UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
or
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________.to _______________.
Commission file number 1-11388
VIVEVE MEDICAL, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
04-3153858
(I.R.S. Employer Identification No.)
345 Inverness Drive South
Building B, Suite 250
Englewood, CO 80112
(Address of principal executive offices - Zip Code)
Registrant's telephone number, including area code: (720)-696-8100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
VIVE
The Nasdaq Capital Market
Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer ☐
Non-accelerated filer ☒
Accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 28, 2019, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the last reported sales price
of the Registrant’s common stock, par value $0.0001 per share, on The Nasdaq Capital Market on such date, was approximately $17,634,014.
Number of shares outstanding of the Registrant’s common stock, as of March 13, 2020: 10,027,883
Business
Item 1
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Item 4 Mine Safety Disclosures
Properties
Legal Proceedings
VIVEVE MEDICAL, INC.
Table of Contents
Part I
Part II
Selected Financial Data
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosure about Market Risk
Financial Statements and Supplementary Data
Item 8
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A Controls and Procedures
Item 9B Other Information
Part III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14
Principal Accountant Fees and Services
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 15 Exhibits, Financial Statement Schedules
Signatures
Part IV
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Unless otherwise noted, the terms “Viveve”, “the Company,” “we,” “us,” “our” and similar designations in this Annual Report on Form 10-K refer to Viveve Medical, Inc.
and its wholly-owned subsidiaries, Viveve, Inc. and Viveve BV.
PART I
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these
statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as
“approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in
this report. In particular, forward-looking statements include statements relating to future actions, prospective products, applications, customers and technologies, and future
performance or future financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially
from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to:
our limited cash and our history of losses;
our ability to achieve profitability;
our limited operating history;
emerging competition and rapidly advancing technology;
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● whether we are successful in having our medical device approved or cleared for sale by the U.S. Food and Drug Administration (“FDA”) for all indications;
● whether we can obtain regulatory approval in additional markets outside of the United States;
● whether demand develops for our medical device;
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the impact of competitive or alternative products, technologies and pricing;
the adequacy of protection afforded to us by the patents that we own and the cost to us of maintaining, enforcing and defending those patents;
our ability to obtain, expand and maintain protection in the future, and to protect our non-patented intellectual property;
our ability to file and obtain additional patents;
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our ability to broaden our customer base;
our exposure to and ability to defend third-party claims and challenges to our patents and other intellectual property rights;
our ability to obtain adequate financing in the future, as and when we need it;
our ability to continue as a going concern;
the impact of the novel coronavirus on our clinical development and on the manufacturing, sales and patient utilization of our Viveve Systems and tips;
the impact of an economic recession, including as a result of the novel coronavirus, on our business, financial condition or results of operations;
our ability to maintain compliance with The Nasdaq Capital Market continued listing standards;
our success at managing the risks involved in the foregoing items; and
other factors discussed in this report.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We
undertake no obligation to publicly update or revise any forward-looking statements included in this report to conform such statements to actual results or changes in our
expectations. You should not place undue reliance on these forward-looking statements.
Item 1. Business
Viveve designs, develops, manufactures and markets a platform medical technology, which we refer to as Cryogen-cooled Monopolar Radiofrequency, or CMRF. Our
proprietary CMRF technology is delivered through a radiofrequency generator, handpiece and treatment tip, that collectively, we refer to as the Viveve® System. The
Viveve System is currently being marketed around the world (outside of the United States) for the non-invasive treatment of vaginal introital laxity, sexual function, vaginal
rejuvenation, and stress urinary incontinence depending on the relevant country-specific clearance or approval, that we refer to as the Viveve treatment.
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At this time, the Viveve System is indicated for use and being marketed for use in general surgical procedures for electrocoagulation and hemostasis in the United
States; the device has not been cleared or approved for use for the treatment of vaginal laxity, to improve sexual function, for vaginal rejuvenation, or for stress urinary
incontinence in the United States. Accordingly, the Company is prohibited under current U.S. regulations from promoting it to physicians or consumers for these unapproved
uses. We believe the Viveve System and Viveve treatment provide a number of benefits for physicians and patients, including:
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a safe, minimally-invasive, non-ablative procedure;
requiring only a single treatment;
compelling physician economics; and
ease of use.
In the U.S., the Viveve System is sold through a direct sales force. In other regions, we market and sell primarily through a network of distribution partners.
Currently, the Viveve System is cleared for marketing in 57 countries throughout the world under the following indications for use:
Indication for Use:
General surgical procedures for electrocoagulation and hemostasis
General surgical procedures for electrocoagulation and hemostasis of vaginal tissue and the treatment of vaginal laxity
For treatment of vaginal laxity
For treatment of the vaginal introitus, after vaginal childbirth, to improve sexual function
General surgical procedures for electrocoagulation and hemostasis as well as for the treatment of vaginal laxity
For vaginal rejuvenation
For treatment of vaginal laxity and to improve mild urinary incontinence and sexual function
No. of Countries:
4 (including the U.S.)
32
4
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As of December 31, 2019, we have sold 840 Viveve Systems and approximately 41,150 single-use treatment tips worldwide.
On September 23, 2014, Viveve Medical, Inc. (formerly PLC Systems, Inc.), a Delaware corporation (“Viveve Medical”, “Viveve”, “we”, “us” or “our”) completed a
reverse acquisition and recapitalization pursuant to the terms and conditions of an Agreement and Plan of Merger (the “Merger Agreement”) by and among PLC Systems
Acquisition Corp., a wholly owned subsidiary of PLC Systems Inc., with and into Viveve, Inc., a Delaware corporation (the “Merger”). Viveve, Inc. is a Delaware
corporation that was incorporated in 2005 by Jonathan Parmer, MD, an OBGYN physician, and is a wholly-owned subsidiary of Viveve Medical, Inc. In conjunction with
the Merger, we changed our name from PLC Systems Inc. to Viveve Medical, Inc. to better reflect our new business. Viveve Medical competes in the women’s health
industry by marketing the Viveve System and the Viveve treatment as a way to improve the overall sexual well-being and quality of life of women suffering from vaginal
laxity and/or urinary incontinence, depending on the relevant country-specific clearance or approval. We are currently located at 345 Inverness Drive South, Building B,
Suite 250, Englewood, Colorado 80112 and our telephone number is (720) 696-8100. Our website can be accessed at www.viveve.com. The information contained on or
that may be obtained from our website is not a part of this report. Viveve, Inc. operates as a wholly-owned subsidiary of Viveve Medical and was incorporated in 2005.
Our Products
The Viveve System
The Viveve System consists of three main components: a radiofrequency (“RF”) generator housed in a table-top console, a reusable handpiece and a single-use
treatment tip. Included with the system are single-use accessories (e.g. return pad, coupling fluid), as well as a cryogen canister that can be used for approximately four to
five procedures, and a foot pedal. Physicians or medical practitioners attach the single-use treatment tip to the handpiece, which is connected to the console. The generator
authenticates the treatment tip and programs the system for the desired Viveve treatment without further intervention. The treatment is performed in a physician’s office and
does not require the use of anesthesia. The tissue remodeling effect resulting from the Viveve treatment has been demonstrated by our pre-clinical and clinical research.
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Radiofrequency Generator. The generator produces a six-megahertz signal and is simple and efficient to operate. Controls are within easy reach, and important
user information is clearly displayed on the console’s built-in display, including energy delivered, tissue impedance, duration and feedback on procedure
technique. Cooling is achieved, in conjunction with the generator, through the delivery of a coolant that helps to cool and protect the mucosa during a procedure.
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● Handpiece. The reusable handpiece holds the treatment tip in place and processes information about temperature, contact, cooling system function and other
important data. A precision control valve within the handpiece meters the delivery of coolant, which protects the mucosal surface tissue.
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Treatment Tip. The single-use treatment tip is available in two sizes and comes pre-sterilized. Each treatment tip contains a proprietary internal EEPROM
or Electrically Erasable Programmable Read-Only Memory chip, which stores treatment parameters and safety limits in order to optimize performance and
safety. To enhance procedural safety, we have programmed the EEPROM for single-use treatments. Using the same treatment tip to perform multiple procedures
could result in injury, therefore, the EEPROM disables the treatment tip after a pre-programmed number of pulses to ensure that the treatment tip is not reused.
The Viveve System also includes other consumable components. The console houses a canister of coolant that can be used for approximately two to five procedures
(depending on the procedure type and pulses used). Each procedure requires a new return pad, which is typically adhered to the patient’s thigh or buttocks to allow a path of
travel for the RF current through the body and back to the generator. We also sell proprietary single-use bottles of coupling fluid, a viscous liquid that helps ensure electrical
and thermal contact with the treatment tip.
Technology Platform - Cryogen-cooled Monopolar Radiofrequency (CMRF)
The Viveve System uses a patented and proprietary method of delivering monopolar RF energy for treating tissue:
● Monopolar Radiofrequency Energy. Monopolar RF delivery uses an active electrode applied to the target tissue and a passive return electrode adhered to the
patient’s thigh or buttocks. RF current is concentrated where the active electrode touches the body and expands as it is drawn through progressively deeper layers
of tissue toward the return electrode. Providing both precise placement and deep energy penetration, the monopolar arrangement draws higher levels of
therapeutic energy into deeper tissue layers than competing bipolar arrangements that rely on passive dispersion of current passing between two closely spaced
electrodes on the tissue surface.
● Capacitive Coupling Mechanism of Action for Collagen Heating. Our single-use Viveve treatment tip contains patented technology that uses monopolar RF
energy as a controlled tissue heating source through the use of a non-conducting material, known as a dielectric. Capacitive coupling is the use of the dielectric to
create an electric field in the area where the treatment tip touches the body. The electric field induces a current within the surrounding tissue, resulting in
volumetric heating of the tissue due to the tissue’s natural resistance to electrical current flow. Collagen is an efficient conductor of electricity and therefore acts
as a pathway for the electric current. This process results in heating of the fibrous septae, the strands of collagen fibers that permeate tissues and connect the outer
mucosal layer to the underlying muscle. Delivery of heat to the fibrous septae located in deeper layers of the tissue shrinks and shortens them, resulting in
tightening of the mucosal tissue. Over one to three months, as part of the body’s natural response to the activation of fibroblasts that results from the application
of low-energy hyperthermic RF energy, aging collagen is reorganized into stronger, tighter bundles and can be supplemented with new collagen. This renewal of
the tissue support matrix leads to improved tissue integrity and function.
The Viveve System also uses a proprietary, controlled cryogen surface cooling that enables deep volumetric heating of vaginal tissue:
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Reverse Thermal Gradient. With RF delivery, it is typical to expect higher temperatures closest to the surface electrode and a comparatively lower temperature
distal to the electrode. However, with the Viveve System the opposite is true, hence a “reverse” thermal gradient. Maintaining a well-cooled, protected surface
allows our treatment tips to safely remain on the tissue longer, allowing an optimal amount of RF energy penetration into the deeper tissue layers, while helping
to ensure a comfortable patient experience.
Algorithmically-controlled Cryogen Delivery. The Viveve System software actively monitors the temperature of the surface tissue and delivers the appropriate
amount of cryogen necessary to keep the surface near normal body temperature. It does so consistently, automatically and completely independently of the
actions of the operator, providing an important built-in safety mechanism to protect the delicate surface of vaginal tissue.
Market Overview
Overview of Vaginal Laxity and Sexual Function
Vaginal laxity and tissue architecture have often been overlooked as contributing etiological factors to female sexual dysfunction. Vaginal laxity can lead to
diminished physical sensation during intercourse. This reduction in sensation is often coupled with a reduction in sexual satisfaction, all of which can also impact a woman’s
sense of sexual self-esteem and her relationship with her sexual partner.
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Vaginal laxity is infrequently discussed in a clinical situation, yet most surveyed OB/GYNs and urogynecologists recognize that it is an underreported, yet
bothersome, medical condition that impacts relationship happiness and sexual function. Another survey of OB/GYNs, found that vaginal laxity is the most frequent physical
change seen or discussed post-vaginal delivery. Additionally, in a survey of women ranging from 25-45 years of age, who had experienced at least one vaginal delivery,
approximately half expressed some degree of concern over “looseness” of the vaginal introitus.
Women can develop vaginal laxity for a number of reasons, including aging, genetic predisposition, lifestyle, and/or trauma. As women age, slower cellular renewal
coupled with reduced vascular and glandular networks contributes to loss of underlying supportive fibrous tissue. Some women may have underlying pathophysiological
issues with collagen formation, remodeling and repair; and their lifestyle choices (e.g., alcohol consumption, tobacco use, and excessive food consumption) also play a role
in the integrity of vaginal tissue. Vaginal trauma (e.g., childbirth, surgery, self-stimulation, or coitus) can also contribute to vaginal laxity.
All women who have given birth vaginally undergo stretching of the tissues of the vaginal opening to accommodate the fetal head. Often the effects are permanent,
and many women have long-term physical and psychological consequences including sexual dissatisfaction. One significant issue is the loosening of the introitus ─ the
vaginal opening. This may happen with the first vaginal delivery and can be made worse with subsequent vaginal deliveries. Vaginal laxity can result in decreased sexual
pleasure for both women and their partners during intercourse. We believe that this condition is not frequently discussed because women are embarrassed, fear that their
concerns will be dismissed or fear that their physicians will not understand. Physicians hesitate to discuss the situation with their patients because historically there has been
no safe and effective treatment options. Physicians frequently recommend Kegel exercises. However, these exercises only strengthen the pelvic floor muscles and do not
address the underlying cause of vaginal laxity – loss of tissue elasticity. While surgery can be performed to tighten the vaginal canal, the formation of scar tissue from the
surgery may lead to painful intercourse and permanent side effects.
As a consequence of the physical tissue damage that can result from childbirth, a significant decrease in sexual satisfaction has been reported in women who
underwent vaginal delivery, when assessed two years after delivery, in comparison with those who underwent elective caesarian section. In the past several years there has
been a marked increase in the number of women requesting delivery by caesarian section with the intention of preventing damage to the pelvic floor and introitus. Caesarian
sections are not without risk to both the baby and mother. Whether or not to agree to a woman’s request for an elective caesarian section has generated considerable
controversy among obstetricians. If a procedure were available to address the concerns of women about vaginal laxity, we believe the perceived need to have a caesarian
section to prevent vaginal tissue damage may decrease significantly.
Market for a Proven Solution for Vaginal Laxity & Sexual Function
In 2009, we sponsored several on-line marketing surveys in the U.S. with both OB/GYNs and women, ages 25-55, to assess attitudes of physicians and women about
vaginal laxity and towards a safe, non-invasive solution to treat this condition.
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Physician Survey: An OB/GYN marketing survey was conducted by OB/GYN Alliance with nearly 525 practicing OB/GYNs from across the U.S. The
objectives of the study were to: obtain insights from physicians on physical changes resulting from childbirth and the corresponding sexual health implications
for patients; understand the perceptions and opinions of OB/GYN physicians on a procedure that could be offered to address vaginal laxity following childbirth;
and gain an understanding of whom the early adopters may be of the Viveve treatment.
● Consumer Survey: In a consumer marketing survey conducted by Q&A Research, 421 women were screened for vaginal delivery, age (25-55), income,
education and other factors. The objectives of the survey were to assess the need for the Viveve treatment and better understand the complexity of emotions and
the psychological profile of women who experience, but do not discuss, vaginal changes post childbirth.
Results from these surveys suggested that vaginal laxity is a significant unmet medical need, and that patients and physicians would benefit significantly from a safe
and effective non-invasive treatment that would also increase physical sensation and sexual satisfaction following vaginal childbirth. Of the 421 patient respondents, up to
48% felt that vaginal laxity was a concern post-childbirth. Furthermore, it is evident that patients and their OB/GYNs are not discussing vaginal laxity on a regular basis; in
fact, we believe such conversations occur quite infrequently due to many factors, including patient embarrassment and fear of being ridiculed, lack of time and lack of
solutions for physicians. Of the nearly 525 OB/GYNs surveyed, 84% indicated that vaginal laxity is the number one post-delivery physical change for women, being more
prevalent than weight gain, urinary incontinence and stretch marks, and believe that it is under-reported by their patients. Additionally, in a separate international survey of
urogynecologists, 84% of the 563 respondents described vaginal laxity as underreported by their patients and the majority considered it a bothersome condition that impacts
sexual function and relationships.
Applying U.S. census data, CDC Vital Statistics data and our projections from these studies, we estimate there are approximately 9 million post-partum women who
are potential candidates for this procedure in the U.S. alone, approximately 4.5 million of whom could be candidates for the Viveve treatment for vaginal laxity or sexual
function.
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In 2012, we conducted a similar consumer study in Japan and Canada in order to understand cultural differences that may exist towards vaginal laxity and the Viveve
treatment. The results corroborated our U.S. survey conclusions. Applying World Health Organization census data as well as data from individual countries, we estimate
there are 25-30 million women outside the U.S. that could be candidates for the Viveve treatment for vaginal laxity or sexual function.
In January 2018, we sponsored a survey of 1,500 women in Great Britain having had a vaginal delivery, and nearly half (48%) worried before having a child about
physical changes in their body from childbirth affecting their sex life; this increased to 67% of women in the age range of 25-34. Approximately 4 in 10 (38% overall, 44%
ages 25-34) have experienced vaginal tissue changes impacting their physical sensation during sex, with the most common impacts consisting of feeling less confident
overall, feeling embarrassed and self-conscious, and feeling less enjoyment or intimacy with their partner.
In a 2019 article in the Journal of Women’s Health, the authors concluded that the social stigma for women from Western culture regarding sexuality remains and
creates barriers of communication with their health care professionals. The women in the study were typically unaware or had misconceptions of conditions that could
adversely affect their sexual life. Additionally, these women lacked awareness of safe and effective treatments. Despite the lack of awareness and communication regarding
this issue, we believe there is a strong interest among patients and doctors to advance the conversation of women’s sexual wellness and evolving options a treatment that are
clinically proven and safe.
Current Treatments for Vaginal Laxity/Sexual Function and Their Limitations
Currently, few clinically proven medical treatments are available to effectively treat vaginal laxity or sexual function. The most widely prescribed treatments include
pelvic floor muscle exercises, or Kegel exercises, and invasive surgical procedures, known as laser vaginal rejuvenation (“LVR”) or vaginoplasty.
● Kegel Exercises: Kegels are an exercise that was developed by Dr. Arnold Kegel designed to strengthen the muscles of the pelvic floor - the pubococcygeal
(“PC”) muscles - to increase vaginal muscle tone, improve sexual response, and limit involuntary urine release due to stress urinary incontinence. These exercises
are often prescribed following childbirth or during and after menopause. However, we are not aware of any validated evidence indicating that Kegels improve
vaginal laxity or sexual function due to introital laxity.
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Surgical Procedures: Of the various alternatives for treating vaginal laxity, invasive surgical procedures, such as LVR, are the only modalities with any proven
efficacy outcomes. Typically, they are performed by plastic surgeons with patients under general anesthesia. According to The International Society of Aesthetic
Plastic Surgeons (“ISAPS”), 206,846 LVR surgeries were performed world-wide in 2017. However, these invasive surgical procedures are expensive, costing
thousands of dollars, and can involve weeks of post-surgical recovery time for the patient. They also carry the risk of scarring, which can lead to uncomfortable or
painful intercourse, long-term or permanent loss of sensation, serious infection, tissue necrosis, hematomas (fluid collection under the tissue that may require
removal), and adverse reactions to anesthesia.
Overview of Stress Urinary Incontinence
Urinary incontinence (UI) is defined by the International Continence Society (ICS) as “the complaint of involuntary leakage of urine.” UI is increasingly recognized
globally as a health and economic problem, which affects the physical, psychological, social and economic well-being of individuals and their families and poses a
substantial economic burden on health and social services.
Women with urinary incontinence have a significantly poorer quality of life than their continent counterparts. The psychological impact of this condition must neither
be underestimated nor ignored. The need to use an external pad to absorb urine leakage associated with even normal activities such as coughing or laughing is
unsatisfactory, inconvenient, often embarrassing and negatively impacts a woman’s quality of life. The main impact urinary incontinence has on women’s lives, in terms of
social and recreational withdrawal, stems from the fear and anxiety related to becoming incontinent in public and the possibility that others may find out. The result is often
reduced activities, decreased productivity, isolation, and depression. Additionally, between 25% to 50% of women with urinary incontinence experience sexual dysfunction.
There are three types of UI. Stress Urinary Incontinence (SUI) is the complaint of involuntary leakage of urine due to increased abdominal pressure caused by
exertion, sneezing or coughing. Urge Urinary Incontinence (UUI) is the complaint of involuntary leakage of urine accompanied by or immediately preceded by urgency.
Mixed Urinary Incontinence (MUI) is the complaint of involuntary leakage of urine associated with urgency and also with exertion, sneezing, or coughing.
According to the most recent National Center for Health Statistics (NCHS) Health Survey in the U.S., the prevalence of UI in adult women is 33% which is the
highest among the ten conditions tracked including obesity, joint pain and hypertension. Additionally, a review of the epidemiologic literature on incontinence showed a
prevalence range of 16% to 51% depending on UI definitions, severity levels, and other factors included in the surveys. The average across the literature is 33%, which is
similar to the NCHS survey. This translates to 35 million women in the U.S. Of those 35 million 86% have SUI or MUI, 80% of them are bothered and only approximately
700,000 are receiving treatment in the form of conservative therapy or surgical procedures. Accordingly, over 23 million women in the US are bothered by SUI or MUI
symptoms and are untreated. Viveve believes that its non-invasive treatment option for SUI may fulfill this large unmet need.
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SUI has two major subtypes: intrinsic sphincter deficiency (ISD) and urethral hypermobility. Patients with ISD leak urine because their urethral sphincters do not
effectively seal off the inner muscle of the bladder. Urethral hypermobility (UH) refers to the urethral shift that occurs when there is an increase in intrabdominal pressure
(e.g., cough/sneeze/jump) and insufficient urethral support by the surrounding pelvic floor muscles and tissue. Most women with SUI have a degree of both ISD and UH.
Risk factors for SUI include pregnancy, childbirth, and menopause. For example, more than 55% of women who have delivered a child vaginally will show
symptoms of SUI and are twice as likely to suffer from long-term SUI when compared to cesarean delivery.
Current Treatments for Stress Urinary Incontinence and Their Limitations
Currently available and effective treatment options for SUI are limited to conservative physiotherapy and more aggressive, invasive options with a lack of efficacious
options in between. Pelvic floor muscle training (Kegels), with or without use of a device to assist in Kegels, are generally prescribed as a first step in treatment. Some
women may find benefit from these exercises, but long-term compliance and sustainability is challenging. At the other end of the treatment spectrum are bulking agents and
surgery with native tissue or mesh or a sling. Bulking agents are best used for women with primarily ISD and can be done in a clinic, however they have limited efficacy and
durability. Surgeries including synthetic sling placement have a proven success rate, however, mesh surgery often leads to complications. In addition, surgery requires
recovery time for the patient and often comes with risks including recurrence, infection, pain, voiding dysfunction, and anesthetic concerns, leading many women to agree to
surgery as a last resort for treatment. The large gap between conservative and highly-invasive treatment options presents an opportunity to provide more effective, safe, and
less-invasive treatments for women suffering from SUI.
The Viveve Solution
RF energy has a long history of use in epithelial/mucosal tissue in the pharynx, skin, cornea, and vagina. Additionally, RF devices have been used to treat a variety of
health-related concerns, including SUI. We believe that the Viveve System provides a compelling, safe, non-invasive treatment for vaginal laxity, improvement of sexual
function that is supported by clinical studies, and improvement of the symptoms of SUI. The Viveve treatment is conducted on an outpatient basis in a practitioner’s office.
The procedure typically takes approximately 30 - 45 minutes depending on the indication being treated and does not require any form of anesthesia. To perform the
procedure, a practitioner attaches the single-use treatment tip to the handpiece. As described above, the return pad is then adhered to the patient’s upper leg to allow a path of
travel for the RF current back to the generator. Prior to treatment, the treatment area is bathed in coupling fluid, which is used for conduction and lubrication.
Benefits of the Viveve Treatment
The Viveve treatment provides a number of benefits for physicians and patients:
● Minimally-Invasive, Non-Ablative Treatment with a Demonstrated History of Safety. The Viveve System has been tested in pre-clinical tissue studies and has
been used to treat over 500 clinical study patients. To date, we estimate that physicians have treated over 20,000 patients. The procedure is non-invasive and
offers a treatment option with little or no downtime from the patient’s normal routine. It is also not a surgical procedure and does not damage either the mucosal,
sub-mucosal tissue, or any extra vaginal tissues or require any form of anesthesia.
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Single Treatment. The Viveve treatment is normally performed in a medical office setting as a single treatment that takes approximately 30 – 45 minutes to
complete depending on the indication being treated. Our studies have shown that the clinical effect from our procedure occurs within one to three months and
patients continue to report improvement over a period of six months following treatment. In addition, the Viveve treatment maintains its effect for at least 12
months, based upon currently available data from our clinical studies.
● Compelling Physician Economics. We believe that in an era of declining government and insurance reimbursement, many physicians are seeking to add effective
and safe, self-pay procedures to their practices. The Viveve treatment can be easily adapted into many physician practices and offers compelling per-procedure
economics for the physician.
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Ease of Use. The Viveve System offers an easy-to-use, straightforward user interface that allows a trained physician or nurse (where permitted by law) to perform
the treatment in approximately 30 – 45 minutes depending on the indication being treated. It provides real-time feedback, and the patient can be monitored during
the treatment. The handpiece and single-use treatment tip are designed with a small profile for accurate placement during treatment, comfort and ease of use.
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Business Strategy
Our goal is to become the leading provider of non-invasive solutions to treat certain women’s intimate health conditions by:
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Increasing the Number of Installed Base of Viveve Systems. In our existing markets, we plan to (i) expand the number of Viveve Systems by leveraging our new
business model, current and future clinical study results and through innovative marketing programs directed at both physicians and patients, where permissible
by law, and (ii) expand our efforts and obtain regulatory approvals in additional markets, although there are no assurances that we will ever receive such
approvals.
● Driving Increased Treatment Tip Usage. We work collaboratively with our physician customer base to increase treatment tip usage by enhancing customer
awareness and facilitating the marketing efforts of our physician customers to their patients, where permitted by law. We intend to launch innovative marketing
programs with physician customers, where permitted by law, to develop a high volume Viveve practice.
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Broadening the conditions we treat through robust clinical trials and regulatory label expansion. In addition to pursuing clearance/approval in the U.S. for the
improvement of sexual function, we intend to conduct several clinical trials, and if successful, submit for regulatory clearance/approval in the U.S. and abroad for
stress urinary incontinence and potentially vulvovaginal atrophy.
Broadening Our Customer Base. While our initial focus is on marketing our procedure to the aesthetics and OB/GYN specialty, we intend to selectively expand
our sales efforts into other physician specialties, such as urology, urogynecology, general surgery and family practice. Additionally, we intend to pursue sales
from physician-directed medi-spas with track records of safe and successful treatments.
● Developing New Treatment Tips and System Enhancements. We intend to continue to expand our line of treatment tips that, in the future, may allow for shorter
procedure times to benefit both physicians and patients. We also plan to pursue potential system modifications and next generation enhancements that will further
increase the ease-of-use of the Viveve System.
