision for the years ended December 31, 2017 and 2016 was $0 and $0, respectively. The income taxprovision for the year ended December 31, 2015 was a benefit of $1.7 million. The tax benefits for the year ended December 31,2015 resulted from the realization of deferred tax assets related principally to the Company’s net operating loss for the year endedDecember 31, 2015, offset by deferred tax liability created based upon the difference in the value for book and tax purposes ofcertain acquired technology assets, which are considered temporary income tax differences under purchase accounting. A fullvaluation allowance is provided against the Company’s remaining deferred tax assets.Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of theCompany’s deferred tax assets at December 31, 2017 and 2016 are summarized below (in thousands): December 31, 2017 2016Technology $(863) $(1,449)Temporary differences 36 40 Credits 1,536 639 Stock compensation 3,067 272 Net operating loss carryforwards 7,715 5,121 Total deferred tax assets 11,491 4,623 Valuation allowance (11,491) (4,623)Net deferred tax assets $ — $ —In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not thatsome portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon theCompany attaining future taxable income during the periods in which those temporary differences become deductible. AtDecember 31, 2017 and 2016, management was unable to determine that it was more likely than not that the Company’s deferredtax assets will be realized, and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.The Company’s effective tax rate is different from the federal statutory tax rate of 35% due primarily to net losses thatreceive no tax benefit as a result of a valuation allowance recorded for such losses.Presented below is the reconcilement of the difference between the tax rate computed by applying the U.S. federal statutorytax rate and the effective tax rate for the years ended December 31, 2017, 2016 and 2015: Year Ended December 31, 2017 2016 2015U.S. federal statutory tax rate (35.0)% (35.0)% (35.0)%Valuation allowance 23.0 42.0 4.0 Tax reform 18.0 — — Permanent differences 1.0 2.0 1.0 State tax benefit and other (7.0) (9.0) (7.0) Effective tax rate —% —% (37.0)%At December 31, 2017, the Company had federal and California state net operating loss carryforwards of approximately$25.8 million and $25.9 million, respectively. The federal and state net operating loss carryforwards will begin to expire after2032. At December 31, 2017, the Company had approximately $1.2 million and $0.9 million of federal and California R&Dcredits, respectively. The federal R&D credits begin to expire after 2035 and the California R&D credits have an indefinitecarryforward period.These net operating loss carryforward and research and development credit amounts have full valuation allowances againstthem due to the remoteness of their expected utilization. 75 Table of Contents The Company’s activity related to unrecognized tax benefits are summarized below (in thousands): December 31, 2017 2016Balance at the beginning of the year $213 $66 Gross increases - tax positions in prior periods 37 —Gross decreases - tax positions in prior periods — —Gross increases - tax position in current period 262 147 Settlements — —Lapses in statutes of limitations — —Balance at the end of the year $512 $213 Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelvemonths due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognitionand measurement considerations related to the results of published tax cases or other similar activities, the Company does notanticipate any significant changes to unrecognized tax benefits over the next twelve months. During the years ended December 31,2017, 2016 and 2015, no interest or penalties were required to be recognized related to unrecognized tax benefits. Although theCompany is not under examination, the tax years for 2014 and forward are subject to examination by United States tax authorities.On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act contains significantchanges to corporate taxation, including (i) the reduction of the corporate income tax rate to 21%, (ii) the acceleration ofexpensing for certain business assets, (iii) the one-time transition tax related to the transition of U.S. international tax from aworldwide tax system to a territorial tax system, (iv) the repeal of the domestic production deduction, (v) additional limitations onthe deductibility of interest expense and (vi) expanded limitations on executive compensation.The key impact of the Tax Act on our financial statement for the year ended December 31, 2017, was the re-measurement ofdeferred tax balances to the new corporate tax rate. In order to calculate the effects of the new corporate tax rate on our