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Investing in Intellectual Property and Patent Protection. We will continue to defend and invest in expanding our intellectual property portfolio, and we intend to
file for additional patents to strengthen our intellectual property rights. Areas in which we may pursue additional patent protection include, but are not limited to,
redesign of certain system components, disposable components and software algorithms. We believe that our intellectual property rights protect our position as
the exclusive provider of a vaginal laxity treatment using monopolar RF technology in the U.S. and in many other countries. (See discussion under the heading
“Patents and Proprietary Technology”.)
Our Customers
To date, we have focused our commercial efforts in markets where we have received regulatory clearances/approvals. Within each market, we target thought leaders
across multiple specialties in order to increase awareness of the conditions we treat and accelerate patient acceptance of Viveve’s treatments. Currently we target a broad
number of physician specialties including; plastic surgeons, aesthetic dermatologists, OBGYNs, urogynecologists, urologists and others.
Through our direct sales employees, and distributors, we currently target physicians who have a demonstrated commitment to building a high-volume, non-invasive
treatment business within their practice. As sales of our product continue to expand globally, we intend to continue to utilize distribution partners in most countries.
Sales and Marketing
United States
In October 2016, we received clearance from the FDA to sell the Viveve System for use in general surgical procedures for electrocoagulation and hemostasis. From
January 2017 through May 2019 the Company relied on a traditional capital sales model, including selling the Viveve Systems and disposable treatment tips. In June of
2019, the Company transitioned to a recurring revenue rental model, where we lease the Viveve System to customers instead of selling it to them. The Company believes
that the change in business model lowers the barrier to entry for physicians to adopt the procedures, shortens the sales cycle and improves the cost effectiveness of each sale.
At the end of 2019, we had 6 direct sales representatives covering the United States. In 2020, we plan to expand our direct sales efforts under the new business model to
achieve broader reach throughout the United States.
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International
We currently market the Viveve treatments and sell the Viveve System, including the single-use treatment tips in over 50 countries outside of the United States. At the
present time, trained direct sales employees or distribution partners represent Viveve and its products in 57 countries in markets in Canada, Europe, the Middle East, Asia
Pacific, and Latin America.
By using a consultative sales process, we form strong relationships with our customers through frequent interactions. Beyond performing initial system installation
and on-site training, which can occur within two weeks of a physician’s purchase decision, our sales consultants provide ongoing consultation to physicians on how to
integrate the Viveve treatments into their practices and market procedures to their patients, to the extent permitted by law.
We, or our distribution partner, also provide comprehensive training and education to each physician upon delivery of the Viveve System. We are not required to
provide training but do so to support our physician customers in safely and effectively performing the Viveve treatments.
Further, we intend to actively engage in promotional opportunities through participation in industry tradeshows and clinical workshops, as permitted by law, as well
as through trade journals, brochures, and our website. We intend to also actively engage in direct-to-consumer marketing of the Viveve treatments where permitted by law,
including extensive use of social media, in many cases on a cooperative basis with our distribution partners.
Clinical Studies
We have completed several pre-clinical and human clinical studies in vaginal tissue to assess the safety and efficacy of the Viveve treatment in vaginal laxity/sexual
function and SUI. We are currently conducting a sexual function trial under IDE in the U.S. (VIVEVE II), recently completed an international trial in Canada for SUI
(LIBERATE-International) and are preparing to conduct a clinical study in the U.S. for SUI, if and when we receive approval of our IDE application from the FDA. While
we believe that our pre-clinical and human clinical studies have, and will, show that the Viveve System and the Viveve treatment have a strong safety profile and are
effective, there is risk that the FDA will not agree with this assessment. Notwithstanding the safety in trials to date of the Viveve System, patients may experience
undesirable side effects such as temporary swelling or reddening of the treated tissue.
Pre-clinical Studies
In 2010, in collaboration with West Virginia University, we conducted an animal study in sheep to assess the safety, and further understand the mechanism of action,
of the Viveve treatment. The vaginal introitus of five parous sheep were treated once with the Viveve System using a variety of energy levels (75−90 Joules/cm2). Each
sheep then underwent serial vaginal biopsies immediately after treatment, at approximately one week, and at one, three and six months (4-5 samples per occurrence).
Control biopsies were also obtained from three untreated parous sheep. We examined the vaginal mucosa and underlying connective tissue for thermal changes and
subsequent tissue responses over a six-month period through light microscopic examination of haematoxylin and eosin (“H&E”) stained slides that were reviewed by
pathologists who were blinded as to the treated and untreated sheep.
The results of the study indicated that the optimal level of RF energy delivered was 90 J/cm2 and the biopsies supported the hypothesis that the mechanism of action
of our technology involves connective tissue remodeling with fibroblast activation and new collagen production. Given the post-treatment absence of ulcerations, regional
necrosis or diffuse fibrosis, throughout the six-month follow-up period, we believe the studies help support the safety profile of the Viveve System.
As part of our clinical studies, we have studied and continue to study, the interaction of RF energy and tissue to further understand the mechanism of action of the
Viveve procedure. We have used transmission electron microscopy on ovine biopsied tissue samples to corroborate that our product induces subtle collagen modification
and the deposition of new collagen that leads to tissue tightening and restoration of tissue elasticity. We have developed histology techniques to investigate the depth of heat
in tissue, fibroblast activation and collagen deposition that we believe is responsible for long-term improvement and tightening of tissue. We have also created three-
dimensional computer models to study tissue heating with our product. Determining the effectiveness of this type of treatment is inherently a subjective evaluation, and the
FDA could disagree. When performing our clinical studies, we attempt to utilize the most compelling measures we can in order to provide convincing evidence of efficacy.
In November 2019, we conducted a Good Laboratory Practice (GLP) study in six ewes to evaluate the in vivo temperature-time profile and histopathology of vaginal
and surrounding tissues in the ovine model after Viveve treatment. Five ewes were utilized for the in vivo energy application procedures while the remaining ewe was
utilized as a control. During anesthesia, eight fluoroptic temperature probes were placed at different locations near the vaginal wall, rectum and bladder. After probe
placement, five of the ewes received the Viveve SUI protocol (220 pulses of 90 J/cm2 of RF energy) and temperatures recorded. The control ewe did not receive energy
application, but temperatures were recorded. In February 2020, study results showed temperature increases only at tissue locations where expected. Histopathology results
showed normal histopathology of vaginal and surrounding tissues, and no adverse or other associated treatment-related responses, as evaluated histologically via H&E stain
(in formalin fixed, paraffin embedded samples) and LDH/NBT vital stain (in frozen, OCT embedded samples). There were no macroscopic findings in either fresh or
formalin-fixed tissues submitted for pathologic evaluation.
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Clinical Studies – Vaginal Laxity and Sexual Function
United States Pilot Study
We conducted our first human study beginning in November 2008. The study was a single-arm study conducted in 24 female subjects, ages 25-44 years old, each of
whom had experienced at least one full-term vaginal delivery. The study was designed to assess the safety and efficacy of the Viveve System for the treatment of vaginal
laxity at three RF dosing levels. Each woman underwent a single Viveve treatment, three patients received 60 joules/cm2, three patients received 75 joules/cm2, and 18
patients received 90 joules/cm2. Patient outcomes were measured at baseline, one month, three months, six months, and 12 months using several validated patient-reported
outcome measures, including a company-designed vaginal laxity/tightness questionnaire (“VSQ”), Female Sexual Function Index (“FSFI”), Female Sexual Distress Scale-
Revised (“FSDS-R”) and the Global Response Assessment.
Within one month after the Viveve treatment, patients reported a statistically significant improvement in vaginal laxity scores, sexual function and sexual satisfaction
scores compared to baseline. These results continued throughout the 12-month follow-up period. Additionally, patients reported a statistically significant decrease at one
month, and thereafter, in their personal distress scores from sexual activity.
The Viveve treatment also demonstrated a strong safety profile throughout the study. The treatment was well tolerated and there were no procedure-related adverse
events or serious adverse events through the 12-month follow-up period.
Japan Pilot Study
Our second human clinical study began in March 2010. This study was an open-label study conducted in 30 female subjects, ages 21-55 years old, each of whom had
experienced at least one full-term vaginal delivery and experiencing vaginal laxity. The study was designed to assess the safety and efficacy of the Viveve System for the
treatment of vaginal laxity. Each woman was treated once with the Viveve System, using 90 joules/cm2 of RF energy as the therapeutic dose.
Patient reported outcomes were measured at baseline, one month, three months, six months, and 12 months using several validated patient-reported outcome
measures, including VSQ, FSFI, FSDS-R and the Global Response Assessment.
Within one month after the Viveve procedure, patients reported a statistically significant improvement in vaginal laxity scores, sexual function and sexual satisfaction
scores compared to baseline. These results continued throughout the 12-month follow-up period. Additionally, patients reported a statistically significant decrease at one
month, and thereafter, in their personal distress scores from sexual activity.
The Viveve procedure continued to demonstrate a strong safety profile. The treatment was well tolerated and there were no procedure-related adverse events or
serious adverse events through the 12-month follow-up period.
VIVEVE I Clinical Study
In the fourth quarter of 2014, we began the VIVEVE I clinical study (VIveve treatment of the Vaginal introitus to EValuate Effectiveness), sometimes referred to in
this report as the “OUS Clinical Trial,” a randomized, blinded and sham-controlled trial designed to further demonstrate the efficacy and safety of the Viveve System versus
a sham procedure for the treatment of vaginal laxity. Nine clinical sites in four countries (Canada, Italy, Spain and Japan) enrolled 174 patients, which included pre-
menopausal females 18 years of age or older who experienced at least one full term vaginal delivery at least 12 months prior to enrollment date, randomized in a 2:1 ratio to
either an active treatment group or sham-control group. Patients were followed for six months post-treatment to assess the primary effectiveness and safety endpoints of the
study with data being collected at one, three and six-months. The study also included a prospective interim data analysis at the three-month endpoint of 50% of the patients
enrolled. Patients randomized to the sham arm were offered the opportunity to receive a Viveve treatment once they had completed the six-month evaluation following the
sham intervention.
The primary endpoint of the study was the proportion of subjects in the active arm as compared to the proportion of subjects in the sham arm reporting no vaginal
laxity at six months post-intervention. “No vaginal laxity” was operationally defined as a score > 4 on the VSQ, a patient reported global assessment of vaginal laxity based
on a 7-point scale. Additionally, the primary safety endpoint was the proportion of subjects in the active arm experiencing an adverse event (“AE”) by six months post-
treatment as compared to the proportion of the subjects in the sham arm experiencing an AE by six months post-intervention. Secondary endpoints included the adjusted
change in mean score on the FSFI, FSDS-R and the Vaginal Laxity Inventory (“VALI”). The VALI was created specifically for the assessment of vaginal laxity by external
medical experts.
In April 2016, we completed the VIVEVE I study and reported the following results:
At six months (n=155), the proportion of patients reporting “no vaginal laxity” in the active arm, as measured by the VSQ, was 41.7%, while the proportion of
patients reporting “no vaginal laxity” in the sham arm on the VSQ was 19.2% (p=0.005). Moreover, the likelihood of having “no vaginal laxity” following treatment in the
active arm was more than three times greater than for the sham arm (p=0.006). Further, nearly 80% of the subjects in the active arm experienced a positive change in VSQ
score versus baseline.
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At six months, for those patients who scored less than a 26.5 total score on the FSFI at baseline (n=103), the adjusted mean change from baseline score between the
active arm and the sham arm was 3.2 (p=0.009). Moreover, for each of the six individual domains of the FSFI, subjects in the active group reported a greater increase in
score than in the sham group. Change in scores from baseline for both the sexual arousal and orgasm domains were statistically significant and nearly 93% of subjects in the
active arm experienced an increase in score versus baseline.
At six months, FSDS-R and VALI were also assessed as part of the secondary end-point analysis. While subjects in the active arm reported a greater increase in scores
than the sham arm, the results for the FSDS-R and VALI were not statistically significant.
Safety for the study was assessed on the entire study population (n=174). Subjects reported the same level of unrelated (32.5% active versus 35.1% sham), related
(11.1% active versus 12.3% sham) and serious (0.0% active versus 1.8% sham) adverse events in both the active and sham arm, further demonstrating that the Viveve
treatment is well tolerated with no safety concerns.
We believe that the consistency of results across these three clinical study populations, is indicative of the cross-cultural similarities in this medical condition and the
positive impact that an effective non-invasive treatment can have on the sexual health of women after vaginal childbirth.
VIVEVE II Clinical Study
In March 2019, enrollment was completed for the VIVEVE II clinical study following IDE approval by the FDA. This is a prospective, randomized, double-blind,
sham controlled study to evaluate the efficacy and safety of the Viveve System to improve symptoms of female sexual dysfunction, associated with vaginal laxity. A total of
19 clinical sites in the United States enrolled up to 250 female patients who were pre-menopausal, 18 years of age or older who experienced at least one full term vaginal
delivery at least twelve months prior to enrollment. Patients were randomized in a 2:1 ratio to either an active treatment group or sham-control group. Patients were followed
for twelve months post-treatment. Patients randomized to the sham arm were offered the opportunity to receive a Viveve treatment once the study has been unblinded.
The primary efficacy endpoint of the study is the mean change from baseline in the Female Sexual Function Index (FSFI) total score at twelve months posttreatment.
Secondary endpoints include evaluation of the mean change from baseline of the total FSFI score at six months, as well as evaluation of the mean change from baseline of
the six different domains within the FSFI at six and twelve months. At months six and twelve, in addition to the FSFI, subjects were asked to complete the Patient’s Global
Impression of Improvement (PGI-I). Subjects were also assessed for adverse events throughout the study. Completion of all subject follow-up visits in the study was
reported in March 2020. The Company intends to report final twelve-month clinical data from the study in the second quarter of 2020.
Clinical Studies – Stress Urinary Incontinence
Canadian Pilot Study
In 2017, Viveve funded a single-arm investigator sponsored study to assess the effects of our CMRF technology in treating patients with mild-to-moderate SUI. The
study was conducted in Calgary, Alberta and included 10 patients who underwent treatment with our CMRF technology under a proprietary treatment protocol. Patients were
followed for 12 months with safety and clinical results reported at 4, 6, 9- and 12-months post-treatment. Clinical results included composite scores from the validated ICIQ-
UI-SF (International Consultation on Incontinence Questionnaire–Urinary Incontinence-Short Form) and UDI-6 (Urogenital Distress Inventory-Short Form) outcome
questionnaires.
Results at 12 months (n=9) included an 89% responder rate (percentage of patients showing an improvement from baseline) for the ICIQ-UI-SF and a 100%
responder rate on the UDI-6. Additionally, patients showed a 40% mean improvement on the ICIQ-UI-SF and a 51% mean improvement on the UDI-6 at 12 months across
both validated endpoints. No device-related safety issues were reported in any of the patients.
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Canadian Feasibility Study
In December 2018, we reported the results of a Viveve supported, single-arm, open label feasibility study that was conducted to evaluate the efficacy and safety of
our CMRF technology to improve urine leakage and quality of life associated with SUI. The study was conducted in Calgary, Alberta and included 37 patients who
underwent treatment with our CMRF technology under a proprietary treatment protocol. Patients with mild to moderate SUI were treated with our proprietary treatment
protocol and followed for 12 months with safety and clinical results reported at 3, 6, 9- and 12-months post-treatment. Clinical results included evaluation of the one-hour
pad weight test, an FDA acceptable endpoint to assess the severity of and leakage associated with SUI, daily incontinence episodes, as well as composite scores from the
validated UDI-6, IIQ-7 (Incontinence Impact Questionnaire), and ICIQ-UI-SF outcome questionnaires.
Results at 12 months (n=25) included a 72% responder rate (percentage of patients showing an improvement from baseline) on the one-hour pad weight test, a
clinically meaningful benefit across all patient reported outcome measures, and a 64% reduction in daily incontinence episodes. Additionally, 52% of patients experienced
greater than a 50% reduction in the one-hour pad weight test from baseline and 60% of patients had less than 1 gram of leakage at 12 months on the one-hour pad weight
test. No device-related safety issues were reported in any of the patients.
This feasibility study showed a significant reduction of SUI symptoms by the 1-month time point and subjects reported durability of results lasting to the 12-month
visit. While this study was on a small number of subjects, the Viveve treatment for SUI showed significant promise and as a result Viveve planned two additional trials in
SUI.
LIBERATE - International
In January 2019, enrollment was completed for the LIBERATE-International study in SUI. The study was conducted in Canada to support SUI indications in Canada,
the European Union and several other international countries. LIBERATE International, a randomized, double-blind, sham-controlled study in 99 patients with mild-to-
moderate SUI was conducted at nine sites in Canada. Patients were randomized in a 2:1 ratio to either Active treatment (90 J/cm2 RF with cryogen cooling) or Sham
treatment (sub-treatment dose of ≤1 J/cm2 with cryogen cooling). Patients were followed for six months post-treatment to assess the primary efficacy and safety of the
treatment with data being collected at one, three and six months.
The primary efficacy endpoint was 6-month change from baseline in the one-hour pad weight test. Secondary endpoints included: 24-hour pad weight test, daily
incontinence episodes (3-day diary), UDI-6, ICIQ-UI-SF, and FSFI.
Across all endpoints, the efficacy of both the Active and Sham treatments were highly clinically relevant. For the primary endpoint, median percentage decrease from
baseline (CFB) to 6 months post-treatment in 1-hr pad weight for the Active group was 77.2% and 81.0% for the Sham group. However, the differences were no significant
between the Active and Sham groups. The sham response consistently exceeded the 30 – 55% placebo response rates in the literature for SUI studies, suggesting that
cryogen alone may have a therapeutic effect.
From a safety perspective, both Active and Sham treatments were safe and well tolerated. Only one adverse device event was noted, none of the 3 serious adverse
events were identified as related to treatment and the percentage of patients with adverse events were comparable with the Viveve I study.
3-Arm SUI Feasibility Study
A single-blind feasibility study was initiated in January 2020 to test the hypothesis that cryogen alone has a therapeutic effect in SUI. This 3-arm study is a
prospective, multicenter, randomized, single-blind, study comparing both the Viveve Treatment (cryogen cooling and 90 Joules/cm2 RF energy) and cryogen alone
treatment (i.e. cryogen cooling with only 1 Joule/cm2 of RF energy, identified in the latest study as “Sham treatment”) versus sham treatment in patients with mild to
moderate stress urinary incontinence.
Approximately 36 subjects (12 per treatment arm) from 3 study sites, meeting the inclusion and exclusion criteria will be randomized in a 1:1:1 ratio to the Viveve
Treatment group (RF plus cryogen), cryogen only treatment group, or the sham group. Randomization will be stratified by study site.
The primary efficacy endpoint is 3-month change from baseline in the one-hour pad weight test. Secondary endpoints included: 24-hour pad weight test, daily
incontinence episodes (3-day diary), and I-QOL.
Completion of subject enrollment in the study was reported in March 2020. Study results are expected in third quarter of 2020 and will inform future potential studies
with the Viveve Treatment in SUI.
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Research and Development
We intend to focus on various research and development efforts, including but not limited to:
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conducting additional human clinical trials, in order to support marketing applications for additional indications in the U.S. and internationally, including but not
limited to SUI and vulvovaginal atrophy;
implementing cost improvement programs to further increase gross margins and our gross profit opportunity;
designing new treatment tips and system enhancements to further optimize ease-of-use and reduce procedure times for patients and physicians; and
continuing to enhance the security within the Viveve System to prevent counterfeiting and refurbishment.
We have formed strategic relationships with outside contractors for assistance on research and development projects, and we work closely with experts in the medical
community to supplement our research and development resources. Research and development expenses for the years ended December 31, 2019 and 2018 were $8,590,000
and $13,616,000, respectively. In the future, we expect to pursue further research and development initiatives to improve and extend our technological capabilities and to
foster an environment of innovation and quality.
Manufacturing
Our manufacturing strategy involves the combined utilization of contract manufacturers, approved suppliers and internal manufacturing resources and expertise. We
outsource the manufacture of components, subassemblies and finished products that are produced to our specifications and shipped to our Englewood, Colorado facility for
inspection, testing and distribution. Our internal manufacturing activities include the testing of Viveve treatment tips and handpieces, as well as the final integration
and system testing of the Viveve System. Our finished products are stored at and distributed from our Englewood, Colorado facility or from our contract manufacturer’s
location in Fredrick, Colorado.
We have arrangements with our suppliers that allow us to adjust the delivery quantities of components, subassemblies and finished products, as well as delivery
schedules, to match our changing requirements. The forecasts we use are based on historical trends, current utilization patterns and sales forecasts of future demand. Lead
times for components, subassemblies and finished products may vary significantly depending on the size of the order, specific supplier requirements and current market
demand for the components and subassemblies. Most of our suppliers have no contractual obligations to supply us with, and we are not contractually obligated to purchase
from them, the components used in our devices.
Our first commercial Viveve system which consists of a generator, handpiece and disposable tip was designed and is currently manufactured by Stellartech Research
Corporation (“Stellartech”). Stellartech is the sole source supplier for this version of the Viveve system. We have manufacturing, quality and regulatory agreements with
Stellartech that define the relationship and responsibilities of both parties in these areas. We also have technology licenses with Stellartech that are discussed in the Patents
and Proprietary Technology section of this document.
Our second generation Viveve system consists of a generator and handpiece designed and manufactured by Sparton Corporation (“Sparton”), and a disposable
treatment tip designed and manufactured by Cirtec Corporation (“Cirtec”). Both Sparton and Cirtec are sole source suppliers for their respective components. We have a
Professional Services Agreement with Sparton that governs the design and development relationship and a Manufacturing and Supply Agreement that defines our
manufacturing, shipping and servicing relationship. We manage our relationship with Cirtec with long range (12 month) forecasts and purchase orders
In addition to our primary system suppliers, we also have critical suppliers at the component level. We obtain proprietary flexible electronic circuits for our treatment
tips and the coolant valve for the handpiece from single suppliers (AllFlex and Lee Valve Co.), for which we attempt to mitigate risks through inventory management and
either long term supply agreements or 12- to 18-month purchase orders. We currently have two sterilization vendors to mitigate risks. Other products and components come
from single suppliers, but alternate suppliers have been qualified or, we believe, can be readily identified and qualified. To date, shipments of finished products to our
customers have not been significantly delayed due to material delays in obtaining any of our components, subassemblies or finished products.
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We are required to manufacture our product in compliance with Title 21 of the Code of Federal Regulations Part 820 (“21 CFR 820”) enacted by the FDA (known as
the Quality System Regulation or QSR). 21 CFR 820 regulates the methods and documentation relating to the design, testing, control, manufacturing, labeling, quality
assurance, packaging, storage and shipping of our product. We maintain quality assurance and quality management certifications to enable us to market our product in the
member states of the European Union, the European Free Trade Association and countries which have entered into Mutual Recognition Agreements with the European
Union. These certifications include EN ISO 9001:2000 and CAN/CSA ISO 13485:2003. We are also required to maintain our product registration in a number of other
foreign markets such as Canada.
We use small quantities of common cleaning products in our manufacturing operations, which are lawfully disposed of through a routine waste management
program. Except for costs that may be incurred in the future in connection with environmental regulations requiring the phase out of R134a, a hydrofluorocarbon, or HFC,
upon which our cooling module relies, we do not anticipate any material costs due to compliance with environmental laws or regulations. In 2007, the European Union
enacted directives aimed at the automotive industry for the removal of HFC's from air conditioning. As a result of these directives, we anticipate that similar directives may
be imposed on the medical device industry over the next decade. In anticipation of future restrictions, we have qualified a more environmentally friendly HFC (1234ZE) for
use in our generators. We do not anticipate that we will have to incur costs in the near future to develop an alternative cooling module for our device which is not dependent
on HFCs. If and when we are required to do so, and if we do not do so in a timely or cost-effective manner, the Viveve System may not be in compliance with environmental
regulations, which could result in fines, civil penalties and the inability to sell our products in certain major international markets.
We generally offer a one-year warranty providing for the repair, rework or replacement (at the Company’s option) of products that fail to perform within stated
specifications. To the extent that any of our components have performance related or technical issues in the field, we typically replace those components as necessary. We
also sell a small number of extended service agreements on certain products for the period subsequent to the normal one-year warranty provided with the original product
sale. Warranties are assessed for proper revenue recognition. Most warranties are classified as assurance type warranties thereby allowing immediate recognition of revenue
with accrual for estimated future warranty expenses. Revenue from sale of such extended service agreements was immaterial for the years ended December 31, 2019 and
2018.
Patents and Proprietary Technology
We rely on patent, copyright, trade secret and trademark laws and confidentiality agreements to protect our technology and the Viveve System. We have an exclusive
license (with a field of use limitation) to one issued U.S. patent and own 4 issued U.S. patents directed to our technology and the Viveve System. Additionally, we have 8
pending U.S. patent applications, 73 issued foreign patents, and 14 pending foreign patent applications, some of which foreign applications preserve an opportunity to pursue
patent rights in multiple countries.
Issued
4
U.S. Patents
Pending
8
Foreign Patents
Issued Pending
73
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All our employees and consultants are required to execute confidentiality agreements in connection with their employment and consulting relationships with us. We
also require them to agree to disclose and assign to us all inventions conceived or made in connection with the employment or consulting relationship. We cannot provide any
assurance that our employees and consultants will abide by the confidentiality or invention assignment terms of their agreements. All our manufacturing suppliers are
required to execute confidentiality agreements and contracts for our approved suppliers include confidentiality provisions. Despite measures taken to protect our intellectual
property, unauthorized parties may copy aspects of our product or obtain and use information that we regard as proprietary.
“Viveve,” is a registered trademark in the U.S. and several foreign countries. As of the date of this report, we have various foreign registrations protecting the various
marks in numerous countries outside of the U.S. We may file for additional trademarks to strengthen our trademark rights, but we cannot be certain that our trademark
applications will issue or that our trademarks will be enforceable.
Edward Knowlton Licensed Patents
On February 10, 2006, Viveve, Inc. entered into an Intellectual Property Assignment and License Agreement with Edward W. Knowlton (“Knowlton”), as amended
on May 22, 2006 and July 20, 2007 (collectively, the “Knowlton IP Agreement”), pursuant to which Knowlton granted to Viveve, Inc. an exclusive, royalty-free and
perpetual worldwide sublicense to certain intellectual property and technology licensed to Knowlton from a third party, including rights to several patents and patent
applications owned by Thermage, Inc. outside the field of contraction, remodeling and ablation of the skin through and including (but not beyond) the subcutaneous fat layer
below the skin (collectively, the “Knowlton Licensed IP”). The sublicense under the Knowlton Licensed IP is fully-paid, transferable, sublicensable and permits us to make,
have made, use, sell, offer for sale and import any product or technology solely for use in the field of transmucosal treatment of the vagina or vulva (the “Field”) and to
practice any process, method, or procedure solely in the Field. The Knowlton IP Agreement also assigns to us all technology and related intellectual property rights owned by
Knowlton for the development and commercialization of devices, including any improvements, in the Field (the “Knowlton Assigned IP”). We are obligated to file and
reasonably prosecute any patent applications that include a description of the Knowlton Assigned IP as prior art and maintain all patents included in the Knowlton Assigned
IP, at our expense. In consideration of the sale, assignment, transfer, release and conveyance and other obligations of Knowlton under the Knowlton IP Agreement, Viveve,
Inc. issued 200,000 shares of our common stock to Knowlton and agreed to engage the consulting services of Knowlton.
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Also on February 10, 2006, Viveve, Inc. entered into a Consulting Agreement with Knowlton (“Knowlton Consulting Agreement”), pursuant to which Knowlton
assigned all rights to any inventions and intellectual property developed during the course of providing consulting services in the Field during the term of the agreement.
Unless earlier terminated pursuant to the provisions described therein, the term of the Knowlton Consulting Agreement continued until the earlier to occur of (i) the date that
is six months after the closing of an initial public offering of Viveve, Inc.’s stock; or (ii) the acquisition by a third party of all or substantially all of the business or assets of
Viveve, Inc., whether by asset or stock acquisition, merger, consolidation or otherwise. The agreement could be renewed only upon the mutual written agreement of the
parties prior to its expiration. The Knowlton Consulting Agreement expired by its terms on September 23, 2014. The assignment of the intellectual property developed
during the term of the Knowlton Consulting Agreement survives termination.
Agreement with Stellartech Research Corporation
On June 12, 2006, Viveve, Inc. entered into the Stellartech Agreement, as amended and restated on October 4, 2007, with Stellartech for an initial term of three years
in connection with the performance of development and manufacturing services by Stellartech and the license of certain technology and intellectual property rights to each
party. Under the Stellartech Agreement, we agreed to purchase 300 units of generators manufactured by Stellartech. As of December 31, 2019, the Company has purchased
855 units. In conjunction with the Agreement, Stellartech purchased 37,500 shares of Viveve, Inc.’s common stock. Under the Stellartech Agreement, we paid Stellartech
$4,889,000 and $10,150,000 for goods and services during the years ended December 31, 2019 and 2018, respectively. In addition, Stellartech granted to us a non-exclusive,
nontransferable, worldwide, royalty-free license in the Field (defined above in the discussions titled “Edward Knowlton Licensed Patents”) to use Stellartech’s technology
incorporated into deliverables or products developed, manufactured or sold by Stellartech to us pursuant to the Stellartech Agreement (the “Stellartech Products”) to use,
sell, offer for sale, import and distribute the Stellartech Products within the Field, including the use of software object code incorporated into the Stellartech Products. The
Stellartech technology consists of know-how applicable to the manufacturing and repair of the Viveve System, including any other intellectual property which Stellartech
developed or acquired separate and apart from the Stellartech Agreement and all related derivative works. In addition, once we purchase a minimum commitment of 300
units of the RF generator component (the “Minimum Commitment”) and the Stellartech Agreement expires, Stellartech is to grant us a nonexclusive, nontransferable,
worldwide, royalty-free, fully-paid license to use the Stellartech technology incorporated into the Stellartech Products to make and have made Stellartech Products in the
Field.
Stellartech also granted (i) an exclusive (even as to Stellartech), nontransferable, worldwide, royalty-free license within the Field under those certain intellectual
property rights licensed to Stellartech pursuant to a development and supply agreement between Stellartech and Thermage, dated October 1, 1997 (the “Thermage
Technology”), to use any elements of the Thermage Technology incorporated into the Stellartech Products, solely for the use, sale, offer for sale, importation and distribution
within the Field; (ii) upon our satisfaction of the Minimum Commitment and the expiration of the Stellartech Agreement, an exclusive, nontransferable, worldwide, royalty-
free, fully-paid license within the Field under Stellartech’s license rights in the Thermage Technology to use any elements of the Thermage Technology which are
incorporated into the Stellartech Products to make and have made Stellartech Products in the Field; and (iii) the exclusive right within the Field to prosecute infringers of the
portion of Stellartech’s Thermage Technology rights exclusively licensed to us. Our license rights in Thermage Technology also include the use of software object code for
Thermage Technology used in the Stellartech Products. As of the date of this report, the Stellartech Agreement has expired by its terms, however, the parties still continue to
operate under the terms of the agreement. In addition, we have met the Minimum Commitment requirement, and therefore we are permitted to use the Stellartech technology
with any other manufacturer. If Stellartech refuses or is unable to meet our delivery requirements for the Viveve System, our business could be materially adversely
affected.
In March 2012, Viveve, Inc. entered into a Quality and Regulatory Agreement with Stellartech, pursuant to which the parties clarified their respective quality and
regulatory responsibilities under the Stellartech Agreement. The Quality and Regulatory Agreement provides that we will serve as the legal manufacturer for all Stellartech
Products developed and sold to us thereunder and that we are obligated to maintain all relevant quality assurance and regulatory processes and requirements required by any
regulatory authority and to comply with the processes and requirements set forth in the schedule of responsibilities provided in the agreement.
Government Regulation
The Viveve System is a medical device subject to extensive and rigorous regulation by international regulatory bodies as well as the FDA. These regulations govern
the following activities that we perform, or that are performed on our behalf, to ensure that medical products exported internationally or distributed domestically are safe and
effective for their intended uses:
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product design, development and manufacture;
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product safety, testing, labeling and storage;
record keeping procedures;
product marketing, sales and distribution;
Pre-clinical and Clinical experiences; and
post-marketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair or recall of
products.
In addition to the regulatory approvals already received in connection with the sale of the Viveve System in the foreign jurisdictions described below and the
approvals/clearances already received and being sought in the U.S., we are currently seeking regulatory approval or clearance for the sale of our product in many other
countries around the world.
International
Sales of our product outside the U.S. are subject to foreign regulatory requirements that vary widely from country to country. In addition, exports of medical devices
from the U.S. are regulated by the FDA. Complying with international regulatory requirements can be an expensive and time-consuming process and approval is not certain.
The time required to obtain registrations or approvals, as required by other countries, may be longer than that required for FDA clearance, and requirements for such
registrations or approvals may significantly differ from FDA requirements. We may be unable to obtain or maintain registrations or approvals in other countries. We may
also incur significant costs in attempting to obtain and in maintaining foreign regulatory approvals. If we experience delays in receiving necessary registrations or approvals
to market our product outside the U.S., or if we fail to receive those registrations or approvals, we may be unable to market our product or enhancements in international
markets effectively, or at all, which could have a material adverse effect on our business and growth strategy.
An entity that seeks to export a medical device that is legally marketed in the U.S. (e.g., an FDA cleared Class II medical device) may do so without prior FDA
notification or approval.
Because the Viveve System has been cleared by the FDA for “use in general surgical procedures for electrocoagulation and hemostasis,” Viveve does not obtain
approval from the FDA prior to exporting the device to foreign countries. Additionally, products exported from the U.S. and those with certain levels of U.S. content are
subject to the U.S. export control and sanctions laws and regulations, which may restrict proposed transactions to certain countries, end-users and end-uses. Certain products
may be controlled for export and reexport and may require licensing or other authorization from the U.S. government prior to engaging in the export or reexport transaction.
Changes to these regulations may impact the ability to pursue potential opportunities to export and reexport the products overseas.
Moreover, entities legally exporting products from the U.S. are often asked by foreign customers or foreign governments to supply an export certificate issued by the
FDA to accompany a device. An export certificate is a document prepared by the FDA containing information about a product’s regulatory or marketing status in the U.S.
We have requested the issuance of export certificates to allow exports into many countries around the world, and the FDA has issued those export certificates to us.
Accordingly, we provide export certificates to many of our foreign customers.
Currently, the Viveve System is cleared for marketing in 57 countries throughout the world under the following indications for use:
Indication for Use:
General surgical procedures for electrocoagulation and hemostasis
General surgical procedures for electrocoagulation and hemostasis of vaginal tissue and the treatment of vaginal laxity
For treatment of vaginal laxity
For treatment of the vaginal introitus, after vaginal childbirth, to improve sexual function
General surgical procedures for electrocoagulation and hemostasis as well as for the treatment of vaginal laxity
For vaginal rejuvenation
For treatment of vaginal laxity and to improve mild urinary incontinence and sexual function
No. of Countries:
4 (including the U.S.)
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1
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Outside the U.S., we market and sell through an extensive network of distribution partners. In the U.S., the Viveve System is indicated for use in general surgical
procedures for electrocoagulation and hemostasis and we market and sell primarily through a direct sales force.
United States
FDA’s Premarket Clearance and Approval Requirements
Unless an exemption applies, any medical device we wish to commercially distribute in the U.S. will require premarket clearance from the FDA. The FDA classifies
medical devices into one of three classes. The classification system is risk based, with devices deemed to pose the lowest risk being Class I, and devices posing the most risk
being Class III. Most Class I devices are exempt from the requirement to obtain FDA premarket clearance or approval. For most Class II devices (and a small number of
Class I devices), a company must submit to the FDA a premarket notification (known as 510(k) submission) requesting clearance to commercially distribute the device.
Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a
previously cleared 510(k) devices, are placed in Class III, requiring either FDA premarket approval via a Premarket Approval (“PMA”) application or a De Novo petition
requesting that the FDA reclassify the device into a lower class (i.e., Class II or Class I). The FDA has issued regulations identifying the Class into which different types of
devices fall and identifying whether the device type is exempt from the 510(k) process or if a 510(k) is needed.
510(k) Clearance Pathway
When a 510(k) clearance is required, we must submit a premarket notification to the FDA demonstrating that our device is substantially equivalent to a previously
cleared and legally marketed device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of PMAs
(known as a predicate device). The FDA strives to make a determination that the device is substantially equivalent (SE) (i.e., clear the device) or not substantially equivalent
(NSE) within 90 days of submission of the notification. As a practical matter, clearance often takes significantly longer. The FDA may require further information, including
clinical data, to make a determination regarding substantial equivalence. If the FDA determines that the device is not substantially equivalent to a previously cleared device,
the FDA will issue an NSE letter and place the device into Class III. If the device is placed into Class III automatically based only on the lack of a predicate device and the
device is lower risk, a De Novo submission may be submitted petitioning the FDA to reclassify the device into Class II or Class I, as appropriate.
Any modification to a 510(k)-cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety or
effectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA, if the change raises complex or novel scientific issues or
the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission in the first instance,
but the FDA may review any manufacturer’s decision. If the FDA were to disagree with a manufacturer’s determination that changes did not require a new 510(k), the FDA
could require the manufacturer to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA clearance is obtained and the
manufacturer could be subject to significant regulatory fines or penalties.
In December 2008, a predecessor company to Viveve received 510(k) clearance for a previous version of the Viveve System. Since then, we have made design
modifications to the original 510(k)-cleared device. In March 2015, we submitted a Special 510(k) to the FDA seeking clearance for the updated Viveve System to take into
account the design modifications to the original 510(k)-cleared device, which included improved user interface capabilities and enhanced manufacturability. In October
2016, we received clearance from the FDA to sell the updated device for use in general surgical procedures for electrocoagulation and hemostasis. In 2017 we received
clearance to add an 8 cm tip to the product family.
De Novo Process
If FDA has not issued a regulation classifying a particular type of device as Class I, and if there is no known predicate for a device (i.e., a legally-marketed device
that is not subject to premarket approval with comparable indications for use and technological characteristics), the device is automatically Class III, regardless of the risk the
device poses. If a device is automatically/statutorily classified into Class III in this manner, a company can petition FDA to reclassify the category of devices into Class II or
Class I via a process known as “Evaluation of Automatic Class III Designation,” which is typically referred to as the “de novo process.” The direct de novo process allows a
company to request that a new product classification be established without the company first submitting a 510(k) notification for the device. The reclassification petition
should include a risk-benefit analysis demonstrating that, when subject to general controls or general and special controls, the probable benefits to health from use of the
device outweigh any probable injury or illness from such use. The submitter also must describe why general controls or general and special controls are adequate to provide
reasonable assurance of safety and effectiveness and for proposed Class II devices, provide proposed special controls. If a product is classified as Class II through the de
novo review process, then that device may serve as a predicate device for subsequent 510(k) premarket notifications, including by competitors.
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We intend to seek FDA authorization to market the Viveve System for the treatment of vaginal tissue to improve sexual function and to improve SUI by utilizing the
direct de novo process. However, we cannot predict when or if approval of such a petition will be obtained. In addition, if FDA fails to grant a de novo petition, we will be
required to seek FDA premarket approval (via the more stringent PMA process). Delays in receipt of FDA clearance or failure to receive FDA clearance or approval for
expanded indication could reduce our sales, profitability and future growth prospects.
Clinical Trials
Clinical trials are almost always required to support an FDA de novo reclassification and are sometimes required for 510(k) clearance. With respect to the Viveve
System, the FDA has asked us to conduct a clinical study under an IDE, to support a future product submission (e.g., a 510(k) or a de novo petition) for the sexual function
indication. In the U.S., clinical trials on medical devices generally require submission of an application for an IDE to the FDA if the device is a “significant risk” device. The
IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing
protocol is scientifically sound. The IDE must be approved in advance by the FDA for a specific number of patients. Clinical trials for significant risk devices may not begin
until the IDE application is approved by both the FDA and the appropriate institutional review boards (“IRBs”) at the clinical trial sites. Our clinical trials must be conducted
under the oversight of an IRB at the relevant clinical trial sites and in accordance with FDA regulations, including, but not limited to, those relating to good clinical
practices. We are also required to obtain the patients’ informed consent, in compliance with both FDA requirements and state and federal privacy regulations. We, the FDA,
or the IRB at each site at which a clinical trial is being performed may suspend a clinical trial at any time for various reasons, including a belief that the risks to study
subjects outweigh the benefits. Even if a trial is completed, the results of clinical testing may not demonstrate the safety and efficacy of the device, may be equivocal or may
otherwise not be sufficient to obtain clearance or approval of the product. Similarly, in Europe and other regions, clinical study protocols must be approved by the local
ethics committee and in some cases, including studies with high-risk devices, by the Ministry of Health in the applicable country.
In June 2012, we submitted a pre-IDE application and requested an in-person meeting with the FDA to solicit feedback in advance of filing an IDE to conduct a
clinical study of the Viveve System to support regulatory submission for the sexual function indication. In August 2012, we met with the FDA and received feedback on our
pre-clinical data, historical clinical data, and a clinical protocol for a prospective randomized controlled trial. We had a second meeting with the FDA on December 17, 2015
and received additional feedback on our clinical protocol design and indication for use. In September 2016 we submitted an IDE application to FDA to begin a U.S. clinical
study and the FDA has responded with additional questions regarding the proposed protocol and other aspects of the clinical study design, which we addressed. Approval of
the IDE was received in 2018, and we began our U.S. clinical study to demonstrate the safety and effectiveness of the device to improve sexual function. Completion of
enrollment for the clinical study was achieved in March 2019.
Continuing Regulation
After a device is placed on the market, numerous regulatory requirements continue to apply. These include:
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product listing and establishment registration, which helps facilitate regulatory inspections and other regulatory action;
submission of Unique Device Identifiers (UDIs) or the equivalent to regulatory authorities;
● Good Manufacturing Practice (GMP) and Quality System Regulations (QSRs), which require those who design, manufacture, package, label, store, install, and
service devices to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of these processes;
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labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or “off-label” uses to both physician and consumers;
regulations governing our interactions with healthcare practitioners;
● U.S. export control and sanctions regulations associated with the export and reexport of the products;
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complaint handling and adverse event reporting requirements, such as the Medical Device Reporting (MDR), regulations in the U.S., which require that a
manufacturer report to the FDA if its device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or
contribute to a death or serious injury if the malfunction were to recur;
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post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device;
regulations pertaining to recalls and notices of corrections or removals; and
any other post-market requirements that the FDA or foreign regulatory bodies might impose as part of the device approval or clearance process.
The FDA has broad post-market and regulatory enforcement powers. We and our third-party manufacturers are subject to announced and unannounced inspections by
the FDA and foreign governments or designated representatives to determine compliance with the quality system requirements and other regulations. In the past, our
Sunnyvale, California facility (now closed) was inspected, and observations were noted, including an April 2012 California Department of Public Health (CDPH) inspection
that cited deficiencies related to signature authority of inspection documentation, incomplete corrective action responses, and labeling indicating that our product contained
no latex without proper objective evidence. The FDA and CDRH have accepted our responses to these observations, and we believe that we and our third-party
manufacturer are in substantial compliance with the QSR.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, states, or foreign governments, which may include any of the
following actions:
● warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;
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repair, replacement, refunds, recall, market withdrawal or seizure of our products;
operating restrictions, partial suspension or total shutdown of production;
refusing our requests for 510(k) clearance, de novo reclassification, or premarket approval of new products or new intended uses;
refusing to grant export certificates for our product;
reclassifying a device that previously received a 510(k) clearance or withdrawing premarket approvals that are already granted; and
criminal prosecution.
If any of these events were to occur, it could have a material adverse effect on our business.
We are also subject to a wide range of federal, state and local laws and regulations, including those related to distribution of medical devices, the environment, health
and safety, fraud and abuse, land use, advertising, and quality assurance. We believe that compliance with these laws and regulations as currently in effect will not have a
material adverse effect on our capital expenditures, earnings and competitive and financial position.
Competition
The medical device industry is characterized by intense competition and rapid innovation. While we believe that our solutions to treat vaginal laxity and SUI are
unique and offer a more effective treatment options from that which is on the market currently, we also believe that the market for the treatment of vaginal laxity, women’s
sexual function, and incontinence remain tremendous, under-developed opportunities. Therefore, competition is expected to increase, particularly as the market becomes
further developed with additional treatment options. Aside from Kegel exercises and invasive surgical procedures, such as LVR, fillers, bulking agents, slings, and mesh
there are many companies that may be developing or that have developed energy-based technologies for vaginal use as well as others developing modalities for the
treatment of female sexual dysfunction and incontinence. Further, the overall size and attractiveness of the market may compel larger companies focused in the Urology,
OB/GYN, aesthetic or women’s health markets, and with much greater capital and other resources, to pursue development of or acquire technologies that may address these
indications. Potential energy-based competitors include, but are not limited to, Cynosure, Syneron, Fotona, Thermi Aesthetics, Cutera, Inmode, BTL, Venus Concepts and
others, some of whom have more established products and customer relationships than we have.
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Employees
As of March 13, 2020, we had 55 full-time employees and we retain the services of several qualified consultants. We believe that our future success will depend in
part on our continued ability to attract, hire and retain qualified personnel. None of our employees is represented by a labor union, and we believe that our employee
relations are good.
Continuance into Delaware
On July 22, 2015, at our 2015 Annual and Special Meeting of Stockholders, our stockholders approved a special resolution authorizing a continuance of the
Company (the “Continuance”) into the State of Delaware under the Delaware General Corporation Law (the “DGCL”) and the adoption of charter documents that comply
with the DGCL in connection therewith, effective as of a date to be determined by the Board, in its sole discretion, no more than 12 months from the date of the meeting. On
May 9, 2016, the Company filed the necessary Application for Authorization to Continue into Another Jurisdiction and Statutory Declaration with the Yukon registrar. On
May 10, 2016, the Company filed a Certificate of Conversion and Certificate of Incorporation with the Secretary of State of the State of Delaware to move its domicile from
the Yukon Territory to Delaware.
The Continuance did not involve any change in our business, properties, corporate headquarters or management. The officers of the Company immediately prior to
the Continuance continued to serve as our officers following the Continuance, and the current members of the Board of Directors continued to serve as the members of the
Board following the Continuance. There was no change in our operations, assets, liabilities or obligations as a result of the Continuance. Other than the approval of our
stockholders and the filings with the Yukon Registrar of Corporations and the Secretary of State of Delaware, there were no federal or state regulatory requirements that we
were required to comply with or approvals that we were required to obtain in connection with the Continuance.
Upon the effectiveness of the Continuance, each outstanding share of our common stock continued to be an outstanding share of our common stock as incorporated
in Delaware and each outstanding option, right or warrant to acquire shares of our common stock continued to be an option, right or warrant to acquire an equal number of
shares of common stock under the same terms and conditions. Upon effectiveness of the Continuance, we were governed by the Certificate of Incorporation filed with the
Secretary of State of Delaware and by bylaws prepared in accordance with the DGCL, which were approved by our stockholders at the 2015 Annual and Special Meeting.
Following the Continuance, we were governed by the DGCL instead of the Yukon Business Corporation Act.
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below, together with all of the other
information included or referred to in this Annual Report on Form 10-K, before purchasing shares of our common stock. There are numerous and varied risks that may
prevent us from achieving our goals. If any of these risks actually occurs, our business, financial condition or results of operations may be materially adversely affected. In
such case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.
Risks Related to Our Business
We are dependent upon the success of the Viveve System, which has a limited commercial history. If the device fails to gain or loses market acceptance, our business
will suffer.
In 2012, we began marketing the Viveve System (radiofrequency generator, handpiece and single-use treatment tips) and other ancillary consumables, in Canada,
Hong Kong and Japan. Since then, we have expanded our market to a total of 57 countries, including the United States. Our continued success depends on our ability to
significantly penetrate current or new markets. If demand for the Viveve System and Viveve treatment does not expand in new markets or does not increase in existing
markets as we anticipate, or if demand declines, our business, financial condition and results of operations will be harmed.
We compete against companies that have more established products, longer operating histories and greater resources, which may prevent us from achieving significant
market penetration or increased operating results.
The medical device and aesthetics markets are highly competitive and dynamic and are marked by rapid and substantial technological development and product
innovations. Demand for the Viveve System could be diminished by equivalent or superior products and technologies developed by competitors. Specifically, Viveve
competes against other offerings in these markets, including laser and other light-based medical devices, pharmaceutical and consumer products, surgical procedures and
exercise therapies.
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Competing in these markets could result in price-cutting, reduced profit margins and loss of market share, any of which would harm our business, financial condition
and results of operations. Our ability to compete effectively depends upon our ability to distinguish our company, the Viveve System, and the Viveve treatment from our
competitors and their products, on such factors as:
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safety and effectiveness;
product pricing;
success of our marketing initiatives;
compelling clinical data;
intellectual property protection;
quality of customer support; and
development of successful distribution channels, both domestically and internationally.
Some of our competitors have more established products and customer relationships than we have, which could inhibit our market penetration efforts. For example,
we may encounter situations where, due to pre-existing relationships, potential customers decide to purchase additional products from our competitors. Potential customers
may need to recoup the cost of expensive products that they have already purchased to perform LVR surgery or vaginoplasty and thus may decide not to purchase, or to
delay the purchase of, the Viveve System. If we are unable to achieve continued market penetration, we will be unable to compete effectively, and our business will be
harmed.
In addition, potential competitors could have significantly greater financial, research and development, manufacturing, and sales and marketing resources than we
have and could utilize their greater resources to acquire or develop new technologies or products that could effectively compete with our existing product. Given the
relatively few competitors currently in the market, any such action could exacerbate existing competitive pressures, which could harm our business.
Performing clinical studies with the Viveve System and collecting data from the Viveve treatment is inherently subjective, and we have limited data regarding the
efficacy of the Viveve procedure. If future data is not positive or consistent with our prior experience, rates of physician adoption will likely be harmed.
We believe that in order to significantly grow our business, we will need to conduct in process and future clinical studies of the effectiveness of the Viveve System
and Viveve treatment. Clinical studies of sexual function and SUI are subject to a number of limitations. First, some of these studies do not involve objective standards for
measuring the effectiveness of treatment. Subjective, patient reported outcomes are the most common method of evaluating effectiveness. As a result, clinical studies may
conclude that a treatment is effective even in the absence of objective measures. Second, as with other non-invasive, energy-based treatments, the effect of the Viveve
treatment varies from patient to patient and can be influenced by a number of factors, including the age, ethnicity and degree of vaginal laxity, sexual function, and SUI of
the patient, among other things.
Current reported studies of Viveve’s CMRF technology have investigated improvement in vaginal laxity, sexual function and SUI using single-arm studies where all
patients enrolled in the trial received the same treatment without comparison to a control group. Clinical studies designed in a randomized, blinded and controlled fashion
(e.g., assessing the efficacy of a product or therapy versus a placebo or sham group) represent the gold-standard in clinical trial design. A sham-controlled treatment or
procedure refers to a procedure performed as a control and that is similar to the treatment or procedure under investigation without the key therapeutic element being
investigated. Future clinical studies, which may be required to drive physician adoption or support regulatory clearance or approval, will likely require randomized, blinded
and controlled trial designs. In the fourth quarter of 2014, we initiated a randomized, blinded and sham-controlled clinical trial in Europe and Canada designed to
demonstrate the efficacy of the Viveve procedure versus a sham-controlled procedure for the treatment of vaginal laxity and sexual function (the “OUS Clinical Trial”). In
April 2016, we completed this study. In the second quarter of 2018, we initiated a randomized, double-blind, sham-controlled clinical trial in the United States designed to
evaluate the efficacy and safety on the Viveve procedure versus the sham-controlled procedure for the treatment of vaginal laxity and sexual function. We expect to complete
this study by the end of the first quarter of 2020 (See discussion under the heading “Clinical Studies”.)
Additionally, we have not conducted any head-to-head clinical studies that compare results from treatment with the Viveve System to surgery or treatment with other
therapies. Without head-to-head studies against competing alternative treatments, which we have no current plans to conduct, potential customers may not find clinical
studies of our technology sufficiently compelling to purchase the Viveve System. If we decide to pursue additional studies in the future, such studies could be expensive and
time consuming, and the data collected may not produce favorable or compelling results. If the results of such studies do not meet physicians’ expectations, the Viveve
procedure may not become widely adopted, physicians may recommend alternative treatments for their patients, and our business may be harmed.
We currently have clearance to market the Viveve System in the U.S. for use in general surgical procedures for electrocoagulation and hemostasis but not for vaginal
laxity, sexual function, or stress urinary incontinence. If we want to sell our device and single-use treatment tips in the U.S. for the treatment of vaginal laxity, sexual
function, or stress urinary incontinence, we will need to obtain additional FDA clearance or approval, which may not be granted.
Developing and promoting our CMRF technology in additional countries for additional indications, including the U.S., is a key element of our future growth strategy.
We currently do not have FDA clearance or approval to market the Viveve System in the U.S. for the treatment of vaginal laxity, sexual function, or stress urinary
incontinence. We intend to seek clearance or approval from the FDA to expand our marketing efforts and have engaged with the FDA to help improve our likelihood of
success. However, we cannot predict whether we will receive such clearances or approvals. The FDA has required us to conduct clinical trials to support regulatory clearance
or approval, which trials are be time-consuming and expensive, and may produce results that do not result in clearance or approval of our FDA marketing application. In the
event that we do not obtain FDA clearance or approval of the Viveve System for the treatment of vaginal laxity, sexual function, or stress urinary incontinence, we will be
unable to promote it in the U.S. for those indications, and the ability to grow our revenues may be adversely affected.
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Our business is not currently profitable, and we may not be able to achieve profitability even if we are able to generate significant revenue.
As of December 31, 2019, we have incurred losses since inception of approximately $197.9 million. In 2019, we incurred a loss of $42.5 million and in 2018 a loss of
$50.0 million. Even though our revenue may increase, we expect to incur significant additional losses while we grow and expand our business. We cannot predict if and
when we will achieve profitability. Our failure to achieve and sustain profitability could negatively impact the market price of our common stock and may require us to seek
additional financing for our business. There are no assurances that we will be able to obtain any additional financing or that any such financing will be on terms that are
favorable to us.
If there is not sufficient consumer demand for the procedures performed with our products, demand for our products could decline, which would adversely affect our
operating results.
The medical device and aesthetic markets in which we operate are particularly vulnerable to economic trends. The procedures performed using the Viveve System are
elective procedures that are not currently reimbursable through government or private health insurance. The cost of these elective procedures must be borne by the patient.
As a result, the decision to undergo a procedure that uses our products may be influenced by the cost.
Consumer demand, and therefore our business, is sensitive to a number of factors that affect consumer spending, including political and macroeconomic conditions,
health of credit markets, disposable consumer income levels, consumer debt levels, interest rates, consumer confidence and other factors. If there is not sufficient consumer
demand for the procedures performed with our products, practitioner demand for our products would decline, and our business would suffer.