deferred taxbalances, ASC 740 “Income Taxes” (“ASC 740”) required the re-measurement of our deferred tax balances as of the enactment dateof the Tax Act, based on the rates at which the balances are expected to reverse in the future. The re-measurement of our deferredtax balances resulted in a net reduction in deferred tax assets of $4.7 million offset with a corresponding adjustment to thevaluation allowance. The Company performed a formal analysis of the availability of these operating loss carryforwards at December 31, 2017under Internal Revenue Code Sections 382 and 383, and management expects that the Company’s ability to use its net operatingloss carryforwards may be limited in future periods.11. Related Party TransactionsOn November 2, 2017, the Company appointed Ken Clark to the Board of Directors. Mr. Clark is a member of the law firm ofWilson Sonsini Goodrich and Rosati (“WSGR”), which is also outside corporate counsel to the Company. During the year endedDecember 31, 2017, the Company incurred expenses for legal services rendered by WSGR totaling approximately $0.7 million.During September 2017, the Company entered into a securities purchase agreement with Robert W. Duggan, a significantstockholder of the Company and Chairman of the Board effective November 2, 2017, pursuant to which the Company issued andsold to Robert W. Duggan an aggregate of 2,000,000 shares of the Company’s common stock, par value $0.001 per share, at a priceper share of $15.02. At the time of the transaction, Mr. Duggan owned approximately 27% of the Company’s then outstandingsecurities, and approximately 35% of the Company’s outstanding common stock as of December 31, 2017.MDB Capital Group, LLC (“MDB”) provided investment banking, executive recruiting and intellectual propertymanagement services to the Company. The Company’s former Chairman of the Board, Robert Levande, was a Senior ManagingDirector of MDB throughout his tenure on the Company’s Board. During the year ended December 31, 2016, the Companyincurred $100,000 for services rendered by MDB with respect to intellectual property management. The Company did not incurany amounts for intellectual property management services by MDB during the year ended December 31, 2017. Similarly, duringthe year ended December 31, 2015, the Company incurred expenses charged by MDB comprised of: $49,000 for services renderedwith respect to executive search activities related to the hiring of the Company’s Chief 76 Table of Contents Executive Officer and the appointment of one director, $42,000 for offering related expenses and $26,000 for intellectual propertyrelated services.In connection with the Company’s 2016 IPO (Note 8), the underwriting syndicate led by MDB received $1.8 million inunderwriting discounts, $0.2 million in unaccountable expense reimbursements and warrants valued in the aggregate of $1.4million.Gary Schuman, the Chief Financial Officer of MDB, was also the acting Chief Financial Officer of the Company and wascompensated at a monthly rate of $4,000 from November 1, 2014 to December 31, 2015, reflecting an aggregate charge to generaland administrative expenses of $48,000 for the year ended December 31, 2015. 12. Commitments and ContingenciesOperating LeasesThe Company leased approximately 4,300 square feet of corporate offices and research facilities in Burlingame, California,at a monthly cost of approximately $21,000. This lease expired on June 30, 2017.In January 2017, the Company entered into a new lease agreement (The “Lease”) for premises consisting of approximately15,700 rentable square feet located in Hayward, California (the “Premises”).The Company took possession of the Premises in late June 2017 and moved into the Premises in July 2017. The Premises isbeing used for the Company’s corporate headquarters and principal operating facility. The term of the Lease is sixty-two (62)months, which commenced on July 1, 2017. Base rent was abated for the first two (2) months of the Lease term and thereafteris $42,400 per month during the first year of the Lease term, with specified annual increases thereafter until reachingapproximately $50,300 per month during the last two (2) months of the Lease term. The Company paid a refundable securitydeposit of approximately $101,000. The landlord provided the Company with improvement allowances in the amount ofapproximately $135.00 per rentable square foot of the Premises, which was applied towards the costs of construction of the initialimprovements in the Premises. We also agreed to reimburse the landlord in the event that certain expenses are incurred by thelandlord during the Lease term. We have the right to extend the Lease term by five (5) years upon written notice not more thantwelve (12) months nor less than nine (9) months prior to the expiration of the original Lease term, with monthly payments equalto the “Fair Rental Value” as defined in the Lease. During the year ended December 31, 2017, the landlord incurred approximately$2.1 million related to the initial tenant leasehold improvements and the Company capitalized these leasehold improvements toproperty and equipment and a corresponding deferred rent liability on its balance sheet.During the years ended December 31, 2017, 2016 and 2015, rent expense, including common area maintenance charges, was$0.3 million, $0.2 million and $0.2 million, respectively.Future minimum lease payments under the non-cancelable operating leases as of December 31, 2017 are as follows (inthousands): Year Ending December 31: 2018 $518 2019 536 2020 554 2021 574 2022 392 Thereafter — $2,574 LitigationThe Company and certain directors have received subpoenas from the Securities and Exchange Commission requestingdocuments and other information in connection with an investigation into trading in the Company’s stock in advance of theCompany’s September 2017 announcement of the stock purchase agreement executed between the Company and RobertDuggan. The Company is cooperating with the investigation. 77 Table of Contents The Company maintains indemnification agreements with its directors and officers that may require the Company toindemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited byapplicable law.At this time, the Company is unable to estimate a possible loss, if any, associated with the matter described above.From time to time, the Company may be involved in a variety of claims, lawsuits, investigations and proceedings relating tosecurities laws, product liability, patent infringement, contract disputes and other matters relating to various claims that arise in thenormal course of our business in addition to governmental and other regulatory investigations and proceedings. In addition, thirdparties may, from time to time, assert claims against the Company in the form of letters and other communications. The Companycurrently believes that these ordinary course matters will not have a material adverse effect on our business; however, the results oflitigation and claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on theCompany because of defense and settlement costs, diversion of management resources and other factors. 13. Employee Benefit PlansThe Company sponsors a defined contribution plan under which it may make discretionary contributions. The Company didnot make any employer matching contributions to this plan during the years ended December 31, 2017, 2016 and 2015. 78 Table of Contents 14. Selected Quarterly Financial Data (Unaudited)During the quarters ended March 31, June 30 and September 30, 2017, patent legal costs of $124,000, $152,000 and$275,000, respectively, were reclassified from research and development costs to general and administrative costs. During thequarters ended March 31, June 30, September 30 and December 31, 2016, patent legal costs of $116,000, $23,000, $186,000 and$157,000, respectively, were reclassified from research and development costs to general and administrative costs. These changesdid not impact loss from operations or net loss. The selected financial data below has been adjusted for such reclassifications.The following table provides the selected quarterly financial data for the years ended December 31, 2017 and 2016 (inthousands, except per share data): Quarter Ended 2017 2016 December31, September30, June 30, March 31, December31, September30, June 30, March 31,Revenue $ — $ — $ — $ — $ — $ — $ — $ —Operating expenses: General and administrative 5,801 4,434 3,924 1,344 1,027 1,079 665 644 Research and development 2,864 2,925 2,130 1,727 1,649 1,553 1,430 874 Amortization of intangible assets 166 166 167 166 167 166 166 166 Total operating expenses 8,831 7,525 6,221 3,237 2,843 2,798 2,261 1,684 Other income: Interest income 128 39 41 39 34 31 3 —Total other income 128 39 41 39 34 31 3 —Loss from operations, before incometaxes (8,703) (7,486) (6,180) (3,198) (2,809) (2,767) (2,258) (1,684)Income tax benefit — — — — — — — —Net loss (8,703) (7,486) (6,180) (3,198) (2,809) (2,767) (2,258) (1,684)Other comprehensive loss: Unrealized gain (loss) onavailable-for-sale securities, netof tax: (49) 4 3 (2) 1 (8) — —Comprehensive loss $(8,752) $ (7,482) $ (6,177) $ (3,200) $(2,808) $ (2,775) $ (2,258) $ (1,684)Net loss per share Basic and diluted net loss per share $(0.53) $(0.52) $(0.43) $(0.23) $(0.21) $(0.21) $(0.23) $(0.22)Weighted average shares used tocompute net loss per common share— basic and diluted 16,574 14,381 14,233 13,803 13,315 13,315 9,791 7,565 79 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and Procedures Our management, under the supervision and with the participation of