It is difficult to forecast future performance, which may cause our financial results to fluctuate unpredictably.
Our limited operating history makes it difficult to predict future performance. Additionally, the demand for the Viveve System may vary from quarter to quarter. A
number of factors, over which we have limited or no control, may contribute to fluctuations in our financial results, such as:
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delays in receipt of anticipated purchase orders;
performance of our independent distributors;
positive or negative media coverage of the Viveve treatment or products of our competitors;
our ability to obtain further regulatory clearances or approvals;
delays in, or failure of, product and component deliveries by our subcontractors and suppliers;
customer response to the introduction of new product offerings; and
fluctuations in foreign currency.
Our limited operating history has limited our ability to determine an appropriate sales price for our products.
Our historical operating performance has limited our ability to determine the proper sales prices for the Viveve System and the single-use treatment tips. Establishing
appropriate pricing for our capital equipment and components has been challenging because there have not existed directly comparable competitive products. We may
experience similar pricing challenges in the future as we enter new markets or introduce new products, which could have an unanticipated negative impact on our financial
performance.
If there is not sufficient patient demand for our treatments, practitioner demand for the Viveve System could drop, resulting in unfavorable operating results.
All procedures performed using the Viveve System are elective procedures, the cost of which must be borne by the patient and are not currently reimbursable
through government or private health insurance. The decision to undergo a Viveve treatment is thus driven by consumer demand, which may be influenced by a number of
factors, such as:
● whether our marketing efforts directed toward increasing consumer awareness of the Viveve treatment, for which we have limited experience and resources and
indications, are successful;
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the extent to which physicians recommend the Viveve treatment to their patients;
the cost, safety and effectiveness of the Viveve procedure versus alternative treatments;
general consumer sentiment about the benefits and risks of such procedures; and
consumer confidence, which may be impacted by economic and political conditions.
Our financial performance could be materially harmed in the event that any of the above factors discourage patients from seeking the Viveve treatment.
The failure of the Viveve treatment to meet patient expectations or the occurrence of unpleasant side effects from a Viveve treatment could impair our financial
performance.
Our future success depends upon patients having a positive experience with the Viveve treatment in order to increase physician demand for our products, as a result of
positive feedback and word-of-mouth referrals. Patients may be dissatisfied if their expectations of the procedure, side effects and results, among other things, are not met.
Despite what we believe to be the safety of the Viveve treatment, patients may experience undesirable side-effects such as temporary swelling or reddening of the treated
tissue. Experiencing any of these side effects could discourage a patient from completing a Viveve treatment or discourage a patient from having future procedures or
referring the Viveve procedure to others. In order to generate referral business, we believe that patients must be satisfied with the effectiveness of the Viveve treatment.
Results obtained from the procedure are subjective and may be subtle. The Viveve treatment may produce results that may not meet patients’ expectations. If patients are
not satisfied with the procedure or feel that it is too expensive for the results obtained, our reputation and future sales will suffer.
Our success depends on growing physician adoption of the Viveve System and continued use of treatment tips.
Some of our target physician customers already own self-pay device products. Our ability to grow our business and convince physicians to purchase or rent a Viveve
System depends on the success of our sales and marketing efforts. Our business model involves both an equipment rental and continued purchases by our customers of
single-use treatment tips and ancillary consumables. This may be a novel business model for many potential customers who may be used to competing products that are
exclusively capital equipment, such as many laser-based systems. We must be able to demonstrate that the cost of the Viveve System and the revenue that the physician can
derive from performing procedures using it are compelling when compared to the cost and revenue associated with alternative products or therapies. When marketing to
plastic surgeons, we must also, in some cases, overcome a bias against non-invasive procedures. If we are unable to increase physician adoption of our device and use of the
treatment tips, our financial performance will be adversely affected.
Our revenue may suffer due to our transition of U.S. sales from a capital equipment sales model to a recurring revenue rental model
In June 2019, U.S. sales of the Viveve System transitioned from a capital equipment sales model to a recurring revenue rental model. The new U.S. commercial sales
model is intended to lower up-front costs for customers and thus lower hurdles to adoption, increase placement rates, and improve profitability by reducing selling time per
unit. The transition has resulted in reduced revenue in 2019 per unit placed, which is projected to be offset by higher unit placements and improved revenue performance in
the long term. While physician adoption rates have increased since this transition, the unit placements in the long term may not be sufficient to offset the reduced revenue per
unit placed.
To successfully market and sell the Viveve System internationally, we must address many issues with which we have limited experience.
Sales outside the U.S. accounted for 44%, 27% and 28% of our revenue during the year ended December 31, 2019, 2018 and 2017, respectively. International sales
are subject to a number of risks, including:
difficulties in staffing and managing international operations;
difficulties in penetrating markets in which our competitors’ products may be more established;
reduced or no protection for intellectual property rights in some countries;
export restrictions, trade regulations and foreign tax laws;
fluctuating foreign currency exchange rates;
foreign certification and regulatory clearance or approval requirements;
difficulties in developing effective marketing campaigns for unfamiliar, foreign countries;
customs clearance and shipping delays;
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preference for locally produced products.
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If one or more of these risks were realized, it could require us to dedicate significant resources to remedy the situation, and even if we are able to find a solution, our
revenues may still decline.
If we violate the U.S. Foreign Corrupt Practices Act or applicable anti-bribery laws in other countries our business could be harmed.
We earn a significant portion of our total revenues from international sales. As a result, we are subject to the U.S. Foreign Corrupt Practices Act (FCPA), which
generally prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise
obtaining favorable treatment and requires companies to maintain appropriate record-keeping and internal accounting practices to accurately reflect the transactions of the
company. The FCPA applies to companies, individual directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for actions taken by
agents or local partners or representatives. In addition, the government may seek to hold us liable for successor liability FCPA violations committed by companies which we
acquire. We are also subject to the U.K. Bribery Act and may be subject to certain anti-corruption laws of other countries in which we do business. If we or our
intermediaries fail to comply with the requirements of the FCPA or the anti-corruption laws of other countries, governmental authorities in the U.S. or other countries could
seek to impose civil and/or criminal penalties, which could have a material adverse effect on our business, results of operations, financial conditions and cash flows.
We depend on distributors to market and sell the Viveve System internationally. If they are not successful, our marketing and sales efforts will be harmed.
We currently depend exclusively on third-party distributors to sell and service the Viveve System internationally and to train our international customers, and if
these distributors terminate their relationships with us or under-perform, we may be unable to maintain or increase our level of international revenue. We will also need to
engage additional international distributors to grow our business and expand the territories in which we sell the Viveve System. Distributors may not commit the necessary
resources to market, sell and service our device to the level of our expectations. If current or future distributors do not perform adequately, or if we are unable to engage
distributors in particular geographic areas, our revenue from international operations will be adversely affected.
The pandemic of the novel coronavirus in various parts of China, South Korea, the United States and several other countries may materially and adversely affect our
business, financial condition and results of operations.
We may face significant risks due to the current worldwide outbreak of Covid-19, the novel coronavirus and the significant anticipated adverse impact on the
economy resulting from actions taken to battle that outbreak. There have been recent outbreaks in several countries, including China, South Korea and the United States, of
a novel, highly transmissible and pathogenic coronavirus. Such outbreaks have resulted in a widespread global health crisis. Actions taken to mitigate or control those
outbreaks have adversely affected general commercial activity and the economies and financial markets of many countries, including the United States, and will likely
adversely affect our business, financial condition and results of operations. For example, an outbreak could significantly disrupt our business by limiting our ability to
manufacture our Viveve Systems and tips, ship materials within or outside countries where we have sales teams or distributors, and the ability of our sales teams and
distributors to operate. Furthermore, some countries including the United States are discouraging elective treatments and non-essential movement and/or ordering social
distancing and shelter-in-place in order to control the transmission of the novel coronavirus. These actions are expected to reduce discretionary medical treatments such as the
Viveve procedure. If there is not sufficient consumer demand for the procedures performed with our products, demand for our products could decline, which would
adversely affect our sales and operating results in the United States and worldwide. The efforts to control and treat the novel coronavirus may also impact our clinical
development as hospitals and clinics refocus energies on the coronavirus and patients may be less willing to participate in future clinical trials due to health risk concerns
during an outbreak. The extent to which the novel coronavirus impacts us will depend on future developments, which are highly uncertain and cannot be accurately
predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among
others. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious and long-term
outbreak or sustained reduction of interest in elective medical procedures. The spread of the novel coronavirus and efforts to control such spread are also expected to induce
an economic recession in the United States and elsewhere, which could adversely affect our business, financial condition and results of operations.
We currently have limited sales and marketing resources or experience and failure to build and manage a sales force or to market and distribute the Viveve System
effectively could have a material adverse effect on our business.
Our sales and marketing organization is structured so that we rely on a direct sales force to sell the Viveve System in the United States. However, in the first quarter of
2019, we reorganized and reduced the number of direct sales reps selling our products. We believe our reorganization will help reduce our operating expenses. We do not
currently anticipate making any significant changes to our international distribution network.
Our reorganization may not have the desired effect of reducing our operating expenses and may result in a disruption to our business, adversely affect our sales and
marketing organization and make it more difficult to retain qualified personnel. In addition, our management may divert a disproportionate amount of time away from its
day-to-day activities to devoting a substantial amount of time to managing the reorganization which may increase our expenses. Our future financial performance and ability
to compete effectively will depend, in part, on our ability to effectively manage the reorganization and future growth. To that end, we must be able to:
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provide adequate training for the effective sale of our device; and
retain and motivate sales employees.
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We may not be able to accomplish these tasks and successfully execute the reorganization which could harm our financial results and have a material adverse effect
on our business.
Competition among providers of devices for the medical device and aesthetics markets is characterized by rapid innovation, and we must continuously innovate
technology and develop new products or our revenue may decline.
While we attempt to protect our technology through patents and other intellectual property rights, there are few barriers to entry that would prevent new entrants or
existing competitors from developing products that compete directly with our products. For example, while we believe our monopolar RF technology maintains a strong
intellectual property position, there may be other companies employing competing technologies which claim to have a similar clinical effect to our technology. Additionally,
there are others who may market monopolar RF technology for competing purposes in a direct challenge to our intellectual property position. As we continue to create
market demand for a non-surgical, non-invasive way to treat vaginal laxity, sexual dysfunction, and SUI competitors may enter the market with other products making
similar or superior claims. We expect that any competitive advantage we may enjoy from our current and future innovations may diminish over time, as companies
successfully respond to our innovations, or create their own. Consequently, we believe that we will have to continuously innovate and improve our technology or develop
new products to compete successfully. If we are unable to develop new products or innovate successfully, the Viveve System could become obsolete and our revenue will
decline as our customers purchase competing products.
We outsource the manufacturing and repair of key elements of the Viveve System to a single manufacturing partner.
We outsource the manufacture and repair of the Viveve System to a single contract manufacturer, Stellartech. If Stellartech’s operations are interrupted or if
Stellartech is unable to meet our delivery requirements due to capacity limitations or other constraints, we may be limited in our ability to fulfill new customer orders or to
repair equipment at current customer sites, and we may be required to seek new manufacturing partners in the future. Stellartech has limited manufacturing capacity, is itself
dependent upon third-party suppliers and is dependent on trained technical labor to effectively repair components making up the Viveve System. In addition, Stellartech is a
medical device manufacturer and is required to demonstrate and maintain compliance with the FDA’s Quality System Regulation, or QSR. If Stellartech or any future
manufacturing partner fails to comply with the FDA’s QSR, its manufacturing and repair operations could be halted. In addition, both the availability of our product to
support the fulfillment of new customer orders as well as our ability to repair those products installed at current customer sites would be impaired. In addition, as of the date
of this report, the development and manufacturing agreement under which Viveve and Stellartech operate has expired without any subsequent extension or renewal by the
parties and the minimum conditions to the licenses granted therein have not been satisfied by us. Although the parties continue to operate under the terms of this agreement,
our manufacturing operations could be adversely impacted if we are unable to enforce Stellartech’s performance under this agreement, or enter into a new agreement with
Stellartech, or a potential new manufacturer, if necessary, upon favorable terms or at all.
Our manufacturing operations and those of our key manufacturing subcontractors are dependent upon third-party suppliers, making us vulnerable to supply shortages
and price fluctuations, which could harm our business.
The single source supply of the Viveve System from Stellartech could not be replaced without significant effort and delay in production. Also, several other
components and materials that comprise our device are currently manufactured by a single supplier or a limited number of suppliers. In many of these cases, we have not yet
qualified alternate suppliers and we rely upon purchase orders, rather than long-term supply agreements. A supply interruption or an increase in demand beyond our current
suppliers’ capabilities could harm our ability to manufacture the Viveve System until new sources of supply are identified and qualified. Our reliance on these suppliers
subjects us to a number of risks that could harm our business, including:
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interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;
delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s variation in a component;
a lack of long-term supply arrangements for key components with our suppliers;
inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms;
difficulty locating and qualifying alternative suppliers for our components in a timely manner;
production delays related to the evaluation and testing of products from alternative suppliers, and corresponding regulatory qualifications;
delay in delivery due to suppliers prioritizing other customer orders over our orders;
damage to our brand reputation caused by defective components produced by our suppliers;
increased cost of our warranty program due to product repair or replacement based upon defects in components produced by our suppliers; and
fluctuation in delivery by our suppliers due to changes in demand from us or from their other customers.
Any interruption in the supply of components or materials, or our inability to obtain substitute components or materials from alternate sources at acceptable prices in
a timely manner, could impair our ability to meet the demand of our customers, which would have an adverse effect on our business.
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If, in the future, we decide to perform additional manufacturing functions internally that we currently outsource, our business could be harmed by our limited
manufacturing experience and related capabilities.
In the future, for financial or operational purposes, we may elect to perform component or system manufacturing functions internally. Our limited experience with
manufacturing processes could lead to difficulties in producing sufficient quantities of manufactured items that meet our quality standards and that comply with applicable
regulatory requirements in a timely and cost-effective manner. In addition, if we experience these types of manufacturing difficulties, it may be expensive and time
consuming to engage a new or previous subcontractor or supplier to fulfill our replacement manufacturing needs. The occurrence of any of these events could harm our
business.
If the Viveve System malfunctions or if we discover a manufacturing defect that could lead to a malfunction, we may have to initiate a product recall or replace
components, which could adversely impact our business.
Problems in our manufacturing processes, or those of our manufacturers or subcontractors, which lead to an actual or possible malfunction in any of the components
of our device, may require us to recall product from customers or replace components and could disrupt our operations. Our results of operations, reputation and market
acceptance of our products could be harmed if we encounter difficulties in manufacturing that result in a more significant issue or significant patient injury and delays our
ability to fill customer orders.
We may not be able to develop an alternative cooling module that will be in compliance with changing environmental regulations in a timely or cost-effective manner.
Our cooling module relies upon a hydrofluorocarbon, or HFC, called R134a, to protect the outer layer of the tissue from over-heating while the device delivers RF
energy to the submucosal tissue. New environmental regulations phasing out HFCs over the next decade have been adopted or are under consideration in a number of
countries. Since 2007, European Union directives aimed at the automotive industry require the phase-out of HFCs and prohibit the introduction of new products
incorporating HFCs and it is currently anticipated that such directives may impact the medical device industry. As a result, if we are unable to develop an alternative cooling
module for our device which is not dependent on HFCs in a timely or cost-effective manner, the Viveve System may not be in compliance with environmental regulations,
which could result in fines, civil penalties and the inability to sell our products in certain major international markets.
In addition, the impending restrictions on HFCs have reduced their current availability, as suppliers have less of an incentive to expand production capacity or
maintain existing capacity. This change in supply could expose us to supply shortages or increased prices for R134a, which could impair our ability to manufacture our
device and adversely affect our results or operations. HFCs may also be classified by some countries as a hazardous substance and, therefore, subject to significant shipping
surcharges that may negatively impact profit margins.
We rely on a limited number of suppliers and third-party manufacturers, and if they are unable or unwilling to continue to work with us, our business could be
materially adversely affected.
We rely on a limited number of suppliers and third-party manufacturers. Our reliance on them increases our risk since in the event of an interruption from one or more
of them, we may not be able to develop alternative resources without incurring additional costs or delays.
We forecast sales to determine requirements for components and materials used in Viveve procedures, and if our forecasts are incorrect, we may experience delays in
shipments or increased inventory costs.
We keep limited materials, components and finished product on hand. To manage our manufacturing operations with our suppliers, we forecast anticipated product
orders and material requirements to predict our inventory needs up to twelve months in advance and enter into purchase orders on the basis of these requirements. Our
limited historical experience may not provide us with enough data to accurately predict future demand. If our business expands, our demand for components and materials
would increase and our suppliers may be unable to meet our demand. If we overestimate our component and material requirements, we will have excess inventory, which
would increase our expenses. If we underestimate our component and material requirements, we may have inadequate inventory, which could interrupt, delay or prevent
delivery of the Viveve System to our customers. Any of these occurrences would negatively affect our financial performance and the level of satisfaction that our customers
have with our business.
Even though we require training for users of the Viveve System, and we do not sell it to non-physicians, there exists a potential for misuse, which could harm our
reputation and our business.
Outside of the U.S., our independent distributors sell in many jurisdictions that do not require specific qualifications or training for purchasers or operators of the
Viveve System. We do not supervise the procedures performed with the device, nor can we be assured that direct physician supervision of our equipment occurs according to
our recommendations. We and our distributors require purchasers of our device to undergo an initial training session as a condition of purchase, but do not require ongoing
training. In addition, we prohibit the sale of the device to companies that rent it to third parties, but we cannot prevent an otherwise qualified physician from contracting with
a rental company in violation of his or her purchase agreement with us.
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In the U.S., we only sell the Viveve System to licensed physicians who have met certain training requirements. However, current federal regulations will allow us to
sell our device to “licensed practitioners,” The definition of “licensed practitioners” varies from state to state. As a result, the Viveve System may be operated by licensed
practitioners with varying levels of training, and in many states by non-physicians, including physician assistants, registered nurses and nurse practitioners. Thus, in some
states, the definition of “licensed practitioner” may result in the legal use of the Viveve System by non-physicians.
The use of our device by non-physicians, as well as noncompliance with the operating guidelines set forth in our training programs, may result in product misuse and
adverse treatment outcomes, which could harm our reputation and expose us to costly product liability litigation.
Product liability suits could be brought against us due to defective design, labeling, material or workmanship, or misuse of the Viveve System, and could result in
expensive and time-consuming litigation, payment of substantial damages and an increase in our insurance rates.
If the Viveve System is defectively designed, manufactured or labeled, contains defective components or is misused, we may become subject to substantial and costly
litigation by our customers or their patients. Misusing the device or failing to adhere to operating guidelines could cause serious adverse events. In addition, if our operating
guidelines are found to be inadequate, we may be subject to liability. We may, in the future, be involved in litigation related to the use of the device. Product liability claims
could divert management’s attention from our business, be expensive to defend and result in sizable damage awards against us. We may not have sufficient insurance
coverage for all future claims. We may not be able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities.
Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage,
could harm our reputation in the industry and reduce product sales. Product liability claims in excess of our insurance coverage would be paid out of cash reserves, harming
our financial condition and adversely affecting our operating results.
After-market modifications to treatment tips by third parties and the development of counterfeit products could reduce our sales, expose us to product liability litigation
and dilute our brand quality.
Third parties may introduce adulterated after-market modifications to our treatment tips, which enable re-use of treatment tips in multiple procedures. Because the
treatment tips are designed to withstand a finite number of pulses, modifications intended to increase the number of pulses could result in patient injuries caused by the use
of worn-out or damaged treatment tips. In addition, third parties may seek to develop counterfeit products that are compatible with the Viveve System and available to
practitioners at lower prices. If security features incorporated into the design of the device are unable to prevent after-market modifications to the treatment tips or the
introduction of counterfeit products, we could be subject to reduced sales, product liability lawsuits resulting from the use of damaged or defective goods and damage to our
reputation.
A data breach or cyberattack affecting our devices, information technology systems, or protected data could expose us to regulatory liability and litigation and dilute our
brand quality.
Our information technology systems and the Viveve System, like other medical devices with software that may be accessible in some manner to users, are vulnerable
to security breaches, cyberattacks, malicious intrusion, breakdown, destruction, loss of data privacy, or other significant disruption. We also collect, manage, and process
protected personal information, including health information, in connection with our operations. A significant breach, attack, or other disruption could result in adverse
consequences, including increased costs and expenses, regulatory inquiries, litigation, problems with product functionality, reputational damage, lost revenue, and fines or
penalties. We invest in systems and technology and in the protection of our products and data to reduce the risk of an attack or other significant disruption. However, there
can be no assurance that these measures and efforts will prevent future attacks or other significant disruptions to our information technology systems and the Viveve System.
Additionally, Viveve products have no WiFi nor do they contain a receiver or transmitter effectively making a cyber attack impossible.
We depend on skilled and experienced personnel to operate our business effectively. If we are unable to recruit, hire and retain these employees, our ability to manage
and expand our business will be harmed, which would impair our future revenue and profitability.
Our success largely depends on the skills, experience and efforts of our officers and other key employees. While we have employment contracts with our Chief
Executive Officer and our Vice President of Finance and Administration (Principal Accounting and Financial Officer), these officers and other key employees may
terminate their employment at any time. The loss of any senior management team members could weaken our management expertise and harm our business.
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Our ability to retain our skilled labor force and our success in attracting and hiring new skilled employees will be a critical factor in determining whether we will be
successful in the future. We may not be able to meet our future hiring needs or retain existing personnel. We will face particularly significant challenges and risks in hiring,
training, managing and retaining engineering and sales and marketing employees, as well as independent distributors, most of whom are geographically dispersed and must
be trained in the use of our device and benefits of the Viveve System and treatment. Failure to attract and retain personnel, particularly technical and sales and marketing
personnel, would materially harm our ability to compete effectively and grow our business.
Any acquisitions or in-licenses that we make could disrupt our business and harm our financial condition.
We expect to evaluate potential strategic acquisitions of complementary businesses, products or technologies. We may also consider joint ventures and other
collaborative projects, including in-license opportunities. We may not be able to identify appropriate acquisition candidates or strategic partners, or successfully negotiate,
finance or integrate acquisitions of any businesses, products or technologies, as applicable, on favorable terms or at all. Furthermore, the integration of any acquisition or in-
license and management of any collaborative project may divert management’s time and resources from our business and disrupt our operations. We do not have any
experience with acquiring companies or products or in-licensing of technologies. If we decide to expand our product offerings, we may spend time and money on projects
that do not increase our revenues. Our inability to identify and secure such opportunities may harm our financial condition and our ability to compete and grow our business.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations which could affect our ability to realize tax benefits from
our net operating losses.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations. As of December 31, 2019, we had federal and state net
operating loss carryforwards (“NOLs”), of approximately $77.3 million and $6.2 million, respectively, due to prior period losses. In general, under Section 382 of the
Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” can be subject to limitations on its ability to utilize its NOLs
to offset future taxable income. Our existing NOLs may be subject to limitations arising from past ownership changes, including in connection with this offering. Future
changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. In addition, under the Tax
Cuts and Jobs Act (the “Tax Act”), the amount of future NOLs that we are permitted to deduct in any taxable year is limited to 80% of our taxable income in such year,
where taxable income is determined without regard to the NOL deduction itself. In addition, the Tax Act generally eliminates the ability to carry back any future NOL to
prior taxable years, while allowing unused future NOLs to be carried forward indefinitely. There is a risk that due to changes under the Tax Act, regulatory changes, or other
unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax
benefit from the use of our NOLs, whether or not we attain profitability.
Risks Related to Regulatory Matters
We or our distributors may be unable to obtain or maintain international regulatory clearances or approvals for our current or future products, or our distributors may
be unable to obtain necessary qualifications, which could harm our business.
Sales of the Viveve System internationally are subject to foreign regulatory requirements that vary widely from country to country. In addition, the FDA regulates
exports of medical devices from the U.S. Complying with international regulatory requirements can be an expensive and time-consuming process, and marketing approval or
clearance is not certain. The time required to obtain clearances or approvals, if required by other countries, may be longer than that required for FDA clearance or approvals,
and requirements for such clearances or approvals may significantly differ from FDA requirements. We may rely on third-party distributors to obtain regulatory clearances
and approvals required in other countries, and these distributors may be unable to obtain or maintain such clearances or approvals. Our distributors may also incur significant
costs in attempting to obtain and in maintaining foreign regulatory approvals or clearances, which could increase the difficulty of attracting and retaining qualified
distributors. If our distributors experience delays in receiving necessary qualifications, clearances or approvals to market our products outside the U.S., or if they fail to
receive those qualifications, clearances or approvals, we may be unable to market our products or enhancements in international markets effectively, or at all.
Foreign governmental authorities that regulate the manufacture and sale of medical devices have become increasingly stringent and, to the extent we market and sell
our products outside of the U.S., we may be subject to rigorous international regulation in the future. In these circumstances, we would be required to rely on our foreign
independent distributors to comply with the varying regulations, and any failures on their part could result in restrictions on the sale of our product in foreign countries.
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If we fail to maintain regulatory approvals and clearances, or if we are unable to obtain, or experience significant delays in obtaining, FDA clearances or approvals for
the Viveve System or any future products we may develop or acquire, including product enhancements, our business and results of operations could be adversely
affected.
The Viveve System is, and any future products we may acquire or develop will be, subject to rigorous regulation by the FDA and numerous other federal, state and
foreign governmental authorities. The process of obtaining regulatory clearances or approvals to market a medical device can be costly and time consuming, and we may not
be able to obtain these clearances or approvals on a timely basis, if at all. In particular, the FDA permits commercial distribution of a new medical device only after the
device has received clearance under section 510(k) of the Federal Food, Drug, and Cosmetic Act, or FDCA, (unless the device is exempt from the 510(k) requirements), has
been classified pursuant to a de novo classification request, or is the subject of an approved premarket approval application, or PMA. The FDA will permit marketing of a
lower risk medical device through the 510(k) process if the manufacturer demonstrates that the new product is substantially equivalent to a previously cleared and legally
marketed device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of PMA, referred to as a
predicate device. Devices deemed to pose the greatest risk, such as life-sustaining, life-supporting, or implantable devices, or devices not deemed substantially equivalent to
a previously cleared device, require the approval of a PMA, unless a de novo submission is appropriate. The PMA process is more costly, lengthy and uncertain than the
510(k) clearance process. A PMA application must be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing and
labeling data, to demonstrate to the FDA a reasonable assurance of the safety and efficacy of the device for its intended use.
If the FDA has not issued a regulation classifying a particular type of device as Class I, and if there is no known predicate for a device and/or it’s indication, the
device is automatically Class III, regardless of the risk the device poses. If a device is automatically/statutorily classified into Class III in this manner, a company can petition
FDA to reclassify the category of devices into Class II or Class I via a process known as “Evaluation of Automatic Class III Designation,” which is typically referred to as
the de novo process. The direct de novo process allows a company to request that a new product classification be established without the company first submitting a 510(k)
notification for the device. Our plan is to seek FDA authorization to market the Viveve System for the treatment of vaginal tissue to improve sexual function and SUI by
utilizing the direct de novo process. However, we cannot predict when or if such de novo classification will be obtained. If FDA fails to reclassify the device pursuant to the
de novo process, we will be required to seek FDA premarket approval (via the more stringent PMA process) for the Viveve System. Delays in receipt of FDA clearance or
approval or failure to receive FDA clearance or approval could adversely affect our business, results of operations and future growth prospects.
Our marketed products may be used by physicians for indications that are not cleared by the FDA. If the FDA finds that we marketed our products in a manner that
promoted off-label use, we may be subject to civil or criminal penalties.
Under the FDCA and other laws, we are prohibited from promoting our products for off-label uses. This means that we may not make claims about the use of any of
our marketed medical device products outside of their approved or cleared indications, and that our website, advertising promotional materials and training methods may not
promote or encourage unapproved uses. Therefore, we may not provide information to physicians or patients that promote off-label uses, except in limited circumstances,
such as in response to unsolicited requests for off-label information or the distribution of scientific and medical publications under certain circumstances. The FDA does not
generally restrict physicians from prescribing products for off-label uses (or using products in an off-label manner) in their practice of medicine. Should the FDA determine
that our activities constitute the promotion of off-label uses, the FDA could bring action to prevent us from distributing our devices for the off-label use and could impose
fines and penalties on us and our executives. In addition, failure to follow FDA rules and guidelines relating to promotion and advertising can result in, among other things,
the FDA’s refusal to approve or clear products, the withdrawal of an approved product from the market, product recalls, fines, disgorgement of profits, operating restrictions,
injunctions or criminal prosecutions. Any of these adverse regulatory actions could result in substantial costs and could significantly and adversely impact our reputation and
divert management’s attention and resources, which could have a material adverse effect on our business.
If the Office of Inspector General within the Department of Health and Human Services, the U.S. Department of Justice (DOJ), or another federal or state agency
determines that we have promoted off-label use of our products, we may be subject to various penalties, including civil or criminal penalties, and the off-label use of our
products may result in injuries that lead to product liability suits, which could be costly to our business.
In addition to the FDA restrictions on our marketed products, other state and federal healthcare laws have been applied by DOJ and state attorneys general to restrict
certain marketing practices in the medical device industry. While physicians may generally prescribe and administer products for off-label uses, if we engage in off-label
promotion, we may be subject to civil or criminal penalties including significant fines and could be prohibited from participating in government healthcare programs such as
Medicaid and Medicare. Even if we are successful in resolving such matters without incurring penalties, responding to investigations or prosecutions will likely result in
substantial costs and could significantly and adversely impact our reputation and divert management’s attention and resources, which could have a material adverse effect
on our business, operating results, financial condition and ability to finance our operations. In addition, the off-label use of our products may increase the risk of injury to
patients, and, in turn, the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s attention and result in
substantial damage awards against us.
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If we modify an FDA-cleared device, we may need to seek and obtain new clearances, which, if not granted, would prevent the sale of our modified product or require
us to redesign the product.
Any modifications to an FDA-cleared device that could significantly affect its safety or effectiveness or that would constitute a major change in its intended use
would require a new 510(k) clearance or possibly a premarket approval. We may not be able to obtain additional 510(k) clearances or premarket approvals for new products
or for modifications to, or additional indications for, our existing product in a timely fashion, or at all. Delays in obtaining future clearances or approvals would adversely
affect our ability to introduce new or enhanced products in a timely manner, which in turn could harm our revenue and potential future profitability. We have made
modifications to our device in the past and may make additional modifications in the future that we believe do not or will not require additional clearances or approvals. If
the FDA disagrees, and requires new clearances or approvals for the modifications, we may be required to recall and to stop marketing the modified device, which could
harm our operating results and require us to redesign the product.
Clinical trials necessary to support a 510(k)notification, de novo petition or PMA application will be expensive and will require the enrollment of large numbers of
patients. Suitable patients may be difficult to identify and recruit. Delays or failures in our clinical trials may prevent us from commercializing our current product or
any modified or new products and will adversely affect our business, operating results and prospects.
The FDA has asked us to conduct a clinical study, pursuant to the agency’s investigational device exemption, or IDE, regulations, to support a future product
submission for the Viveve System. Initiating and completing clinical trials necessary to support a 510(k) notification, de novo petition, or PMA application for the Viveve
System, as well as other possible future product candidates, is time consuming and expensive and the outcome is uncertain. Moreover, the results of early clinical trials are
not necessarily predictive of future results, and any product we advance into clinical trials may not have favorable results in later clinical trials.
Conducting successful clinical studies will require the enrollment of patients, and suitable patients may be difficult to identify and recruit. Patient enrollment in
clinical trials and completion of patient participation and follow-up depends on many factors, including the size of the patient population, the nature of the trial protocol, the
desirability of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability of appropriate clinical trial investigators and support
staff, the proximity of patients to clinical sites, the ability of patients to comply with the eligibility and exclusion criteria for participation in the clinical trial and patient
compliance. For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures
or follow-up to assess the safety and effectiveness of our product or if they determine that the treatments received under the trial protocols are not desirable or involve
unacceptable risk or discomfort.
Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy are required and we may not adequately develop such protocols to
support clearance or approval. Further, the FDA may require us to submit data on a greater number of patients than we originally anticipated and/or for a longer follow-up
period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure of patients to continue to participate
in a clinical trial may cause an increase in costs and delays in the approval or clearance and attempted commercialization of our product or result in the failure of the clinical
trial. In addition, despite considerable time and expense invested in clinical trials, the FDA may not consider our data adequate to demonstrate safety and efficacy. Such
increased costs and delays or failures could adversely affect our business, operating results and prospects.
If the third parties on which we rely to conduct our clinical trials and to assist us with preclinical development do not perform as contractually required or expected, we
may not be able to obtain the regulatory clearance or approval which would permit us to commercialize our products.
We do not have the ability to independently conduct the preclinical studies and clinical trials for our product, therefore we must rely on third parties, such as contract
research organizations, medical institutions, clinical investigators and contract laboratories to conduct the studies and trials. If these third parties do not successfully carry out
their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to be replaced, or if the quality or accuracy of the data they obtain is
compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may
be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory clearance or approval for, or be able to successfully commercialize, our product
on a timely basis, if at all. In that event, our business, operating results and prospects may be adversely affected.
The results of our clinical trials may not support our proposed product claims or may result in the discovery of adverse side effects. Any of these events could have a
material adverse impact on our business.
Even if our clinical trials are completed as planned, it cannot be certain that the results of the clinical trials will support our proposed claims for the Viveve System,
that the FDA or foreign authorities will agree with our conclusions regarding them or that even if our product receives regulatory approval or clearance, that it will not later
result in adverse side effects that limit or prevent its use. Success in preclinical studies and early clinical trials does not ensure that later clinical trials will be successful, and
we cannot be sure that the later trials will replicate the results of prior trials and preclinical studies. The clinical trial process may fail to demonstrate that our product is safe
and effective for the proposed indicated uses. Any delay of our clinical trials or failure by the FDA or other foreign authorities to accept our product claims will delay, or
even prevent, our ability to commercialize our product and generate revenues.
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Even if our product is approved by regulatory authorities, if we or our suppliers fail to comply with ongoing FDA or other foreign regulatory authority requirements, or
if we experience unanticipated problems with our product, the product could be subject to restrictions or withdrawal from the market.
Any product for which we obtain clearance or approval, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional
activities for such product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic and foreign regulatory bodies,
such as the Food and Drug Branch of the California Department of Public Health (CDPH). In particular, we and our suppliers are required to comply with the FDA’s QSR,
and International Standards Organization, or ISO, standards for the manufacture of our product and other regulations which cover the methods and documentation of the
design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of any product for which we obtain clearance or approval. Regulatory
bodies, such as the FDA, enforce the QSR and other regulations through periodic inspections. In the past, our Sunnyvale, California facility has been inspected by the FDA
and CDPH, and observations were noted. The FDA and CDPH have accepted our responses to these observations, and we believe that we are in substantial compliance with
the QSR. Any future failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the
failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following
enforcement actions and unanticipated expenditures to address or defend such actions:
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untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
customer notifications for repair, replacement or refunds;
recall, detention or seizure of our products;
operating restrictions or partial suspension or total shutdown of production;
refusing or delaying our requests for 510(k) clearance, de novo classification, or premarket approval of new products or modified products;
operating restrictions;
reclassifying a device that previously received a 510(k) clearance or withdrawing a PMA approval that was previously granted;
refusal to grant export approval for our product; or
criminal prosecution.
If any of these actions were to occur, it would harm our reputation and cause our product sales to suffer and may prevent us from generating revenue. Furthermore,
our third-party manufacturers may not currently be, or may not continue to be, in compliance with all applicable regulatory requirements which could result in a failure to
produce our product on a timely basis and in the required quantities, if at all.
Even if regulatory clearance or approval of a product is granted for the Viveve System or future products, such clearance or approval may be subject to limitations on
the intended uses for which the product may be marketed and reduce our potential to successfully commercialize the product and generate revenue from the product. If the
FDA determines that our promotional materials, labeling, training or other marketing or educational activities constitute promotion of an unapproved use, it could request
that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal, state or foreign
enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of an unapproved use, which could result in
significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.
In addition, we may be required by the FDA or other foreign regulatory bodies to conduct costly post-market testing and surveillance to monitor the safety or
effectiveness of our products, and we must comply with medical device reporting requirements, including the reporting of adverse events and malfunctions related to our
products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or
frequency, manufacturing problems, or failure to comply with regulatory requirements such as the QSR, may result in changes to labeling, restrictions on such products or
manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any medical
device we manufacture or distribute, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties which would
adversely affect our business, operating results and prospects.
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The Viveve System may also be subject to state regulations which are, in many instances, in flux. Changes in state regulations may impede sales. For example,
federal regulations may allow the device to be sold to, or on the order of, “licensed practitioners,” as determined on a state-by-state basis. As a result, in some states, non-
physicians may legally purchase and operate our device. However, a state could change its regulations at any time, disallowing sales to particular types of end users. We
cannot predict the impact or effect of future legislation or regulations at the federal or state levels.
If we or our third-party manufacturers fail to comply with the FDA’s QSR, our business would suffer.
We and our third-party manufacturers are required to demonstrate and maintain compliance with the FDA’s QSR. The QSR is a complex regulatory scheme that
covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our product. The FDA
enforces the QSR through periodic unannounced inspections. We anticipate that in the future we will be subject to such inspections. Our failure, or the failure of our third-
party manufacturers, to take satisfactory corrective action in response to an adverse QSR inspection could result in enforcement actions, including a public warning letter, a
shutdown of our manufacturing operations, a recall of our product, civil or criminal penalties or other sanctions, which would cause our reputation, sales and business to
suffer.
If our product causes or contributes to a death or a serious injury, or malfunctions in certain ways, we will be subject to medical device reporting regulations, which can
result in voluntary corrective actions or agency enforcement actions.
Under the FDA’s medical device reporting regulations, medical device manufacturers are required to report to the FDA information that a device has or may have
caused or contributed to a death or serious injury or has malfunctioned in a way that would be likely to cause or contribute to death or serious injury if the malfunction of the
device were to recur. If we fail to report these events to the FDA within the required timeframes, or at all, the FDA could take enforcement action against us. Any such
adverse event involving the Viveve System or future products could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action,
such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as mounting a defense to a legal action, if one were to be brought,
would require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
The Viveve System may, in the future, be subject to product corrections, removals, or recalls that could harm our reputation, business and financial results.
The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or
defects in design or manufacture. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the
device would cause serious, adverse health consequences or death. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is
found. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling
defects or other deficiencies and issues. A recall of our product would divert managerial and financial resources and have an adverse effect on our financial condition and
results of operations. The FDA requires that certain classifications of recalls be reported to the FDA within 10 working days after the recall is initiated. Companies are
required to maintain certain records of recalls, even if they are not reportable to the FDA. In the future, we may initiate one or more voluntary correction or removal actions
involving our product that we determine do not require notification to the FDA. If the FDA disagrees with our determinations, the FDA could require us to report those
actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement
action for failing to report the corrections, removals, or recalls when they were conducted.
Federal and state regulatory reforms may adversely affect our ability to sell our product profitably.
From time to time, legislation is drafted and introduced in the U.S. Congress that could significantly change the statutory provisions governing the clearance or
approval, manufacture and marketing of a medical device. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may
significantly affect our business and our product. It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations will
be changed, and what the impact of such changes, if any, may be.
For example, in August 2010, the FDA issued its preliminary recommendations on reform of the 510(k) pre-market notification process for medical devices. On
January 19, 2011, the FDA announced its “Plan of Action” for implementing these recommendations. The Plan of Action included 25 action items, most of which have now
been implemented by the agency. In August 2016, the FDA released its proposals for reforming long-standing procedures and requirements related to modifications to
medical devices already on the market. In December 2016, Congress passed the 21st Century Cures Act, which makes multiple changes to FDA’s rules for medical devices
as well as for clinical trials, and Congress (passed the Medical Device User Fee reauthorization package in 2017.
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The FDA or Congress may implement other reforms in the future. Future reforms could have the effect of making it more difficult and expensive for us to obtain
FDA clearance or approval. Such changes may also be made by legislators or regulators in the foreign jurisdictions in which we do business and could similarly affect our
operations and profitability in those markets.
In addition, a state could change its statutes or regulations at any time, disallowing sales to particular types of end users or placing restrictions on certain chemicals,
such as those used in our cryogen. We cannot predict the impact or effect of future legislation or regulations at the federal or state levels, or in any foreign jurisdiction in
which we do business.
Failure to comply with the U.S. Foreign Corrupt Practices Act and similar laws associated with our activities outside the U.S. could subject us to penalties and other
adverse consequences.
A significant portion of our revenues is and will be from jurisdictions outside of the U.S. We are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA,
which generally prohibits U.S. companies and their intermediaries from making payments to foreign officials for the purpose of directing, obtaining or keeping business, and
requires companies to maintain reasonable books and records and a system of internal accounting controls. The FCPA applies to companies and individuals alike, including
company directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for the corrupt actions taken by employees, strategic or local
partners or other representatives. In addition, the government may seek to rely on a theory of successor liability and hold us responsible for FCPA violations committed by
companies or associated with assets which we acquire. In recent years, the medical device and pharmaceutical industries have been a focus of the U.S. government’s FCPA
enforcement priorities, and settlements often include very significant payments potentially consisting of millions of dollars. Other countries have similar laws to which we
may be subject, including the United Kingdom Bribery Act.
In many foreign countries where we operate, particularly in countries with developing economies, it may be a local custom for businesses to engage in practices that
are prohibited by the FCPA or other similar laws and regulations. In contrast, we have implemented a company policy requiring our employees and consultants to comply
with the FCPA and similar laws. At the present time, we have not conducted formal FCPA compliance training for our foreign distributors and partners, but we are in the
process of devising a training schedule for certain of our employees, agents and partners. Nevertheless, there can be no assurance that our employees, partners and agents, as
well as those companies to which we outsource certain of our business operations, will not take actions in violation of the FCPA or our policies for which we may be
ultimately held responsible. As a result of our anticipated growth, our development of infrastructure designed to identify FCPA matters and monitor compliance is at an
early stage. If we or our intermediaries fail to comply with the requirements of the FCPA or similar legislation, governmental authorities in the U.S. and elsewhere could
seek to impose civil and/or criminal fines and penalties which could have a material adverse effect on our reputation, business, operating results and financial conditions. We
may also face collateral consequences, such as debarment and the loss of our export privileges.
Viveve’s relationships with customers and healthcare providers and professionals may be subject to applicable anti-kickback, fraud and abuse and other healthcare laws
and regulations, as well as comparable state and foreign laws, which could expose Viveve to criminal sanctions, civil penalties, contractual damages, reputational harm
and diminished profits and future earnings.
Healthcare providers and physicians play a primary role in the recommendation and prescription of any medical product, including the Viveve System marketed by
the Company. Viveve’s future arrangements with customers, healthcare providers and other medical professionals could expose Viveve to broadly applicable fraud and
abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which Viveve markets, sells and
distributes its medical device products. There are various federal and state healthcare laws and regulations that impose restrictions that may apply to Viveve, and there may
also be comparable foreign laws and regulations that similarly could apply to the Company.
The federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing
remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or
service, for which payment may be made under federally funded healthcare programs. This statute has been broadly interpreted to apply to manufacturer arrangements with
prescribers and purchasers, among others. There are similar laws at the state level in the U.S., and several other countries, including the United Kingdom, have enacted
similar anti-kickback, fraud and abuse, and healthcare laws and regulations.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical
Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory
contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information. HIPAA also imposes criminal liability
for knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for
healthcare benefits, items or services.
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The federal Physician Sunshine Act requirements under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education
Reconciliation Act of 2010, referred to together as the Affordable Care Act, require manufacturers of drugs, devices, biologics and medical supplies for which payment is
available under title XVIII of the Social Security Act [Medicare] or under a State plan under title XIX [Medicaid] or XXI [SCHIP] of the Social Security Act (or a waiver of
such a plan) to report to the Department of Health and Human Services information related to payments and other transfers of value made to or at the request of covered
recipients, such as physicians and teaching hospitals, and physician ownership and investment interests in such manufacturers. Payments made to physicians and research
institutions for clinical trials are included within the scope of this federal disclosure law.
Analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving
healthcare items or services reimbursed by nongovernmental third-party payors, including private insurers. Some state laws also require pharmaceutical and medical device
companies to comply with the relevant industry’s voluntary compliance guidelines, in addition to requiring manufacturers to report information related to payments to
physicians and other health care providers or marketing expenditures. There may also be comparable foreign laws and regulations that could impact Viveve’s business and
operations.
If Viveve’s operations are found to be in violation of any of these laws or any other governmental regulations that may apply to it, the Company may be subject to
significant civil, criminal and administrative penalties, damages, or fines. Moreover, if any of the physicians or other providers or entities with whom Viveve expects to do
business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, or potentially to other sanctions in foreign
jurisdictions.
We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to
delay, limit or terminate our product development efforts or other operations.
Developing our products is expensive, and we expect our research and development expenses to increase substantially in connection with our ongoing activities. We
will continue to require substantial funds to support our clinical trials and fund our efforts to expand regulatory clearance or approval for our products, including in the U.S.
As of December 31, 2019, our cash and cash equivalents were $13.3 million. We expect that our cash and cash equivalents will be sufficient to fund our current
operations through June 2020. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds
sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other
collaborations, strategic alliances and licensing arrangements or a combination of these approaches. In any event, we will require additional capital to obtain regulatory
approval for, and to commercialize, our product candidates. Raising funds in the current economic environment may present additional challenges. Even if we believe we
have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic
considerations.
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize
our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the
terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the
possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our stockholders.
The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on
our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact
our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise
would be desirable and we may be required to relinquish rights to some of our technologies or product candidate or otherwise agree to terms unfavorable to us, any of which
may have a material adverse effect on our business, operating results and prospects.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development
programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which
could materially affect our business, financial condition and results of operations.
Our historical operating results indicate substantial doubt exists related to the Company's ability to continue as a going concern.
Our financial statements have been prepared assuming that our company will continue as a going concern. We have incurred net losses and used significant cash in
operating activities since inception. We have an accumulated deficit of approximately $197.9 million, cash and cash equivalents of $13.3 million and working capital of
$15.9 million as of December 31, 2019. Additionally, the Company used $31.2 million in cash for operations in the year ended December 31, 2019. These factors
raise substantial doubt about our ability to continue as a going concern and satisfying our estimated liquidity needs 12 months from the issuance of the financial statements.
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If we continue to experience operating losses, and we are not able to generate additional liquidity through a capital raise or other cash infusion, we might need to
secure additional sources of funds, which may or may not be available to us. Additionally, a failure to generate additional liquidity could negatively impact our ability to
operate our business.
Risks Related to Our Intellectual Property
Intellectual property rights may not provide adequate protection for the Viveve System, which may permit third parties to compete against us more effectively.
We rely on patent, copyright, trade secret and trademark laws and confidentiality agreements to protect our technology and Viveve treatment. We have an exclusive
license (with a field of use limitation) to one issued U.S. patent and own 4 issued U.S. patents primarily covering our technology and Viveve treatment and methods of use.
Additionally, we have 8 pending U.S. patent applications; 73 issued foreign patents; and 14 pending foreign patent applications, some of which foreign applications preserve
an opportunity to pursue patent rights in multiple countries. Some of the Viveve System’s components are not, and in the future may not be, protected by patents.
Additionally, our patent applications may not issue as patents or, if issued, may not issue in a form that will be advantageous to us. Any patents we obtain may be
challenged, invalidated or legally circumvented by third parties. Consequently, competitors could market products and use manufacturing processes that are substantially
similar to, or superior to, ours. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors,
former employees or current employees, despite the existence generally of confidentiality agreements and other contractual restrictions. Monitoring unauthorized uses and
disclosures of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be effective. Moreover, we
do not have patent rights in all foreign countries in which a market may exist, and where we have applied for foreign patent rights, the laws of many foreign countries may
not protect our intellectual property rights to the same extent as the laws of the U.S.
In addition, competitors could purchase the Viveve System and attempt to replicate some or all of the competitive advantages we derive from our development
efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our
intellectual property rights. If our intellectual property is not adequately protected so as to defend our market against competitors’ products and methods, our competitive
position and business could be adversely affected.
We have been involved in and may be involved in future costly intellectual property litigation, which could impact our future business and financial performance.
Our industry has been characterized by frequent intellectual property litigation. Our competitors or other patent holders may assert that our device and the methods
we employ are covered by their patents. If our device or methods are found to infringe, we could be prevented from marketing the Viveve System. In addition, we do not
know whether our competitors or potential competitors have applied for, or will apply for or obtain, patents that will prevent, limit or interfere with our ability to make, use,
sell, import or export the Viveve System. We may also initiate litigation against third parties to protect our intellectual property that may be expensive, protracted or
unsuccessful. In the future there may be companies that market products for competing purposes in direct challenge to our intellectual property position, and we may be
required to initiate litigation in order to stop them. For example, in October 2016 we filed a patent infringement lawsuit against ThermiGen, LLC, ThermiAesthetics, LLC
and Dr. Red Alinsod alleging unauthorized use of certain of our patented technologies. based on Viveve’s U.S. Patent Number 8,961,511 (the “‘511 patent”). Viveve, Inc. v.
ThermiGen, LLC et al., No. 2:16-cv-1189-JRG (E.D. Tx.), filed October 16, 2016. On October 20, 2017, ThermiGen and ThermiAesthetics filed two petitions for inter
partes review (IPR) of the ‘511 patent at the U.S. Patent Trial and Appeal Board (PTAB) challenging the validity of the ‘511 patent claims. ThermiGen, LLC et al. v. Viveve,
Inc., No. IPR2018-00088 (October 20, 2017) and ThermiGen, LLC et al. v. Viveve, Inc., No. IPR2018-00089 (October 20, 2017). On June 4, 2018, we entered into a
Settlement and License Agreement (the “Settlement Agreement”) with ThermiGen LLC and ThermiAesthetics LLC (“ThermiGen,” collectively) as well as Red Alinsod,
M.D. resolving our patent litigation against ThermiGen and Dr. Alinsod. The Settlement Agreement also resolved ThermiGen’s IPR proceedings against the Viveve.
Litigation related to infringement and other intellectual property claims, with or without merit, is unpredictable, can be expensive and time-consuming and could
divert management’s attention from our business. If we lose this kind of litigation, a court could require us to pay substantial damages, and prohibit us from using
technologies essential to the Viveve System and Viveve treatment, any of which would have a material adverse effect on our business, results of operations and financial
condition. In that event, we do not know whether necessary licenses would be available to us on satisfactory terms, or whether we could redesign the Viveve System or
processes to avoid infringement.
Competing products may also appear in other countries in which our patent coverage might not exist or be as strong. If we lose a foreign patent lawsuit, we could be
prevented from marketing the Viveve System in one or more countries.
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In addition, we may hereafter become involved in litigation to protect our trademark rights associated with our device name or treatment name. Names used may be
claimed to infringe names held by others or to be ineligible for proprietary protection. If we have to change the name of the company, device or treatment, we may
experience a loss in goodwill associated with our brand name, customer confusion and a loss of sales.
Risks Related to our Securities
Public company compliance may make it more difficult to attract and retain officers and directors.
The Sarbanes-Oxley Act and rules implemented by the Securities and Exchange Commission have required changes in corporate governance practices of public
companies. As a public company, these rules and regulations increase our compliance costs and make certain activities more time consuming and costly. These rules and
regulations may also make it more difficult and expensive for us to maintain our director and officer liability insurance and we may be required to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified
persons to serve on our board of directors or as executive officers, and to maintain insurance at reasonable rates, or at all.
Concentration of ownership of our common stock may have the effect of delaying or preventing a change in control.
As of March 13, 2020, our officers, directors and principal stockholders, i.e., stockholders who beneficially own greater than 10% of our outstanding common stock,
collectively beneficially own approximately 6.0% of our outstanding common stock. As a result, these stockholders, if they act together, will be able to control the
management and affairs of our company and most matters requiring stockholder approval, including the election of directors and approval of significant corporate
transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common
stock. This concentration of ownership may not be in the best interests of our other stockholders.
We are a holding company with no business operations of our own and we depend on cash flow from Viveve, Inc. to meet our obligations.
We are a holding company with no business operations of our own or material assets other than the stock we own in Viveve, Inc. All of our operations are conducted
by Viveve, Inc. As a holding company, we will require dividends and other payments from our subsidiary to meet cash requirements. The terms of any agreements
governing indebtedness that we may enter into may restrict our subsidiary from paying dividends and otherwise transferring cash or other assets to us. If there is an
insolvency, liquidation or other reorganization of our subsidiary, our stockholders likely will have no right to proceed against its assets. Creditors of our subsidiary will be
entitled to payment in full from the sale or other disposal of the assets of our subsidiary before we, as an equity holder, would be entitled to receive any distribution from
that sale or disposal. If Viveve, Inc. is unable to pay dividends or make other payments to us when needed, we will be unable to satisfy our obligations.
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our
control, including the following:
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actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
changes in the market’s expectations about our operating results;
success of competitors;
our operating results failing to meet the expectations of securities analysts or investors in a particular period;
changes in financial estimates and recommendations by securities analysts concerning our business, the market for our products, the health services industry, or
the healthcare and health insurance industries in general;
operating and stock price performance of other companies that investors deem comparable to us;
our ability to market new and enhanced products on a timely basis;
changes in laws and regulations affecting our business;
commencement of, or involvement in, litigation involving us;
changes in our capital structure, such as future issuances of securities or the incurrence of debt;
the volume of shares of our common stock available for public sale;
any major change in our board of directors or management;
sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and
general economic and political conditions such as recessions, fluctuations in interest rates and international currency fluctuations.
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In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Our shares of common stock are thinly traded, the price may not reflect our value, and there can be no assurance that there will be an active market for our shares of
common stock either now or in the future.
Our shares of common stock are thinly traded, our common stock is held by a small number of holders, and the price may not reflect our actual or perceived value.
There can be no assurance that there will be an active market for our shares of common stock either now or in the future. The market liquidity will be dependent on the
perception of our operating business, among other things. We will take certain steps including utilizing investor awareness campaigns, investor relations firms, press
releases, road shows and conferences to increase awareness of our business. Any steps that we might take to bring us to the awareness of investors may require that we
compensate consultants with cash and/or stock. There can be no assurance that there will be any awareness generated or the results of any efforts will result in any impact on
our trading volume. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business, and trading may be
at a depressed price relative to the performance of the Company due to, among other things, the availability of sellers of our shares. If an active market should develop, the
price may be highly volatile. Because there is currently a relatively low per-share price for our common stock, many brokerage firms or clearing firms are not willing to
effect transactions in the securities or accept our shares for deposit in an account. Many lending institutions will not permit the use of low-priced shares of common stock as
collateral for any loans.