our Chief Executive Officer and our Chief FinancialOfficer, our principal executive and principal financial officers, respectively, conducted an evaluation of the effectiveness of thedesign and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the ExchangeAct of 1934, as amended, as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, ourChief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective(a) to ensure that information that 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 (b) to include, withoutlimitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submittedunder the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding required disclosure.Management’s Annual Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as suchterm is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of senior management,including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control overfinancial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission in 2013. Based on the evaluation under that framework and applicable SEC rules, ourmanagement concluded that our internal control over financial reporting was effective as of December 31, 2017.Changes in Internal Control Over Financial Reporting As disclosed in Item 4 in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017, June 30, 2017 andSeptember 30, 2017, we identified a material weakness in our internal control over financial reporting related to a lack of effectivecontrols to adequately restrict access and segregate duties. Specifically, due to the limited number of staff in our accountingfunction, certain personnel had the ability to prepare and post journal entries without a qualified independent review performed bysomeone without this ability.During 2017, we executed our remediation plan for this material weakness. Our remediation activities included:·Documenting and assessing the design and operation of internal controls over financial reporting, includingimplementation of independent review, approval, and monitoring of journal entries by a person independent fromthe preparer of journal entries.·Increasing the staffing levels in the accounting function to segregate accounting functions·Training of accounting personnel to further educate the staff on the needs for internal controls over financialreporting, including appropriate segregation of dutiesWe tested such newly established policies, procedures, and control activities designed to address the above-describedmaterial weakness. As a result, we believe that this material weakness was remediated as of December 31, 2017.Except for the remediation efforts described above, there have been no changes in our internal control over financialreporting that occurred during 2017, that have materially affected, or are reasonably likely to materially affect, our internal controlover financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financialreporting means a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with GAAP. 80 Table of Contents Inherent Limitations on Effectiveness of ControlsOur management does not expect that our disclosure controls and procedures or our internal control over financial reportingwill prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable,not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect thefact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of theinherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues andinstances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-makingcan be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented bythe individual acts of some persons, by collusion of two or more people or by management override of the controls. The design ofany system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls maybecome inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate.Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not bedetected. Item 9B. Other InformationNone. 81 Table of Contents Part III Item 10. Directors, Executive Officers and Corporate GovernanceInformation responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K. Item 11. Executive CompensationInformation responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our2018 Annual Meeting of Stockholder to be filed with the SEC within 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersInformation responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K. Item 13. Certain Relationships and Related Transactions, and Director IndependenceInformation responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K. Item 14. Principal Accounting Fees and ServicesInformation responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K. 82 Table of Contents Part IV Item 15. Exhibits, Financial Statement Schedules(a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K: 1. Financial Statements: See Item 8 of this Annual Report on Form 10-K.2. Financial Statement Schedules: All schedules are omitted because they are not required, are not applicable or theinformation is included in the consolidated financial statements or notes thereto.(b) The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. 83 Table of Contents Exhibit Incorporation by ReferenceNumber Exhibit Description Form File No. Exhibit(s) Filing Date​3.1 Articles of Incorporation of the Registrant, as amended on December8, 2015 S-1 333-208694 3.1 December 22,2015​3.2 Amended and Restated Bylaws of Pulse Biosciences, Inc. 8-K 001-37744 3.1 October 2, 2017​4.1 Specimen Certificate representing shares of common stock ofRegistrant S-1 333-208694 4.1 March 7, 2016​4.2 Form of Warrant dated November 9, 2014 issued to MDB CapitalGroup, LLC S-1 333-208694 4.2 December 22,2015​4.3 Form of Underwriters' Warrant S-1 333-208694 4.3 March 28, 2016​4.4 Form of Registration Rights Agreement dated November 6, 2014,among the purchasers of common stock and the Registrant S-1 333-208694 10.6 December 22,2015​4.5 Form of Registration Rights Agreement dated November 6, 2014,among the holders of placement warrants and the Registrant S-1 333-208694 10.7 December 22,2015​10.1 Lease for facilities at 3955 Point Eden Way, Hayward, California,dated January 26, 2017 10-K 001-34899 10.1 March 20, 2017​10.2# License Agreement among Old Dominion University ResearchFoundation, Eastern Virginia Medical School and the Registrant S-1 333-208694 10.12 May 3, 2016​10.3 Amendments No. 1 to License Agreement among Old DominionUniversity Research Foundation, Eastern Virginia Medical Schooland the Registrant S-1 333-208694 10.13 March 7, 2016​10.4# License Agreement among University of Southern California, TheAlfred Mann Institute and the Registrant S-1 333-208694 10.14 May 3, 2016​10.5# Amendment No. 1 to the License Agreement among University ofSouthern California, The Alfred Mann Institute and the Registrant S-1 333-208694 10.15 May 3, 2016​10.6 Securities Purchase Agreement, dated February 7, 2017, by andbetween Pulse Biosciences, Inc. and certain purchasers 8-K 001-37744 10.1 February 10,2017​10.7 Securities Purchase Agreement, dated September 24, 2017, by andbetween Pulse Biosciences, Inc. and certain purchasers 8-K 001-37744 10.1 September 25,2017​10.8+ 2015 Stock Incentive Plan S-1 333-208694 10.2 December 22,2015​10.9+ 2017 Inducement Equity Incentive Plan and forms of agreementsthereunder 8-K 001-37744 10.1 November 28,2017​10.10+ 2017 Equity Incentive Plan and forms of agreements thereunder 8-K 001-37744 10.1 May 19, 2017​10.11+ 2017 Employee Stock Purchase Plan and forms of agreementsthereunder 8-K 001-37744 10.2 May 19, 2017​10.12+ Form of Director Option Agreement, not issued under the 2015 StockIncentive Plan S-1 333-208694 10.3 December 22,2015​10.13+ Executive Employment Agreement between Darrin R. Uecker and theRegistrant S-1 333-208694 10.9 December 22,2015​10.14+ Amendment to Employment Agreement between Darrin R. Ueckerand Pulse Biosciences, Inc. dated October 5, 2016 8-K 001-37744 10.1 October 11, 2016​10.15+ Executive Employment Agreement between Brian B. Dow and theRegistrant S-1 333-208694 10.14 December 22,2015​10.16+ Form of At-Will Employment, Confidential Information, InventionAssignment, and Arbitration Agreement for Employees S-1 333-208694 10.10 December 22,2015​10.17+ Form of Indemnification Agreement for Directors and Officers S-1 001-37744 10.1 January 29, 2018​21.1* List of Subsidiaries ​23.1* Consent of Independent Registered Public Accounting Firm. 31.1* Certification of Chief Executive Officer pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer pursuant to Section 302 of theSarbanes-Oxley Act of 2002. 32.1* Certification of the Chief Executive and Chief Financial Officerspursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.Section 1350). 101.INS XBRL Instance Document 84 Table of Contents 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Filed herewith + Indicates a management contract or compensatory plan orarrangement. # Portions of this exhibit (indicated by asterisks) have been omittedpursuant to a grant of confidential treatment. 85 Table of Contents Item 16. Form 10-K SummaryNone. 