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding period under Rule 144, or shares
issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and, in anticipation of which, the market
price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise
additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
In general, under Rule 144, a non-affiliated person who has held restricted shares of our common stock for a period of six months may sell into the market all of their
shares, subject to the Company being current in our periodic reports filed with the Commission.
We do not expect to declare or pay dividends in the foreseeable future.
We have never paid cash dividends on our common stock and have no plans to do so in the foreseeable future, except the cumulative dividend payable on our Series
B preferred stock, which could reduce a return in your investment in us. We intend to retain any earnings to develop, carry on, and expand our business. In addition, the
terms of the indebtedness of our existing credit facility also restrict us from paying cash dividends to stockholders under some circumstances. The terms of our Series A
preferred stock and our Series B preferred stock also provide that we may not pay dividends on our common stock without concurrently declaring dividends on each. If we
do not pay dividends, our stock may be less valuable because a return on your investment will only occur if you sell our common stock after our stock price appreciates. For
more information on restrictions governing our ability to pay dividends, see the section titled “Dividend” in Item 5 of Part II below.
CRG has the right to acquire a significant percentage of our stock upon conversion of its Series B preferred stock and exercise of its warrants and is able to exert
significant control over matters pursuant to the protective provisions therein as well as the covenants and other restrictions in the Loan Agreement.
CRG has the right to acquire approximately 46% of our outstanding common stock on a fully-diluted basis, subject to stockholder approval to authorize a sufficient
number of common stock, Nasdaq stockholder approval requirements and beneficial ownership restrictions contained in the Series B Certificate of Designation and warrants
held by CRG. Even though Series B preferred stock is non-voting stock, and has beneficial ownership restrictions, the Series B Certificate of Designation has protective
provisions that will require CRG’s consent to perform certain significant company events. For example, CRG's consent would be necessary to amend our organizational
documents, or approve any merger, sale of assets, or other major corporate transaction. This consent requirement could delay or prevent any acquisition of our company on
terms that other stockholders may desire and may adversely affect the market price of our common stock. CRG may have interests different than yours. For example, CRG
may want us to pursue strategies that deviate from the interests of other stockholders.
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The Series B preferred stock has a liquidation preference to our common stock and the Series A preferred stock.
Series B preferred stock has a liquidation preference that gets paid prior to any payment on our common stock (including shares issuable upon the exercise of the
warrants) and Series A preferred stock. As a result, if we were to dissolve, liquidate, merge with another company or sell our assets, the holders of our Series B preferred
stock would have the right to receive up to approximately $31.68 million plus any unpaid dividend from any such transaction before any amount is paid to the holders of our
Series A preferred stock or common stock or pursuant to the redemption rights in the warrants for fundamental transactions. The payment of the liquidation preferences
could result in common stockholders, Series A preferred stockholders and warrant holders not receiving any consideration if we were to liquidate, dissolve or wind up, either
voluntarily or involuntarily.
The existence of the liquidation preferences may reduce the value of our common stock, make it harder for us to sell shares of common stock in offerings in the
future, or prevent or delay a change of control. Furthermore, any conversion of Series B preferred stock into common stock will cause substantial dilution to our common
stockholders.
We may not be able to comply with all applicable listing requirements or standards of The Nasdaq Capital Market and Nasdaq could delist our common stock.
Our common stock is currently listed on The Nasdaq Capital Market. In order to maintain that listing, we must satisfy minimum financial and other continued listing
requirements and standards. One such requirement is that we maintain a minimum bid price of at least $1.00 per share for our common stock. For example, in May 2019, we
received a letter from the Listing Qualifications Department of The Nasdaq Stock Market (Nasdaq) advising us that for the 30 trading days preceding the date of the notice,
the bid price of our common stock had closed below the $1.00 per share minimum required for continued listing on The Nasdaq Global Select Market pursuant to Nasdaq
Listing Rule 5450(a)(1) and providing us 180 days to regain compliance. On September 18, 2019, we filed a Certificate of Amendment to our Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-100 reverse stock split of our issued and outstanding common stock. On October 3, 2019,
we were notified by Nasdaq that as of October 2, 2019 we had maintained a closing bid above $1.00 for a period of 10 consecutive trading days and therefore had regained
compliance with the minimum bid price requirement.
Furthermore, as of March 13, 2020, the bid price of our common stock has closed below $1.00 per share for 5 consecutive trading days. In the event that the bid price
of our common stock remains below such threshold for 30 consecutive trading days, we may receive another notice from the Listing Qualifications Department of Nasdaq
for our lack of compliance with the $1.00 minimum bid price requirement and grace period to regain compliance. In such an event, we may need to effect another reverse
stock split to regain compliance with the $1.00 minimum bid price requirement. Nasdaq may also decline to continue our listing if we undertake multiple reverse stock splits
for compliance with the $1.00 minimum bid price requirement.
In addition, on May 21, 2019, we received another written notice from the Listing Qualifications Department of Nasdaq notifying us that we are not in compliance
with the market value of listed securities requirement set forth in Nasdaq Listing Rule 5550(b)(2). On November 19, 2019, we received a notice from Nasdaq that our
securities would be subject to delisting from The Nasdaq Capital Market for failure to regain compliance with the market value of listed securities requirement, unless we
timely request a hearing before a Nasdaq Hearings Panel (the "Panel"). We requested a hearing before the Panel and made submissions to the Panel demonstrating the
Company’s compliance with the alternative stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1). On December 30, 2019, the Company received a
formal determination from the Panel indicating that the Company had evidenced compliance with all applicable requirements for continued listing on The Nasdaq Capital
Market. Accordingly, the Company’s hearing before the Panel was cancelled and the Company’s common stock continued to be listed and traded on The Nasdaq Capital
Market.
There can be no assurance that we will continue to be in compliance with the $1.00 minimum bid price requirement or comply with Nasdaq’s other continued listing
standards in the future. In the event that our common stock is not eligible for continued listing on Nasdaq or another national securities exchange, trading of our common
stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin
Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in
our coverage by security analysts and the news media, which could cause the price of our common stock to decline further. Also, it may be difficult for us to raise additional
capital if we are not listed on a major exchange.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
On February 1, 2017, we entered into a Sublease for approximately 12,400 square feet of building space for the Company’s corporate headquarters to Englewood,
Colorado, which was effective as of January 26, 2017. The lease term is 36 months. The lease term commenced on June 1, 2017 and will terminate in May 2020. We believe
that this facility is adequate for our current business operations.
The office operating lease expense for the year ended December 31, 2019 was $268,000. The office rent expense for the years ended December 31, 2018 and 2017
was $358,000 and $442,000, respectively. Future minimum payments under the lease are approximately as follows:
Year Ending December 31,
2020
2021
2022
–
–
$272,000
$115,000
$0
Item 3. Legal Proceedings
The Company currently has no pending or open legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
As of March 13, 2020, our common stock is trading on The Nasdaq Capital Market under the symbol “VIVE”.
Holders of Common Stock
As of March 13, 2020, there were approximately 116 holders of record of our common stock.
Dividends
Our Series B preferred stock carries a cumulative dividend at a rate of 12.5% of $1,000 per annum, compounded annually. This cumulative dividend is payable in
arrears on quarterly basis, commencing with December 31, 2019, and at our option is payable in additional shares of Series B preferred stock. Additionally, the terms of our
Series A preferred stock and Series B preferred stock provide that we may not declare dividends on the common stock without concurrently declaring dividends on such
series of preferred stock in an amount equal to that payable had they been converted to common stock prior to the dividend. We have paid $2,382 in cash and issued a total
of 378 shares of Series B preferred stock as preferred dividend to the holders of Series B preferred stock through December 31, 2019.
Other than the preferred dividend on Series B preferred stock, we have not declared or paid any cash dividends on our common stock, and we currently intend to
retain future earnings, if any, to finance the expansion of our business; we do not expect to pay any cash dividends in the foreseeable future. The decision whether to pay
cash dividends on our common stock will be made by our board of directors, in their discretion, and will depend on our financial condition, results of operations, capital
requirements and other factors that our board of directors considers significant.
Securities Authorized For Issuance Under Equity Compensation Plans
Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report.
Issuances of Unregistered Securities
In consideration for consulting services rendered to our company, we made the following issuances of securities to Acorn Management Partners LLC, exempt from
registration pursuant to Section 4(a)(2) of the Securities Act: 274 shares of common stock (as adjusted for September 18, 2019 reverse stock split) issued on March 12,
2019; 7,740 shares of common stock issued on October 11, 2019; and 30,675 shares of common stock issued on December 11, 2019.
In consideration of conversion of $31.3 million in outstanding obligations, we made the following issuances of securities to affiliates of CRG, exempt from
registration pursuant to Section 4(a)(2) of the Securities Act, on November 26, 2019: 31,300 shares of Series B preferred stock; and warrants to purchase 9,893,776 shares of
common stock.
Pursuant to the Certificate of Designation of Series B preferred stock, we issued 378 shares of Series B preferred stock in lieu of $378,000 in cash dividend to holders
of Series B preferred stock, exempt from registration pursuant to Section 4(a)(2) of the Securities Act, on December 31, 2019.
The shares of Series B preferred stock and warrants to purchase shares of common stock issued to affiliates of CRG will only be convertible or exercisable into
common stock, as applicable, following such time as we have filed an amendment to the certificate of incorporation that authorizes at least 125,000,000 shares of common
stock. The conversion or exercise of securities issued to affiliates of CRG are also further subject to certain beneficial ownership restrictions and Nasdaq stockholder
approval requirements. If the Series B preferred stock becomes convertible into common stock, it will be convertible into that number of shares of common stock
determined by dividing $1,000 by the conversion price of $1.53.
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Item 6. Selected Financial Data
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In
some cases, you can identify forward-looking statements by terminology including, "could" "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate",
"predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the
direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance
suggested in this Annual Report.
The following discussion should be read in conjunction with the consolidated financial statements and the related notes contained elsewhere in this Annual Report. In
addition to historical information, the following discussion contains forward looking statements based upon current expectations that are subject to risks and uncertainties.
Actual results may differ substantially from those referred to herein due to a number of factors, including, but not limited to, risks described in the section entitled “Risk
Factors”.
Overview of Our Business
In the discussion below, when we use the terms “we”, “us” and “our”, we are referring to Viveve Medical, Inc. and our wholly-owned subsidiaries, Viveve, Inc. and
Viveve BV.
We design, develop, manufacture and market a platform medical technology, which we refer to as Cryogen-cooled Monopolar Radiofrequency, or CMRF. Our
proprietary CMRF technology is delivered through a radiofrequency generator, handpiece and treatment tip that, collectively, we refer to as the Viveve® System. The
Viveve System is currently marketed and sold for a number of indications, depending on the relevant country-specific clearance or approval. Currently, the Viveve System is
cleared for marketing in 57 countries throughout the world under the following indications for use:
Indication for Use:
General surgical procedures for electrocoagulation and hemostasis
General surgical procedures for electrocoagulation and hemostasis of vaginal tissue and the treatment of vaginal laxity
For treatment of vaginal laxity
For treatment of the vaginal introitus, after vaginal childbirth, to improve sexual function
General surgical procedures for electrocoagulation and hemostasis as well as for the treatment of vaginal laxity
For vaginal rejuvenation
For treatment of vaginal laxity and to improve mild urinary incontinence and sexual function
No. of Countries:
4 (including the U.S.)
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4
14
1
1
1
In the U.S., the Viveve System is indicated for use in general surgical procedures for electrocoagulation and hemostasis and we market and sell primarily through a
direct sales force. Outside the U.S., we primarily market and sell through distribution partners. As of December 31, 2019, we have sold 840 Viveve Systems and
approximately 41,150 single-use treatment tips worldwide.
Because the revenues we have earned to date have not been sufficient to support our operations, we have relied on sales of our securities, bank term loans and loans
from related parties to fund our operations.
We are subject to risks, expenses and uncertainties frequently encountered by companies in the medical device industry. These risks include, but are not limited to,
intense competition, whether we can be successful in obtaining FDA and other governmental clearance or approval for the sale of our product for all desired indications and
whether there will be a demand for the Viveve System, given that the cost of the procedure will likely not be reimbursed by the government or private health insurers. In
addition, we will continue to require substantial funds to support our clinical trials and fund our efforts to expand regulatory clearance or approval for our products, including
in the U.S. We cannot be certain that any additional required financing will be available when needed or on terms which are favorable to us. As noted above, our operations
to date have been primarily funded through the sales of our securities, bank term loans and loans from related parties. Various factors, including our limited operating
history with limited revenues to date and our limited ability to market and sell our products have resulted in limited working capital available to fund our operations. There
are no assurances that we will be successful in securing additional financing in the future to fund our operations going forward. Failure to generate sufficient cash flows from
operations, raise additional capital or reduce certain discretionary spending could have a material adverse effect on our ability to achieve our intended business objectives.
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Recent Events
2019 Public Offering and Debt Conversion
In November 2019, the Company closed an underwritten public offering of units (the “November 2019 Offering”) for gross proceeds of approximately $11,500,000,
which included the full exercise of the underwriter's overallotment option to purchase additional shares and warrants. The net proceeds to the Company, after deducting
underwriting discounts and commissions and other offering expenses and payable by the Company, were approximately $9,952,000.
The offering comprised of: (1) Class A Units, priced at a public offering price of $1.55 per unit, with each unit consisting of one share of common stock, a Series A
warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the first anniversary of the date of issuance and a Series B warrant to
purchase one share of common stock at an exercise price of $1.55 per share that expires on the fifth anniversary of the issuance; and (2) Class B Units, priced at a public
offering price of $1.55 per unit, with each unit consisting of one share of Series A convertible preferred stock, convertible into one share of common stock, a Series A
warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the first anniversary of the date of issuance and a Series B warrant to
purchase one share of common stock at an exercise price of $1.55 per share that expires on the fifth anniversary of the issuance.
The securities comprising the units were immediately separable and were issued separately.
A total of 1,945,943 shares of common stock, 5,497,593 shares of Series A convertible preferred stock, Series A warrants to purchase up to 7,419,353 shares of
common stock, and Series B warrants to purchase up to 7,419,353 shares of common stock were issued in the offering, including the full exercise of the over-allotment
option.
In November and December 2019, the holders of Series A preferred stock converted 600,000 shares and 3,021,237 shares into common stock, respectively. As of
December 31, 2019, 1,852,173 remaining shares of Series A convertible preferred stock were outstanding.
In connection with the closing of the November 2019 Offering, the Company’s secured lender, affiliates of CRG LP (“CRG”), converted approximately $28,981,000
of the outstanding principal amount under its term loan with CRG (plus accrued interest, the prepayment premium and the back-end fee applicable thereto), for an aggregate
amount of converted debt obligations of approximately $31,300,000. The amounts converted into 31,300 shares of the newly authorized Series B convertible preferred stock
convertible into 20,457,516 shares of common stock following an increase in the Company’s authorized stock. CRG was also issued and warrants to purchase up to
9,893,776 shares of common stock exercisable following an increase in the Company’s authorized stock at an exercise price of $1.836 per share. CRG entered into a one
year lock up agreement on all securities that it holds.
Reverse Stock Split
The Company effected a 1-for-100 reverse stock split of its common stock that became effective after the Nasdaq Capital Market trading closed on September 18,
2019. The reverse stock split uniformly affected all issued and outstanding shares of the Company’s common stock. The reverse stock split did not alter any stockholder's
percentage ownership interest in the Company, except to the extent that the reverse stock split results in fractional shares. No fractional shares were issued in connection with
the reverse stock split. Any fractional share that resulted from the reverse stock split was rounded down and stockholders were issued cash in lieu of such fractional share
interest.
The par value of the Company’s common stock remained unchanged at $0.0001 per share after the reverse stock split. The number of authorized shares of common
stock remained at 75 million.
The reverse stock split proportionately affected the number of shares of common stock available for issuance under the Company’s equity incentive plans. All stock
options warrants and restricted stock awards of the Company outstanding shares immediately prior to the reverse stock split were adjusted in accordance with their terms.
On the effective date of the reverse stock split, (i) each 100 shares of outstanding common stock were reduced to one share of common stock; (ii) the number of
shares of common stock into which each outstanding stock option or warrant to purchase common stock is exercisable were proportionately reduced on an 100-to-1 basis;
(iii) the exercise price of each outstanding stock option or warrant to purchase common stock were proportionately increased on a 1-to-100 basis; and (iv) the number of
shares of common stock each outstanding restricted stock award will be issued upon vesting were proportionally reduced on a 100-to-1 basis.
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All of the share numbers, share prices, and exercise prices have been adjusted, on a retroactive basis, to reflect this 1-for-100 reverse stock split.
Nasdaq Delisting Notice and Compliance Determination
On May 13, 2019 and May 21, 2019, the Company received written notices from the Listing Qualifications Department of The Nasdaq Stock Market LLC
(“Nasdaq”) notifying it that the Company was not in compliance with the minimum bid price requirements and the market value of listed securities requirements,
respectively. Both notification letters state that the Company has 180 calendar days, or until November 11, 2019 and November 18, 2019, respectively, to regain
compliance.
On September 17, 2019, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation with the Secretary of State of the
State of Delaware to effect a 1-for-100 reverse stock split of the Company’s issued and outstanding common stock. The reverse stock split became effective after the Nasdaq
Capital Market trading closed on September 18, 2019 and the Company’s common stock began trading on a split-adjusted basis on the Nasdaq Capital Market on September
19, 2019.
Following our reverse stock split described above, on October 3, 2019, the Company was notified by Nasdaq that as of October 2, 2019, it had maintained a closing
bid above $1.00 for a period of 10 consecutive trading days and therefore had regained compliance with the minimum bid price requirement.
On November 19, 2019, we received a notice from Nasdaq that our securities would be subject to delisting from The Nasdaq Capital Market for failure to regain
compliance with the market value of listed securities requirement under Nasdaq Listing Rule 5550(b)(2), unless we timely request a hearing before a Nasdaq Hearings Panel
(the "Panel"). A hearing was requested before the Panel, which stayed the delisting action by Nasdaq. The Company also made submissions to the Panel demonstrating its
compliance with the alternative stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1).
On December 30, 2019, the Company received a formal determination from the Panel indicating that the Company has evidenced compliance with all applicable
requirements for continued listing on The Nasdaq Capital Market. Accordingly, the Company’s hearing before the Panel scheduled for January 16, 2020 was cancelled and
the Company’s common stock will continue to be listed and trade on The Nasdaq Capital Market.
“At-the-Market” Offering
The Company established an “at-the-market” equity offering program through the filing of a prospectus supplement on August 16, 2019 to its shelf registration
statement on Form S-3filed on November 8, 2017, under which the Company could offer and sell, from time-to-time, up to $6,760,000 aggregate offering price of shares of
its common stock (the “August 2019 ATM Facility”). The Company’s offering of $6,760,000 of its common stock under the August 2019 ATM Facility was completed in
late September 2019. During the year ended December 31, 2019, the Company sold 1,004,171 shares of common stock under the August 2019 ATM Facility for net
proceeds, after deducting sales commissions and other offering costs, of approximately $6,322,000. As of December 31, 2019, the Company had no remaining capacity to
issue shares under the August 2019 ATM Facility.
The Company had previously established an “at-the-market” equity offering program through the filing of a prospectus supplement on November 28, 2017 to its shelf
registration statement on Form S-3 filed on November 8, 2017, under which the Company could offer and sell, from time-to-time, up to $25,000,000 aggregate offering
price of shares of its common stock (the “November 2017 ATM Facility”). On August 16, 2019, the Company suspended and subsequently terminated the November 2017
ATM Facility. The Company will no longer make any sales of its common stock under the November 2017 ATM Facility. During the years ended December 31, 2019 and
2018, the Company sold zero and 2,771 shares of common stock under the November 2017 ATM Facility, respectively. Through the termination of the November 2017
ATM Facility in August 2019, the Company sold 3,364 shares of common stock under the equity offering program for net proceeds, after deducting sales commissions and
other offering costs, of approximately $1,318,000.
Effective Shelf Registration Statements
In November 2017, we filed a universal shelf registration statement with the SEC on Form S-3 for the proposed offering from time to time of up to $50,000,000 of our
securities, including common stock, preferred stock, and/or warrants (the “2017 Shelf Registration Statement”). The 2017 Shelf Registration Statement currently has a
balance of $35,016,000 available for future issuance. However, as a result of the limitations of General Instruction I.B.6. of Form S-3, or the so-called “baby shelf rules”, the
amount of shares of our common stock available for sale under a registration statement on Form S-3 is limited to one-third of the aggregate market value of our common
equity held by non-affiliates of the Company over any rolling 12-month period.
As of December 31, 2019, the Company had no capacity for sales under the 2017 Shelf Registration Statement due to the baby shelf rules.
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ITA Approval and Initiation of 3-Arm Feasibility Study in SUI
In December 2019, the Company received approval of an Investigational Testing Application (ITA) from the Canadian Ministry of Health and in January 2020
initiated a three-arm, three-month feasibility study to compare Viveve’s cryogen-cooled monopolar radiofrequency (CMRF) treatment and a cryogen-only sham to an inert
sham treatment for the improvement of Stress Urinary Incontinence (SUI) in women. This three-month study may provide us with a strategic path forward in our pursuit of
global label expansion for SUI. Study subjects will be randomized in a 1:1:1 ratio to the three arms and assessed using the 1-hour Pad Weight Test, 3-day Voiding Diary, the
24-hour Pad Weight Test and I-QOL at three months post treatment. Completion of subject enrollment in the study was reported in March 2020. The three-arm feasibility
study is targeted for read-out in the third quarter of 2020.
Launch of Next Generation 2.0 Platform
South Korea: In December 2019, Viveve received registration clearance by the Korean Ministry of Food and Drug Safety for its next generation Viveve 2.0 CMRF
system for use in general surgical procedures for electrocoagulation and hemostasis as well as for the treatment of vaginal laxity. Clearance of the Viveve 2.0 System in
South Korea represents an important milestone in the Company’s ongoing regulatory strategy to expand the global commercial footprint of its next generation CMRF
technology platform and consumable treatment tips that are currently available in the U.S., European Union, China, and South Korea.
China: In December 2019, Viveve reported the launch of its next generation 2.0 System and consumable treatment tips in mainland China, Hong Kong and Macau
with Paragon Meditech, the Company’s exclusive distribution partner in the region. The Paragon hosted launch event included more than 70 key opinion leader customers in
Dalian, China. The comprehensive event was enthusiastically received by participating women’s health and aesthetic practitioners from Mainland China and other Asian
markets across Paragon’s territories.
United States: In June 2019, the Company received 510(k) clearance by the U.S. Food and Drug Administration of its next generation Viveve 2.0 System and
consumable treatment tips for use in general surgical procedures for electrocoagulation and hemostasis. The regulatory agency clearance is believed to represent another
important confirmation of the safety profile of Viveve’s CMRF technology platform.
European Union: In April 2019, the Company received CE Mark clearance for its next generation Viveve 2.0 CMRF system and treatment tips in European Union
and European Economic Area countries. As part of our ongoing regulatory strategy to expand the commercial launch of our Viveve 2.0 CMRF system globally, the
Company’s next generation system and its consumable treatment tips are now available in over 30 countries in Europe. The Company’s Viveve 2.0 CMRF system
significantly reduced manufacturing costs for both the next generation system and for the consumable tips since becoming available in the U.S. and it is projected to have a
positive impact on our overall gross margins going forward.
Completion of All Follow-up Patient Visits in VIVEVE II Clinical Study
In March 2019, enrollment was completed for the VIVEVE II (VIveve treatment of the Vaginal Introitus to EValuate Effectiveness) clinical study. In March 2020, all
patient follow-up visits were completed in this 12-month FDA approved IDE trial. VIVEVE II is a prospective, randomized, double-blind, sham controlled study to evaluate
the efficacy and safety of the Viveve System to improve symptoms of female sexual dysfunction, associated with vaginal laxity. Nineteen (19) clinical sites in the United
States enrolled up to 250 female patients who were pre-menopausal, 18 years of age or older who experienced at least one full term vaginal delivery at least twelve months
prior to enrollment date. Patients were randomized in a 2:1 ratio to either an active treatment group or sham-control group. All patients have now been followed for twelve
months post-treatment to assess the primary effectiveness and safety endpoints of the study with data being collected at one, three, six, nine and twelve months. Patients
randomized to the sham arm will be offered the opportunity to receive a Viveve treatment once the study has been unblinded.
The primary efficacy endpoint of the study is the mean change from baseline in the Female Sexual Function Index (FSFI) total score at twelve months posttreatment.
Secondary endpoints include evaluation of the mean change from baseline of the total FSFI score at six months, as well as evaluation of the mean change from baseline of
the six different domains within the FSFI at six and twelve months. At months six and twelve, in addition to the FSFI, subjects were asked to complete the Patient’s Global
Impression of Improvement (PGI-I). Subjects were also assessed for adverse events throughout the study. Completion of all subject follow-up visits in the study was reported
in March 2020. The Company intends to report final twelve-month clinical data from the study in the second quarter of 2020.
Clinical Results Reported from LIBERATE-International SUI Trial
In July 2019, topline results for the LIBERATE-International study in SUI conducted under an investigational testing application approved by the Canadian Ministry
of Health were reported by the Company. In August 2019, Viveve reported additional clinical outcomes data from the study. While the study did not achieve statistical
significance on the primary endpoint of mean change from baseline on the 1-hour Pad Weight Test at six months post-treatment compared to the control group, the full
clinical data demonstrated a consistency of benefit at six months post-treatment across all endpoints in the majority of patients within both groups. The median change from
baseline at six months post-treatment was -8.0g in the active group of 66 subjects (baseline median 12.8g) and -8.0g in the sham-control group of 33 subjects (baseline
median 12.9g).
42
LIBERATE International was a randomized, double-blind, sham-controlled study conducted at 9 sites in Canada and included enrollment of 99 patients suffering
from mild-to-moderate SUI. Patients were randomized in a 2:1 ratio to either Active treatment (90J/cm2 RF with cryogen-cooling) or Sham treatment (sub-treatment dose of
≤1 J/cm2 cryogen-cooling). Patients were followed for six months post-treatment to assess the primary efficacy and safety of the of the treatment with data being collected at
one, three and six months. Eighty-five subjects successfully completed the six-month study and no serious device-related events were reported.
The primary efficacy endpoint was the 6-month change from baseline in the one-hour pad weight test. Secondary endpoints included: 24-hour pad weight test, daily
incontinence episodes (3-day diary), as well as composite scores from the validated UDI-6 (Urogenital Distress Inventory-Short Form), IIQ-7 (Incontinence Impact
Questionnaire), ICIQ-UI-SF (International Consultation on Incontinence Questionnaire-Urinary Incontinence-Short Form), and FSFI (Female Sexual Function Index)
outcome questionnaires.
Across all endpoints, the efficacy of both the Active and Sham treatments were highly clinically relevant. For the primary endpoint, median percentage decrease from
baseline (CFB) to 6 months post-treatment in 1-hr pad weight for the Active group was 77.2% and 81.0% for the Sham group. However, the differences were not significant
between the Active and Sham groups. The sham response consistently exceeded the 30 – 55% placebo response rates in the literature for SUI studies, suggesting that
cryogen alone may have a therapeutic effect.
The LIBERATE-International study was conducted in Canada to evaluate support for SUI indications in Canada, the European Union and several other international
countries. Further analysis by the Company of the positive yet inconclusive results of the trial enabled Viveve to identify and pursue a strategic pathway to continue the
advancement of its SUI clinical development program and pursuit of a label expansion for the SUI indication on a global basis.
Submission of IDE to FDA for Approval to Conduct SUI Trial in the United States
In September 2018, the Company submitted an Investigational Device Exemption (IDE) to the U.S. Food and Drug Administration (FDA) for authorization to begin a
clinical study in the U.S. for SUI, a multicenter, randomized, double-blinded, sham-controlled trial to evaluate the safety and efficacy of the Company’s proprietary CMRF
technology for the improvement of SUI in women. Intended enrollment for the clinical study in the U.S. for SUI trial is approximately 240 subjects at up to 25 study sites in
the United States. Subjects will be randomized in a 2:1 ratio for active and sham treatments.
In October 2018, the FDA sent a letter to the Company stating that the FDA did not approve the IDE submission for the clinical study in the U.S. for SUI and
requested the Company to submit additional safety testing as part of an IDE re-submission. Viveve has had ongoing discussions with the FDA regarding such safety testing.
In November 2019, we conducted a Good Laboratory Practice (GLP) study in six ewes to evaluate the in vivo temperature-time profile and histopathology of vaginal
and surrounding tissues in the ovine model after Viveve treatment. Five ewes were utilized for the in vivo energy application procedures while the remaining ewe was
utilized as a control. During anesthesia, eight fluoroptic temperature probes were placed at different locations near the vaginal wall, rectum and bladder. After probe
placement, five of the ewes received the Viveve SUI protocol (220 pulses of 90 J/cm2 of RF energy) and temperatures recorded. The control ewe did not receive energy
application, but temperatures were recorded. In February 2020, study results showed temperature increases only at tissue locations where expected. Histopathology results
showed normal histopathology of vaginal and surrounding tissues, and no adverse or other associated treatment-related responses, as evaluated histologically via H&E stain
(in formalin fixed, paraffin embedded samples) and LDH/NBT vital stain (in frozen, OCT embedded samples). There were no macroscopic findings in either fresh or
formalin-fixed tissues submitted for pathologic evaluation.
Pending the results of the Company’s 3-Arm Feasibility Study in SUI, the Company plans to resubmit the IDE to the FDA.
U.S. Commercial Sales Transition to Recurring Revenue Rental Model
In June 2019, U.S. sales of the Viveve System transitioned from a capital equipment sales model to a recurring revenue rental model. The new U.S. commercial sales
model is intended to lower up-front costs for customers and thus lower hurdles to adoption, increase placement rates, and improve profitability by significantly reducing
selling time per unit. The new commercial sales model successfully increased physician adoption rates in the months following its implementation and is continuing to gain
traction in the U.S. market. In December 2019, Viveve Systems placed with new customers represented a higher monthly productivity rate per sales representative than any
prior month in the company’s history. Sale of Viveve products outside of the U.S. will continue to be supported by the Company’s current distributors without significant
change to the international business model.
43
Under the recurring revenue rental model, customers may lease the Viveve System for a set initial term. After the initial term, the customer may purchase the Viveve
System, continue to pay a monthly rental amount or terminate the contract.
The rental program is accounted for under the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) No. 2016-02, Leases
(Topic 842) and meets the classification criteria for an operating lease. Revenue from the rental program is included in revenue and is currently not a material amount. The
Viveve Systems that are being leased are included in property and equipment, net and depreciated over their expected useful lives of 5 years. When other products (“non-
lease components”), such as single-use treatment tips or ancillary consumables, are included in the offering, the Company follows the relevant guidance in ASC Topic 606,
Revenue from Contracts with Customers, to determine how to allocate contractual consideration between the lease and non-lease components.
Strategic Organizational Realignment
In January 2019, the Company implemented a strategic and organizational realignment plan (the “Strategic Organizational Realignment”) to reduce operating
expenses and prepare the Company for expanded indications for its CMRF technology platform for improved sexual function and stress urinary incontinence in women. The
Strategic Organizational Realignment included a reduction in total headcount of approximately 40 full-time employees. It also included a nearly two-thirds reduction in the
Company’s direct sales organization, which has been repositioned to provide targeted market development activities to further expand awareness and adoption of Viveve’s
CMRF technology in the gynecology, urogynecology, and female sexual medicine specialties. The Company’s current and prospective aesthetic medicine customers in the
U.S. will be supported by a network of distributor partners under Viveve’s direction. International commercial distribution will remain unchanged through Viveve’s global
network of distributor partners. The total restructuring costs for employee severance and other related termination benefits were approximately $742,000 and it was recorded
in the quarter ended March 31, 2019. This restructuring contributed to a reduction in our total operating expenses in the first quarter of 2019 as planned and additional
operating cost savings occurred through the remainder of 2019.
Adoption of New Accounting Standard - Leases
The Company adopted the FASB’s ASC Topic 842, as of January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a
method for recording existing leases at the beginning of the period of adoption. In addition, the Company elected the package of practical expedients permitted under the
transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification and we elected the hindsight practical
expedient to determine the lease term for existing leases. We determined that the renewal options for the facilities lease would be reasonably certain to be renewed and as
such, included that renewal period in determining the expected lease term of that lease. The comparative information has not been restated and continues to be reported
under the accounting standards in effect for those periods. Adoption of the new standard resulted in the recording of operating lease right-of-use assets of $629,000 and
operating lease liabilities of $629,000, as of January 1, 2019.
Impact of the Novel Coronavirus
As of the filing of this Annual Report on Form 10-K, China, South Korea, the United States and most other countries face the outbreak of a novel highly
transmissible and pathogenic coronavirus, which has resulted in a widespread global health crisis, adversely affected general commercial activity and the economies and
financial markets of many countries, and is likely to also adversely affect our business, financial condition and results of operations. The extent to which the novel
coronavirus impacts us will depend on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge
concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.
Plan of Operation
We intend to increase our sales both internationally and in the U.S. market by seeking additional regulatory clearances or approvals for the sale and distribution of our
products, identifying and training qualified distributors and expanding the scope of physicians who offer the Viveve System to include plastic surgeons, general
surgeons, urologists, and urogynecologists.
In June 2019, we transitioned from a capital equipment sales model to a recurring revenue rental model in the U.S. market. The new U.S. commercial sales model is
intended to lower up-front costs for customers and thus lower hurdles to adoption, increase placement rates, and improve profitability by significantly reducing selling time
per unit. Sale of Viveve products outside of the U.S. will continue to be supported by our international distributors.
In addition, we intend to use the strategic relationships that we have developed with outside contractors and medical experts to improve our products by focusing our
research and development efforts on various areas including, but not limited to:
●
●
designing new treatment tips optimized for both ease-of-use and to reduce procedure times for patients and physicians; and
developing new RF consoles.
The net proceeds received from sales of our securities and the term loans have been used to support commercialization of our product in existing and new markets, for
our research and development efforts and for protection of our intellectual property, as well as for working capital and other general corporate purposes. We expect that our
cash will be sufficient to fund our activities for at least the next twelve months, however, we may require additional capital from the sale of equity or debt securities to fully
implement our plan of operation. Our operating costs include employee salaries and benefits, compensation paid to consultants, professional fees and expenses, costs
associated with our clinical trials, capital costs for research and other equipment, costs associated with research and development activities including travel and
administration, legal expenses, sales and marketing costs, general and administrative expenses, and other costs associated with an early stage public company subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We also expect to incur expenses related to obtaining regulatory clearance
and approvals in the U.S. and internationally as well as legal and related expenses to protect our intellectual property. We expect capital expenditures, for the foreseeable
future, to be less than $1,000,000 annually.
44
We intend to continue to meet our operating cash flow requirements through the sales of our products and by raising additional capital from the sale of equity or debt
securities. If we sell our equity securities, or securities convertible into equity, to raise capital, our current stockholders will likely be substantially diluted. We may also
consider the sale of certain assets, or entering into a strategic transaction, such as a merger, with a business complimentary to ours, although we do not currently have plans
for any such transaction. While we have been successful in raising capital to fund our operations since inception, other than as discussed in this Annual Report on Form 10-
K, we do not have any committed sources of financing and there are no assurances that we will be able to secure additional funding, or if we do secure additional financing
that it will be on terms that are favorable to us. If we cannot obtain financing, then we may be forced to curtail our operations or consider other strategic alternatives.
Results of Operations
Comparison of the Year Ended December 31, 2019 and 2018
Revenue
Year Ended
December 31,
Change
2019
2018
$
%
(in thousands, except percentages)
Revenue
$
6,567 $
18,517 $
(11,950)
(65)%
We recorded revenue of $6,567,000 for the year ended December 31, 2019, compared to revenue of $18,517,000 for the year ended December 31, 2018, a decrease of
$11,950,000, or approximately 65%. The decrease in revenue was primarily due to our shift in our U.S. commercial sales model to a recurring revenue rental model versus
selling systems under a capital equipment sales model. Sales in 2019 included 137 Viveve Systems and approximately 7,850 disposable treatment tips. Under the new U.S.
recurring revenue rental model, which was launched in June 2019, the Company placed 82 Viveve Systems. Rental revenue on these leases is recognized on a straight-line
basis over the term of the lease, which is initiated upon completion of system installation and training. Rental revenue recognized in 2019 was not material. Sales in 2018
included 259 Viveve Systems, and approximately 18,450 disposable treatment tips.
Gross Profit
Year Ended
December 31,
Change
2019
2018
$
%
(in thousands, except percentages)
Gross profit
$
1,016 $
7,320 $
(6,304)
(86)%
Gross profit was $1,016,000, or 15% of revenue, for the year ended December 31, 2019, compared to gross profit of $7,320,000, or 40% of revenue, for the year
ended December 31, 2018, a decrease of $6,304,000 or approximately 86%. The decrease in gross profit was primarily due to the lower sales volume of Viveve Systems
sold as the Company transitioned its U.S. business model to a recurring revenue rental model versus selling systems under a capital equipment sales model. Additionally,
fixed manufacturing costs in 2019 were spread over a lower sales volume thus lowering gross margins.
Research and development expenses
Year Ended
December 31,
Change
2019
2018
$
%
(in thousands, except percentages)
Research and development
$
8,590 $
13,616 $
(5,026)
(37)%
Research and development expenses totaled $8,590,000 for the year ended December 31, 2019, compared to research and development expenses of $13,616,000 for
the year ended December 31, 2018, a decrease of $5,026,000, or approximately 37%. Spending on research and development decreased in 2019 primarily due to reduced
engineering and development work related to our products as well as certain cost savings in connection with the Company’s Strategic Organizational Realignment which
occurred in the first quarter of 2019. Research and development expenses during the year also included lower clinical study costs primarily due to the completion and readout
of our LIBERATE-International SUI clinical trial in July 2019.
45
Selling, general and administrative expenses
Year Ended
December 31,
Change
2019
2018
$
%
(in thousands, except percentages)
Selling, general and administrative
$
22,363 $
38,669 $
(16,306)
(42)%
Selling, general and administrative expenses totaled $22,363,000 for the year ended December 31, 2019, compared to $38,669,000 for the year ended December 31,
2018, a decrease of $16,306,000, or approximately 42%. The decrease in selling, general and administrative expenses in 2019 was primarily due to certain cost savings in
connection with the Company’s Strategic Organizational Realignment which occurred in the first quarter of 2019, as well as lower professional and legal fees associated
with our intellectual property.
Restructuring costs
Restructuring costs
Loss on debt restructuring
Year Ended
December 31,
Change
2019
2018
$
%
(in thousands, except percentages)
$
742 $
- $
742
Year Ended
December 31,
Change
2019
2018
$
%
(in thousands, except percentages)
Loss on debt restructuring
$
(6,705) $
- $
(6,705)
-
-
In connection with the November 2019 Offering, the Company’s secured lender, CRG, converted approximately $31.3 million of debt obligations into the newly
authorized Series B convertible preferred stock and warrants to purchase common stock, which had a fair value in excess of the debt exchanged. As a result, the Company
recorded a loss on debt restructuring of approximately $6,705,000 on the CRG debt conversion.
In January 2019, the Company implemented the Strategic Organizational Realignment to reduce operating expenses. The restructuring included a reduction in
headcount of approximately 40 full-time employees. The total restructuring costs recorded in 2019 were approximately $742,000. This restructuring contributed to a
reduction in total operating expenses in 2019.
Interest expense
Year Ended
December 31,
Change
2019
2018
$
%
(in thousands, except percentages)
Interest expense, net
$
4,354 $
4,372 $
(18)
NM
During the year ended December 31, 2019, we had interest expense, net, of $4,354,000 compared to $4,372,000, for the year ended December 31, 2018, a decrease of
$18,000. The decrease in interest expense was primarily due to CRG’s conversion of approximately $28.981,000 in outstanding principal into Series B convertible preferred
stock in connection with our November 2019 Offering.
46
Other income (expense), net
Year Ended
December 31,
Change
2019
2018
$
%
(in thousands, except percentages)
Other income (expense), net
$
(161) $
13 $
(174)
NM
During the year ended December 31, 2019, we had other expense, net, of $161,000 as compared to other income, net, of $13,000 for the year ended December 31,
2018.
Loss from minority interest in limited liability company
Year Ended
December 31,
Change
2019
2018
$
%
(in thousands, except percentages)
Loss from minority interest in limited liability company
$
627 $
657 $
(30)
(5)%
The Company uses the equity method to account for its investment in InControl Medical, LLC (“ICM”). For the year ended December 31, 2019 and 2018, the
allocated net loss from ICM’s operations was $627,000 and $657,000, respectively.
Liquidity and Capital Resources
Comparison of the Year Ended December 31, 2019 and 2018
At December 31, 2019, we had accumulated deficit of $197.9 million, $13.3 million in cash and cash equivalents and working capital of $15.9 million . During 2019,
we raised $16.3 million from the sale of common stock and convertible preferred stock and warrants. However, we used $31.2 million in cash for operations during the year
ended December 31, 2019. As of the date our financial statements for the year ended December 31, 2019 are issued, we did not have sufficient cash to fund our operation
through March 31, 2021, without additional financing and, therefore, we concluded there was substantial doubt about our ability to continue as a going concern within one
year after the date the financial statements are issued.
Management currently believes that it will be necessary for us to raise additional funding. We may obtain additional funding in the future through the issuance of our
common stock, or through other equity or debt financing. The failure to raise additional funding when needed could have a material adverse effect on our business and
financial condition. We may not be able to obtain additional financing as needed on acceptable terms, or at all, which may require us to reduce our operating costs and other
expenditures, including reductions of personnel, salaries and capital expenditures. Alternatively, or in addition to such potential measures, we may elect to implement
additional cost reduction actions as we may determine are necessary and in our best interests. Any such actions undertaken might limit the Company’s ability to achieve its
strategic objectives.
The following table summarizes the primary sources and uses of cash for the periods presented below (in thousands):
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Operating Activities
Year Ended
December 31,
2019
2018
$
$
(31,236) $
(1,087)
16,108
(16,215) $
(43,090)
(2,142)
54,025
8,793
We have incurred, and expect to continue to incur, significant expenses in the areas of research and development, regulatory and clinical study costs associated with
the Viveve System.
47
Operating activities used $31,236,000 of cash for the year ended December 31, 2019 compared to $43,090,000 used for the year ended December 31, 2018. The
primary use of our cash was to fund selling, general and administrative expenses and research and development expenses associated with the Viveve System. Net cash used
during the year ended December 31, 2019 consisted of a net loss of $42,526,000 adjusted for non-cash expenses including provision for doubtful accounts and the write-off
of distributor accounts receivable of $1,028,000, depreciation and amortization of $1,177,000, stock-based compensation of $2,400,000, non-cash interest expense of
$1,577,000, loss on debt restructuring of $6,705,000, loss from minority interest in limited liability company of $627,000, loss on disposal of property and equipment of
$108,000, and cash outflows from changes in operating assets and liabilities of $2,337,000.
Net cash used during the year ended December 31, 2018 consisted of a net loss of $49,981,000 adjusted for non-cash expenses including provision for doubtful
accounts of $179,000, depreciation and amortization of $786,000, stock-based compensation of $3,035,000, fair value of restricted common shares issued of $256,000, non-
cash interest expense of $1,580,000, loss from minority interest in limited liability company of $657,000, and cash inflows from changes in operating assets and liabilities of
$398,000.
Investing Activities
Net cash used in investing activities during the year ended December 31, 2019 and 2018 was $1,087,000 and $2,142,000, respectively. Net cash used in investing
activities during 2019 and 2018 was used for the purchase of property and equipment. The purchase of property and equipment in 2019 primarily consisted of rental
equipment in connection with the new subscription offering program, which was launched in June 2019. We expect to continue to purchase property and equipment in the
normal course of our business. The amount and timing of these purchases and the related cash outflows in future periods is difficult to predict and is dependent on a number
of factors including, but not limited to, any increase in the number of our employees and any changes to the capital equipment requirements related to our development
programs and clinical trials.
Financing Activities
Net cash provided by financing activities during year ended December 31, 2019 was $16,108,000, which was the result of gross proceeds of $11,500,000 from our
November 2019 Offering (partially offset by transaction costs of $1,548,000), gross proceeds of $6,760,000 from our August 2019 ATM Facility (partially offset by
transaction costs of $438,000), and proceeds from shares purchased under the Company’s employee stock purchase plan of $56,000, partially offset by transaction costs of
$216,000 in connection with our note payable.
Net cash provided by financing activities during year ended December 31, 2018 was $54,025,000, which was the result of the gross proceeds of $22,093,000 from our
December 2018 Offering (partially offset by transaction costs of $1,709,000), gross proceeds of $34,500,000 from our February 2018 Offering (partially offset by transaction
costs of $2,286,000), gross proceeds of $1,327,000 from our November 2017 ATM Facility (partially offset by transaction cost of $134,000), and proceeds from shares
purchased under the Company’s employee stock purchase plan of $233,000.
As of December 31, 2019, there is a balance of $35,016,000 available for future issuance under the 2017 Shelf Registration Statement following the termination of
our November 2017 ATM Facility and the use of our August 2019 ATM Facility. However, the Company is subject to the limitations under General Instruction I.B.6. As of
December 31, 2019, the Company had no capacity to issue shares under the 2017 Shelf Registration Statement due to these limitations.
Contractual Payment Obligations
We have obligations under a non-cancelable operating lease and a bank term loan. As of December 31, 2019, our contractual obligations are as follows (in
thousands):
Contractual Obligations (including interest):
Debt obligations
Non-cancellable operating lease obligations
Total
Total
Less than
1 Year
$
$
5,992
440
6,432
$
$
-
303
303
$
$
1 - 3 Year
3 -5 Years
-
137
137
$
$
5,992
-
5,992
$
$
More than
5 Years
-
-
-
In February 2017, we entered into a Sublease for approximately 12,400 square feet of building space for the relocation of the Company’s corporate headquarters to
Englewood, Colorado. The lease term is 36 months and the monthly base rent for the first, second and third years is $20.50, $21.12 and $21.75 per rentable square foot,
respectively. In connection with the execution of the Sublease, the Company paid a security deposit of approximately $22,000. The Company was also provided an
allowance of approximately $88,000 for certain tenant improvements relating to the engineering, design and construction of the Sublease Premises. The lease term
commenced on June 1, 2017 and will terminate in May 2020.
48
In May 2017, the Company entered into the 2017 Loan Agreement with affiliates of CRG LP (“CRG”). The credit facility consists of $20,000,000 that was drawn at
closing and the ability to access additional funding of up to an aggregate of $10,000,000 for a total of $30,000,000 under the credit facility. In December 2017, the Company
accessed the remaining $10,000,000 available under the CRG credit facility. The term of the loan is six years with the first four years being interest only. In November 2019,
the Company and CRG amended the 2017 Loan Agreement concurrent with the conversion of approximately $29,000,000 of the principal amount under the term loan with
CRG (plus accrued interest, the prepayment premium and the back-end fee applicable thereto), for an aggregate amount of converted debt obligations of approximately
$31,300,000. The amounts converted into 31,300 shares of the newly authorized Series B convertible preferred stock and warrants to purchase up to 9,893,776 shares of
common stock were also issued. The outstanding principal balance under the 2017 Loan Agreement is $3,995,000 as of December 31, 2019.
In September 2018, the Company entered into a 36-month noncancelable operating lease agreement for office equipment. The lease commenced on September 20,
2018. The monthly payment is approximately $2,600.
Critical Accounting Policies and Estimates
The discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in
conformity with accounting principles generally accepted in the United States of America. Certain accounting policies and estimates are particularly important to the
understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by
changes from period to period in economic factors or conditions that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying
these policies, management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on
our historical operations, our future business plans and projected financial results, the terms of existing contracts, observance of trends in the industry, information provided
by our customers and information available from other outside sources, as appropriate. Please see Note 2 to our consolidated financial statements for a more complete
description of our significant accounting policies.
Inventory
Inventory is stated at the lower of cost or net realizable value. Cost is determined on an actual cost basis on a first-in, first-out method. Inventory as of December 31,
2019 and 2018 is mainly finished goods but also includes a small quantity of raw materials. Lower of cost or net realizable value is evaluated by considering obsolescence,
excessive levels of inventory, deterioration and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated
excess, obsolescence or impaired inventory. Excess and obsolete inventory is charged to cost of revenue and a new lower-cost basis for that inventory is established and
subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
As part of the Company’s normal business, the Company generally utilizes various finished goods inventory as sales demos to facilitate the sale of its products to
prospective customers. The Company is amortizing these demos over an estimated useful life of five years. The amortization of the demos is charged to selling, general and
administrative expense and the demos are included in the medical equipment line within the property and equipment, net balance on the consolidated balance sheets as of
December 31, 2019 and 2018.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be
recoverable. When such an event occurs, management determines whether there has been an impairment by comparing the anticipated undiscounted future net cash flows to
the related asset’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or
appraised value, depending on the nature of the asset. The Company has not identified any such impairment losses to date.
Revenue from Contracts with Customers
Revenue consists primarily of the sale of the Viveve System, single-use treatment tips and ancillary consumables. The Company applies the following five steps: (1)
identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the
performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company considers customer purchase orders to be the
contracts with a customer. Revenues, net of expected discounts, are recognized when the performance obligations of the contract with the customer are satisfied and when
control of the promised goods are transferred to the customer, typically when products, which have been determined to be the only distinct performance obligations, are
shipped to the customer. Expected costs of assurance warranties and claims are recognized as expense. Revenue is recognized net of any sales taxes from the sale of the
products.
49
Rental revenue is generated through the lease of the Viveve System. The Company’s operating leases for the Viveve System have a rental period of six months and
can be extended or terminated by the customer after that time or the Viveve System can be purchased by the customer. Rental revenue on those operating leases is
recognized on a straight-line basis over the terms of the underlying leases. The Company began this rental program in the quarter ended June 30, 2019 and the revenue
associated with it has not been material to the periods presented. As of December 31, 2019, the Company had deferred revenue in the amount of $662,000 related to its
rental program.
In connection with the lease of the Viveve System, the Company offers single-use treatment tips and ancillary consumables that are considered non-lease
components. In the contracts with lease and non-lease components, the Company follows the relevant guidance in ASC 606, Revenue from Contracts with Customers, to
determine how to allocate contractual consideration between the lease and non-lease components.
Sales of our products are subject to regulatory requirements that vary from country to country. The Company has regulatory clearance for differing indications, or can
sell its products without a clearance, in many countries throughout the world, including countries within the following regions: North America, Latin America, Europe, the
Middle East and Asia Pacific. In North America, we market and sell primarily through a direct sales force. Outside of North America, we market and sell primarily through
distribution partners.
The Company does not provide its customers with a right of return.
Allowance for Doubtful Accounts
We make ongoing assumptions relating to the collectability of our accounts receivable in our calculation of the allowance for doubtful accounts. In determining the
amount of the allowance, we make judgements about the creditworthiness of customers based on ongoing credit evaluations and assess current economic trends affecting our
customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. We also consider our historical level of
credit losses. As of December 31, 2019, and 2018, the allowance for doubtful accounts was $407,000 and $284,000, respectively.
Product Warranty
The Company’s products are generally subject to a one-year warranty, which provides for the repair, rework or replacement of products (at the Company’s option)
that fail to perform within stated specification. The Company has assessed the historical claims and, to date, product warranty claims have not been significant.
Research and Development
Research and development costs are charged to operations as incurred. Research and development costs include, but are not limited to, payroll and personnel
expenses, prototype materials, laboratory supplies, consulting costs, and allocated overhead, including rent, equipment depreciation, and utilities.
Income Taxes
Accounting for income taxes requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the
book and tax bases of recorded assets and liabilities. The liability method is used in accounting for income taxes. Deferred tax assets and liabilities are determined based on
the differences between financial reporting and the tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Deferred tax assets may be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not
be realized. We evaluate annually the realizability of our deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if
necessary. The factors used to assess the likelihood of realization include our forecast of future taxable income and available tax planning strategies that could be
implemented to realize the net deferred tax assets. As of December 31, 2019, and 2018, the Company has recorded a full valuation allowance for our deferred tax assets
based on our historical losses and the uncertainty regarding our ability to project future taxable income. In future periods if we are able to generate income, we may reduce
or eliminate the valuation allowance.
Accounting for Uncertainty in Income Taxes
We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments, and which may not accurately
anticipate actual outcomes. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than
not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized upon ultimate settlement. Whether the more-likely-than-not recognition threshold is met for a tax position is a
matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence.
50
Accounting for Stock-Based Compensation
Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee’s service period. The
Company recognizes compensation expense on a straight-line basis over the requisite service period of the award.
We determined that the Black-Scholes option pricing model is the most appropriate method for determining the estimated fair value for stock options and purchase
rights under the Company’s employee stock purchase plan. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions which
determine the fair value of share-based awards, including the option’s expected term and the price volatility of the underlying stock.
Equity instruments issued to nonemployees are recorded in the same manner as similar instruments issued to employees.
Recent Accounting Pronouncements
The Company adopted FASB’s ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019, using the modified retrospective approach. The modified retrospective
approach provides a method for recording existing leases at the beginning of the period of adoption. In addition, the Company elected the package of practical expedients
permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification and we elected the
hindsight practical expedient to determine the lease term for existing leases. We determined that the renewal options for the facilities lease would be reasonably certain to be
renewed and as such, included that renewal period in determining the expected lease term of that lease. Adoption of the new standard resulted in the recording of operating
lease right-of-use assets of $629,000 and operating lease liabilities of $629,000, as of January 1, 2019. The standard did not have an impact on our consolidated results of
operations, cash flows or stockholders’ equity previously reported. The comparative information has not been restated and continues to be reported under the accounting
standards in effect for those periods.
In June 2018, the FASB issued ASU 2018-07, “Stock Compensation (Topic 718) – Improvements to Nonemployee Share- Based Payment Accounting”. The intent of
this guidance is to simplify the accounting for nonemployee share-based payment accounting. The amendments in this guidance expand the scope of Topic 718 to include
share-based payment transactions for acquiring goods and services from nonemployees. Consistent with the accounting requirement for employee share-based payment
awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated to
issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been
satisfied. Equity- classified nonemployee share-based payment awards are measured at the grant date. Consistent with the accounting for employee share-based payment
awards, an entity considers the probability of satisfying performance conditions when nonemployee share-based payment awards contain such conditions. This guidance is
effective for annual reporting periods beginning after December 15, 2018, including interim periods within the reporting period. We adopted this guidance as of January 1,
2019 and the adoption of the guidance did not have a significant impact on the consolidated financial statements.