86 Table of Contents SignaturesPursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PULSE BIOSCIENCES, INC. Date: March 16, 2018 By:/s/ Brian B. Dow Brian B. Dow Chief Financial Officer, Senior Vice President of Financeand Administration, Secretary and Treasurer(Principal Financial and Principal Accounting Officer) POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes andappoints Darrin R. Uecker and Brian B. Dow, jointly and severally, as his true and lawful attorney-in-fact and agent, with fullpower of substitution, each with power to act alone, to sign and execute on behalf of the undersigned any and all amendments tothis Annual Report on Form 10-K, and to perform any acts necessary in order to file the same, with all exhibits thereto and otherdocuments in connection therewith with the Securities and Exchange Commission, granting unto said attorney-in-fact and agentfull power and authority to do and perform each and every act and thing requested and necessary to be done in connectiontherewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that saidattorney-in-fact and agent, or their or his or her substitutes, shall do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons onbehalf of the Registrant in the capacities and on the dates indicated. Signature Title Date /s/ Darrin R. Uecker Darrin R. UeckerPresident, Chief Executive Officer and Director(Principal Executive Officer)March 16, 2018/s/ Brian B. Dow Brian B. DowChief Financial Officer, Senior Vice President ofFinance and Administration, Secretary and Treasurer(Principal Financial and Principal AccountingOfficer)March 16, 2018/s/ Robert W. Duggan Robert W. DugganChairman of the BoardMarch 16, 2018/s/ Kenneth A. Clark Kenneth A. ClarkDirectorMarch 16, 2018/s/ Thomas J. Fogarty, M.D. Thomas J. Fogarty, M.D.DirectorMarch 16, 2018/s/ Manmeet S. Soni Manmeet S. SoniDirectorMarch 16, 2018/s/ Maky Zanganeh Maky Zanganeh DirectorMarch 16, 2018 87Exhibit 21.1 List of SubsidiariesSubsidiaryJurisdiction of IncorporationOwnership PositionNanoblate Corp., a Delaware CorporationDelaware100%BioElectroMed Corp., a California CorporationCalifornia100%Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of DirectorsPulse Biosciences, Inc.We hereby consent to the use in Form S-8 Registration Statements (registration number 333-216897,333-218164, 333-221788, and 333-222582) and Form S-3 Registration Statements (registration number 333-219096 and 333-219104) of our report dated March 16, 2018, relating to the consolidated balance sheets ofPulse Biosciences, Inc. as of December 31, 2017 and 2016, and the related consolidated statements ofoperations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in theperiod ended December 31, 2017, which is incorporated by reference in the aforementioned RegistrationStatements on Form S-8 and Form S-3. /s/ Gumbiner Savett Inc.March 16, 2018Santa Monica, CaliforniaExhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TOSECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a), AS ADOPTED PURSUANTTO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Darrin R. Uecker, President and Chief Executive Officer, certify that:1.I have reviewed this Annual Report on Form 10-K of Pulse Biosciences, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financialreporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; anda)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting. Date: March 16, 2018By:/s/ Darrin R. Uecker Darrin R. Uecker President and Chief Executive Officer (Principal Executive Officer) Exhibit 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TOSECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a), AS ADOPTED PURSUANTTO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Brian B. Dow, Chief Financial Officer, certify that:1.I have reviewed this Annual Report on Form 10-K of Pulse Biosciences, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financialreporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.Date: March 16, 2018By:/s/ Brian B. Dow Brian B. Dow Chief Financial Officer and Senior Vice President ofFinance and Administration, Secretary and Treasurer (Principal Financial and Principal Accounting Officer) Exhibit 32.1CERTIFICATIONS PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Pulse Biosciences, Inc. (the “Company”) on Form 10-K for the fiscal yearended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of theundersigned certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,that to the best of his knowledge:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company.4Date: March 16, 2018 /s/ Darrin R. Uecker Darrin R. Uecker President and Chief Executive Officer (Principal Executive Officer) 4 /s/ Brian B. Dow Brian B. Dow Chief Financial Officer, Senior Vice President of Financeand Administration, Secretary and Treasurer (Principal Financial and Principal Accounting Officer) This certification is deemed furnished and not filed with the Securities and Exchange Commission and is not to beincorporated by reference into any filing of Pulse Biosciences, Inc. under the Securities Act of 1933, as amended, or the SecuritiesExchange Act of 1934, as amended, whether made before or after the date of this report, irrespective of any general incorporationlanguage contained in such filing.

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