In November 2019, the FASB issued ASU 2019-08, “Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606). The amendments in
this Update require measurement and classification of share-based payment awards granted to a customer by applying the guidance in Topic 718. This guidance is effective
for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. We will adopt this
guidance as of January 1, 2020 and the adoption of the guidance is not expected to have a significant impact on the consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740). The amendments in this Update provide further simplification of accounting
standards for the accounting for income taxes. Certain exceptions for are removed and requirements regarding the accounting for franchise taxes, tax basis of goodwill, and
tax law rate changes are made. This guidance is effective for annual reporting periods beginning after December 15, 2020, including interim periods within that reporting
period, with early adoption permitted. We will adopt this guidance as of January 1, 2021 and the adoption of the guidance is not expected to have a significant impact on the
consolidated financial statements.
We have reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material effect is expected on the
consolidated financial statements as a result of future adoption.
Off-Balance Sheet Transactions
We do not have any off-balance sheet transactions.
51
Trends, Events and Uncertainties
Research, development and commercialization of new technologies and products is, by its nature, unpredictable. Although we will undertake development efforts,
including efforts, with commercially reasonable diligence, there can be no assurance that we will have adequate capital to develop or commercialize our technology to the
extent needed to create future sales to sustain our operations.
We cannot assure you that our technology will be adopted, that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable.
Furthermore, since we have no committed source of financing, we cannot assure you that we will be able to raise money as and when we need it to continue our operations.
If we cannot raise funds as and when we need them, we may be required to severely curtail, or even to cease, our operations.
Other than as discussed above and elsewhere in this Annual Report on Form 10-K, we are not aware of any trends, events or uncertainties that are likely to have a
material effect on our financial condition.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 8. Financial Statements and Supplementary Data
See pages beginning with page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and
principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Principal Accounting and
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2019, the end of the period covered by this
Annual Report on Form 10-K. Based upon the evaluation of our disclosure controls and procedures as of December 31, 2019, our Chief Executive Officer and Principal
Accounting and Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other Information
None.
52
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Set forth below is certain information regarding our current executive officers and directors. Each of the directors was elected to serve until our next annual meeting
of stockholders or until his or her successor is elected and qualified. Our officers are appointed by, and serve at the pleasure of, the board of directors.
Name
Scott Durbin
Steven Basta
Debora Jorn
Arlene Morris
Karen Zaderej
Jim Robbins
Sean Shapiro
Age
51
54
61
68
58
56
44
Position
Director and Chief Executive Officer
Chairman of the Board
Director
Director
Director
Vice President of Finance and Administration
Vice President of U.S. Sales
Biographical information with respect to our executive officers and directors is provided below. There are no family relationships between any of our executive
officers and directors.
Scott Durbin. Mr. Durbin was appointed to serve as the Chief Executive Officer and Director on May 10, 2018. Mr. Durbin joined Viveve, Inc. as its Chief Financial
Officer in February 2013 and was appointed as the Chief Financial Officer and Secretary of Viveve Medical, Inc. on September 23, 2014. From June 2012 to January 2013,
he served as an advisor and Acting Chief Financial Officer for Viveve, Inc. Prior to joining Viveve, Inc., from June 2010 to October 2011, he was Chief Financial Officer of
Aastrom Biosciences (“Aastrom”), a publicly traded, cardiovascular cell therapy company. Before Aastrom, he spent six years as Chief Operating and Financial Officer for
Prescient Medical (“Prescient”) from May 2004 to June 2010, a privately held company that developed diagnostic imaging catheters and coronary stents designed to reduce
deaths from heart attacks. Prior to Prescient, from January 2003 to April 2004, he spent several years as a financial consultant for two publicly traded biotech companies,
Scios Inc., a Johnson & Johnson company, and Alteon Inc. Mr. Durbin began his career in corporate finance as an investment banker in the Healthcare and M&A groups at
Lehman Brothers Inc. from August 1999 to January 2003, where he focused on mergers and acquisitions and financings for the life science industry. At Lehman, he
successfully executed over $5 billion in transactions for medical device and biotechnology companies. He began his career as a Director of Neurophysiology for Biotronic,
Inc. Mr. Durbin received a B.S. from the University of Michigan and an M.P.H. in Health Management with Honors from the Yale University School of Medicine and
School of Management.
Steven Basta. Steven Basta joined the Viveve board in September of 2018 and was appointed chairman of the board in January 2019. He currently serves as
president, chief executive officer, and director of Menlo Therapeutics, Inc., a publicly listed biopharmaceutical company that develops and commercializes treatments for
dermatologic and other chronic conditions. From October 2011 until August 2015, Mr. Basta served as chief executive officer of AlterG, Inc., a privately held medical
device company. From November 2002 to February 2010, Mr. Basta served as chief executive officer of BioForm Medical, Inc., a publicly listed medical aesthetics company
acquired by Merz and from February 2010 to September 2011 served as chief executive officer of Merz Aesthetics, the successor to BioForm Medical, where he led multiple
product launches managing the global business to reach its position as a worldwide leader in the injectable aesthetics industry. He served on the board of Carbylan, Inc. from
September 2009 to November 2016 and the board of RF Surgical, Inc. (acquired by Medtronic) from December 2013 to August 2015. Mr. Basta received a B.A. from The
Johns Hopkins University and an M.B.A. from the Kellogg Graduate School of Management at Northwestern University.
Debora Jorn. Ms. Jorn joined our Board on May 11, 2016. Ms. Jorn is currently principal and founder at Jorn Consulting, LLC. She was previously employed as
Executive Vice President Corporate and Commercial Development at EyePoint Pharmaceuticals, Inc., formerly known as pSivida Corporation, from November 2016 to
March 2018. From August 2013 through March 2016, Ms. Jorn was Executive Vice President and Group Company Chair of Valeant Pharmaceuticals International, Inc. Ms.
Jorn served as Chief Global Marketing Officer of Bausch & Lomb Pharmaceuticals, a producer of prescription drugs for eye conditions, from June 2010 to August 2013.
From September 2004 to January 2010 she held various senior positions at Schering Plough Corporation including Group Vice President Allergy & Respiratory and Group
Vice President Women's Health. From 2002 to 2004 she was the World-Wide Vice President Internal Medicine and Early Commercial Input at Johnson & Johnson. Prior to
that she was the Vice President, Urology at Pharmacia Corporation from 2000 to 2002. From 1980 to 2000, Ms. Jorn served in a number of senior roles of increasing
responsibilities at Merck and Company. She served as Worldwide Acting head of the ACE Inhibitor Franchise, Executive Director (Respiratory Franchise), Director of
Marketing (Merck Frosst Canada), and various other roles for Merck. Ms. Jorn received her M.B.A from NYU Stern Graduate School of Business Administration and her
B.A. from Rutgers University in biochemistry. Ms. Jorn’s extensive executive and marketing experience in the healthcare industry led us to believe that she should serve as
a director.
53
Arlene Morris. Ms. Morris joined our Board of Directors on May 11, 2016. Ms. Morris has served as the CEO of Willow Advisors, LLC since May 2015. From
May 2011 to April 2015, Ms. Morris was the President, CEO, and a member of the board of Syndax Pharmaceutical, a Boston based epigenetic company. Prior to her
employment with Syndax, from June 2003 to February 2011 she was the President, CEO and a member of the board of directors of Affymax, Inc. During her eight years at
Affymax, Ms. Morris led the company through the development of OMONTYS peginesatide, a strategic collaboration with Takeda, an initial public offering, and several
follow-on offerings. Prior to Affymax, Ms. Morris was the President and CEO of Clearview Projects, an advisory firm which counsels biopharmaceutical and biotechnology
companies on strategic transactions. Before that, she was the Senior Vice President of Business Development at both Coulter Pharmaceuticals, Inc. and Scios. Ms. Morris
began her career at Johnson & Johnson as a sales representative, rising to Vice President of Business Development. Ms. Morris serves on the board of directors of Neovacs
SA, Palatin Technologies, Miragen and the Medical University of South Carolina Foundation for Research and Development. We believe Ms. Morris’ qualifications to serve
on our Board include her many years serving as a senior executive with companies in the biopharma industry and her extensive experience serving on boards of directors.
Karen Zaderej. Karen Zaderej joined the Viveve board in September of 2018. She currently serves as chairman, chief executive officer and president of AxoGen,
Inc., a medical products company focused on the development and commercialization of technologies for peripheral nerve regeneration and surgical repair. Karen joined
Axogen Corporation in May 2006 and assumed the position of president, chief executive officer, and director in September 2011. She became chairman of the AxoGen, Inc.
board of directors in May 2018. Karen’s previous executive roles at AxoGen included chief operating officer from October 2007 to May 2010 and vice president of
marketing and sales from May 2006 to October 2007. In October 2004 Karen founded Zaderej Medical Consulting and assisted medical device companies build and execute
successful commercialization plans until 2007. From 1987 to 2004, Karen worked at ETHICON, Inc., a Johnson & Johnson company, where she held senior positions in
marketing, business development, research and development, and manufacturing. She also serves as a director of SEBio, a non-profit organization supporting the life science
industry in the southeastern United States. Karen has a M.B.A. from the Kellogg Graduate School of Business and a B.S. in Chemical Engineering from Purdue University.
Jim Robbins. Mr. Robbins joined the Company as Vice President of Finance in July 2014 and was promoted to Vice President of Finance and Administration in May
2017. In May 2018, Mr. Robbins assumed expanded responsibilities and was appointed as the Company’s Principal Accounting Officer, and in November 2018, Mr.
Robbins became the Principal Accounting and Financial Officer. He has over 25 years of accounting and finance experience in both industry and public accounting. Prior to
joining the Company, Mr. Robbins provided accounting, finance and business consulting services for various biotech companies. From 2010 to 2012 he served as Vice
President of Finance and Administration for Auxogyn, Inc., a privately held medical technology company focused on advancing women’s reproductive health by translating
scientific discoveries in early embryo development into clinical solutions that improve patient outcomes in vitro fertilization (IVF) procedures. He served as Director of
Finance and Vice President of Finance 2004 to 2010 for Micrus Endovascular, Inc., a company which develops, manufactures and markets both implantable and disposable
medical devices used in the treatment of cerebral vascular diseases. Prior to Micrus Endovascular, Mr. Robbins served at Genitope Corporation as Corporate Controller, a
biotechnology company focused on the research and development of novel immunotherapies for the treatment of cancer. From 1995 to 2001, he served in management
positions for high technology companies including Extricity, Inc., InVision Technologies, Inc., and Truevision, Inc. Mr. Robbins was in the audit practice of Price
Waterhouse, LLP from 1987 to 1995. He received his Bachelor of Business Administration with a concentration in accounting from the University of Texas at Austin and is
a Certified Public Accountant.
Sean Shapiro. Sean joined Viveve as Vice President of U.S. Sales in September 2016 and brings extensive experience in medical device and aesthetic industry sales,
commercial team organization, development, and management. Most recently, Sean served as Director of Sales, Merz North America, Aesthetic Device Division where he
was responsible for capital and consumable sales of $100M annually directing a team of 50 regional and direct sales professionals. He led the commercial launch of the
Cellfina™ System that in 12 months became the market leader generating over $15M in sales. A Regional Sales Director at Ulthera, Inc., Sean managed a team selling new
ultrasound tissue lifting technology and capital equipment to physicians in the aesthetic marketplace earning top sales awards personally and with the team he led. At Zeltiq,
Inc. he served as an Area Sales Manager and launched CoolSculpting®, again earning sales revenue and management awards. Prior to this, Sean had five years as a
successful Area Sales Manager at Lumenis, Inc. A known and respected sales leader in the aesthetic marketplace, Sean has consistently received annual awards and
recognition for top sales dollar volume, region and territory revenue, new technology and product launches in addition to sales management and business development
accomplishments. Sean earned his Bachelor of Science in Communications from the University of Arizona.
Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years, been involved in any legal proceedings described in
subparagraph (f) of Item 401 of Regulation S-K.
54
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file
reports of ownership and changes in ownership (Forms 3, 4 and 5) with the SEC. Officers, directors and greater than 10% stockholders are required to furnish us with copies
of all such forms which they file.
We believe that, during the year ended December 31, 2019, our directors, executive officers and beneficial owners of more than 10% of the Company’s common
stock complied with all Section 16(a) filing requirements.
Code of Ethics
The Company has adopted a Code of Business Conduct and Ethics that applies to every director, officer and employee of the Company. Such Code of Business
Conduct and Ethics includes written standards that are reasonably designed to deter wrongdoing and to promote:
●
●
●
●
●
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the Commission and in other
public communications made by the Company;
compliance with applicable governmental laws, rules and regulations;
the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and
accountability for adherence to the code.
A current copy of the code is posted on the Corporate Governance section of our website, which is located at www.viveve.com. If we make any substantive
amendments to, or grant any waivers from, the code of business conduct and ethics for our principal executive officer, principal financial officer, principal accounting
officer, controller or persons performing similar functions, or any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current
report on Form 8-K.
Director Nominations
The Company does not have any defined procedures by which stockholders may submit nominations for directors and there has been no change to that policy.
Audit Committee and Audit Committee Financial Expert
The board of directors of the Company has an audit committee to oversee the accounting and financial reporting processes of the Company and the audits of the
Company’s consolidated financial statements. The members of our audit committee are Steven Basta, Arlene Morris and Karen Zaderej. The board of directors has
determined that Steven Basta is an “audit committee financial expert” as defined by applicable SEC rules.
55
Item 11. Executive Compensation
2019 Summary Compensation Table
The following table provides information regarding the total compensation for services rendered in all capacities that was earned during the fiscal years indicated by
our named executive officers.
Name and
Principal Position
Scott Durbin,
Chief Executive Officer
James Atkinson,
Chief Business Officer and President
Jim Robbins,
Vice President of Finance and
Administration (Principal Accounting
and Financial Officer)
Sean Shapiro,
Vice President of U.S. Sales
Year
2019
2018
2019
2018
2019
2018
2019
2018
Salary
($)
Bonus
($)(1)
415,000
389,958
207,500
137,512
329,934
353,500
-
147,572
Non-Equity
Incentive Plan
Compensation
($)(2)
Option
Awards
($)(3)
All Other
Compensation
($)
Total
($)
-
-
-
2,312,787
686,751
48,282(4)
16,140(4)
2,983,569
1,230,361
226,298
422,198
298,546
-
854,778
923,270
260,000
62,400
255,461
19,998(4)
597,859
256,897
61,305
-
203,169
59,807(5)
581,178
315,334
208,000
-
10,000
157,500
161,785
255,461
86,973
9,600(6)
9,400(6)
737,895
476,158
(1) The amounts reported represent cash bonuses awarded with respect to the years indicated based upon the achievement of corporate performance goals related to (i)
strengthening financial position; (ii) expanding market opportunities and ensuring competitiveness; (iii) providing clinically proven solutions; and (iv) ensuring reliable
quality supply of products for the years indicated. The bonuses for 2019 performance were paid 100% in cash. The bonuses for 2018 performance were paid 50% in cash and
50% in the form of restricted stock awards that vest in full upon FDA approval of the Viveve System for improvement of sexual function or stress urinary incontinence in
the United States. The bonus amounts reported for 2018 represent the amount of cash paid and the grant date fair value of the restricted stock award as follows: (i) Mr.
Durbin received $62,250 in cash and restricted stock award with a grant date fair value of $75,262; (ii) Mr. Atkinson received $42,420 in cash and restricted stock award
with a grant date fair value of $105,152; and (iii) Mr. Robbins received $27,788 in cash and a restricted stock award with a grant date fair value of $33,517. The restricted
stock awards for the 2018 bonuses were granted in January 2019. The 2018 bonus amount reported for Mr. Shapiro represents a cash payment for an annual sales leadership
award.
(2) The amounts reported represent the commission earned with respect to the years indicated based upon the achievement of certain sales targets in accordance with Mr.
Shapiro’s Sales Compensation Plan.
(3) The amounts reported represent the aggregate grant date fair value of option awards granted to our named executive officers computed in accordance with FASB ASC
Topic 718, excluding the impact of estimated forfeitures related to service-based vesting. See Note 12 of the notes to our consolidated financial statements in this annual
report on Form 10-K filed for a discussion of our assumptions in determining the grant date fair values of equity awards. These amounts do not correspond to the actual value
that may be recognized by the named executive officers.
(4) The amount reported represents cash-out of accrued PTO hours in accordance with the Company’s PTO Policy.
(5) The amount reported for 2018 represents $9,807 in cash-out of accrued PTO hours in accordance with the Company’s PTO Policy and $50,000 in relocation allowance,
which was paid pursuant to the terms of the relocation agreement between Mr. Robbins and the Company, dated August 22, 2017.
(6) The amount reported represents cash paid out for car allowance in accordance with Mr. Shapiro’s Employment Agreement.
56
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information regarding outstanding equity awards granted to our named executive officers that were outstanding as of
December 31, 2019. These awards were granted under our Amended and Restated 2006 Stock Plan and our Amended and Restated 2013 Stock Option and Incentive Plan.
Name
Scott Durbin
James Atkinson
Jim Robbins
Sean Shapiro
Option Awards
Number of Securities
Underlying
Unexercised Options (#)(1)
Exercisable
Unexercisable
Option
Exercise Price
($)
Option
Expiration
Date
68,708
1,925
1,063
575
913
375
966
478
103
1,333
874
22
640
879
668
6,875
290
66
280
150
242
145
6,875
290
148
486
3,229,292
4,375
1,936
624
414
125
—
—
—
—
—
—
—
—
—
323,125
659
258
306
50
—
—
323,125
659
160
113
0.87
124.00
197.00
448.00
446.00
522.00
600.00
480.00
992.00
124.00
448.00
522.00
522.00
600.00
376.00
0.87
124.00
197.00
448.00
522.00
600.00
480.00
0.87
124.00
448.00
758.00
11/26/2029
1/15/2029
5/11/2028
1/23/2028
03/03/2027
12/23/2026
12/16/2025
9/26/2024
2/2/2023
1/15/2029
1/23/2028
12/23/2026
12/23/2026
12/16/2025
2/4/2025
11/26/2029
1/15/2029
5/11/2028
1/23/2028
12/23/2026
12/16/2025
9/26/2024
11/26/2029
1/15/2029
1/23/2028
9/6/2026
Vesting
Start Date
11/26/2019
1/15/2019 (2)
5/11/18 (3)
01/23/2018
03/03/2017
12/23/2016
12/16/2015 (3)
9/26/2014
1/22/2013 (5)
1/15/2019 (2)
1/23/2018
12/23/2016 (4)
12/23/2016
12/16/2015
2/4/2015
11/26/2019
1/15/2019 (2)
5/11/2018 (3)
1/23/2018
12/23/2016
12/16/2015
7/1/2014 (3)
11/26/2019
1/15/2019 (2)
1/23/2018
9/6/2016 (3)
(1) Except as otherwise set forth below, the shares of our common stock underlying each of the outstanding stock options vest and become exercisable in equal monthly
installments over 48 months following the grant date.
(2) The shares of common stock underlying this stock option vest and become exercisable in equal monthly installment overs 36 months following the grant date.
(3) The shares of common stock underlying this stock option vest and become exercisable as follows: ¼ of the shares vested on the one-year anniversary of the grant date
and the remaining shares vest in equal monthly installments over the following 36 months.
(4) This stock option was fully vested on the date of grant.
(5) These stock options were fully vested upon the merger that took place on September 23, 2014 between PLC Systems Inc., Viveve, Inc. and PLC Systems Acquisition
Corp. Prior to merger, the Board voted to accelerate the vesting of all unvested options that were outstanding as of the date of the merger such that all options would be
immediately vested and exercisable by the holders.
57
Employment Agreements, Severance and Change in Control Arrangements
In February 2018, we entered into an employment agreement with Mr. Atkinson, and in May 2018, we entered into employment agreements with Messrs. Durbin and
Robbins that provide for specified payments and benefits in connection with a termination of employment by us without cause or a resignation by the executive officer for
good reason (as each such term is defined in the employment agreement). Our goal in providing these severances and change in control payments and benefits is to offer
sufficient cash continuity protection such that our named executive officers will focus their full time and attention on the requirements of the business rather than the
potential implications for their respective positions. We prefer to have certainty regarding the potential severance amounts payable to the named executive officers, rather
than negotiating severance at the time that a named executive officer’s employment terminates. We have also determined that accelerated vesting provisions with respect to
outstanding equity awards in connection with a qualifying termination of employment are appropriate because they encourage our named executive officers, to stay focused
on the business in those circumstances, rather than focusing on the potential implications for them personally. In addition, these employment agreements with our named
executive officers contain confidentiality provisions and require the named executive officers to execute a general release of claims to receive any payments and benefits.
In December 2019, in connection with his termination as President and Chief Business Officer, we entered into a separation agreement and release with Mr. Atkinson.
Employment Agreement with Scott Durbin
Pursuant to our amended and restated agreement with Mr. Durbin, he serves as our Chief Executive Officer on an at-will basis and as a director. Mr. Durbin currently
receives a base salary of $435,750, which is subject to periodic review and adjustment. Mr. Durbin is also eligible for an annual performance bonus targeted at 50% of his
base salary and to participate in the employee benefit plans generally available to employees, subject to the terms of those plans.
The employment agreement further provides that if Mr. Durbin’s employment is terminated by us without cause or Mr. Durbin terminates his employment with us for
good reason, he will be entitled to receive: (i) base salary continuation for 12 months following termination, (ii) any earned but unpaid incentive compensation with respect
to any completed calendar year period, (iii) if Mr. Durbin was participating in the Company’s group health plan immediately prior to the date of termination, a monthly cash
payment in an amount equal to the employer portion of his monthly health insurance premium until the earliest of 12 months following the date of termination, the expiration
of his continuation coverage under COBRA or the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or
self-employment, and (iv) accelerated vesting of all stock options and other stock-based awards held by Mr. Durbin that would have vested had he remained employed for
an additional six months following termination. In lieu of the severance payments and benefits set forth in the preceding sentence, in the event Mr. Durbin’s employment is
terminated by us without cause or he terminates his employment with us for good reason, in either case within 12 months following a change in control (as defined in his
employment agreement), he will be entitled to receive: (i) a lump sum cash amount equal to 1.5 times the sum of (A) his current base salary (prior to any reduction triggering
good reason, if applicable, or his base salary in effect prior to the change in control if higher) plus (B) Mr. Durbin’s target annual cash incentive compensation for the year of
termination, (ii) if Mr. Durbin was participating in the Company’s group health plan immediately prior to the date of termination, a monthly cash payment in an amount
equal to the employer portion of his monthly health insurance premium until the earliest of 18 months following the date of termination, the expiration of his continuation
coverage under COBRA or the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, and
(iii) except as otherwise provided in the applicable award agreement, accelerated vesting of all stock options and other stock-based awards subject to time-based vesting
held by Mr. Durbin as of the date of termination. Receipt of the severance payments and benefits described above is conditioned upon Mr. Durbin entering into an effective
separation agreement, containing, among other provisions, a general release of claims against the Company and our affiliates, confidentiality, return of property and non-
disparagement.
Employment Agreement with Jim Robbins
Pursuant to our employment agreement with Mr. Robbins, he serves as our Vice President of Finance and Administration and Principal Accounting and Financial
Officer on an at-will basis. Mr. Robbins currently receives a base salary of $273,000, which is subject to periodic review and adjustment. Mr. Robbins is also eligible for an
annual performance bonus targeted at 30% of his base salary and to participate in the employee benefit plans generally available to employees, subject to the terms of those
plans.
The employment agreement further provides that if Mr. Robbins’ employment is terminated by us without cause or Mr. Robbins terminates his employment with us
for good reason, he will be entitled to receive: (i) base salary continuation for six months following termination, (ii) any earned but unpaid incentive compensation with
respect to any completed calendar year period, (iii) if Mr. Robbins was participating in the Company’s group health plan immediately prior to the date of termination, a
monthly cash payment in an amount equal to the employer portion of his monthly health insurance premium until the earliest of six months following the date of termination,
the expiration of his continuation coverage under COBRA or the date he becomes eligible for substantially equivalent health insurance coverage in connection with new
employment or self-employment, and (iv) accelerated vesting of all stock options and other stock-based awards held by Mr. Robbins that would have vested had he
remained employed for an additional six months following termination. In lieu of the severance payments and benefits set forth in the preceding sentence, in the event Mr.
Robbins’ employment is terminated by us without cause or he terminates his employment with us for good reason, in either case within 12 months following a change in
control (as defined in his employment agreement), he will be entitled to receive: (i) a lump sum cash amount equal to .75 times the sum of (A) his current base salary (prior to
any reduction triggering good reason, if applicable, or his base salary in effect prior to the change in control if higher) plus (B) Mr. Robbins’ target annual cash incentive
compensation for the year of termination, (ii) if Mr. Robbins was participating in the Company’s group health plan immediately prior to the date of termination, a monthly
cash payment in an amount equal to the employer portion of his monthly health insurance premium until the earliest of six months following the date of termination, the
expiration of his continuation coverage under COBRA or the date he becomes eligible for substantially equivalent health insurance coverage in connection with new
employment or self-employment, and (iii) except as otherwise provided in the applicable award agreement, accelerated vesting of all stock options and other stock-based
awards subject to time-based vesting held by Mr. Robbins as of the date of termination. Receipt of the severance payments and benefits described above is conditioned upon
Mr. Robbins entering into an effective separation agreement, containing, among other provisions, a general release of claims against the Company and our affiliates,
confidentiality, return of property and non-disparagement.
58
Employment Agreement with Sean Shapiro
Pursuant to our employment agreement with Mr. Shapiro, he serves as our Vice President of Sales on an at-will basis. Mr. Shapiro currently receives a base salary of
$320,000, which is subject to periodic review and adjustment. Mr. Shapiro is also eligible to earn cash incentive compensation subject to the terms of the Company’s Sales
Compensation Plan, as in effect from time to time and to participate in the employee benefit plans generally available to employees, subject to the terms of those plans.
The employment agreement further provides that if Mr. Shapiro’s employment is terminated by us without cause or Mr. Shapiro terminates his employment with us
for good reason, he will be entitled to receive: (i) base salary continuation for six months following termination, (ii) if Mr. Shapiro was participating in the Company’s group
health plan immediately prior to the date of termination, a monthly cash payment in an amount equal to the employer portion of his monthly health insurance premium until
the earliest of six months following the date of termination, the expiration of his continuation coverage under COBRA or the date he becomes eligible for substantially
equivalent health insurance coverage in connection with new employment or self-employment, and (iv) accelerated vesting of all stock options and other stock-based awards
held by Mr. Shapiro that would have vested had he remained employed for an additional six months following termination. In lieu of the severance payments and benefits
set forth in the preceding sentence, in the event Mr. Shapiro’s employment is terminated by us without cause or he terminates his employment with us for good reason, in
either case within 12 months following a change in control (as defined in his employment agreement), he will be entitled to receive: (i) a lump sum cash amount equal to .75
times the sum of (A) his current base salary (prior to any reduction triggering good reason, if applicable, or his base salary in effect prior to the change in control if higher)
plus (B) Mr. Shapiro’s target annual cash incentive compensation for the year of termination, (ii) if Mr. Shapiro was participating in the Company’s group health plan
immediately prior to the date of termination, a monthly cash payment in an amount equal to the employer portion of his monthly health insurance premium until the earliest
of six months following the date of termination, the expiration of his continuation coverage under COBRA or the date he becomes eligible for substantially equivalent health
insurance coverage in connection with new employment or self-employment, and (iii) except as otherwise provided in the applicable award agreement, accelerated vesting of
all stock options and other stock-based awards subject to time-based vesting held by Mr. Shapiro as of the date of termination. Receipt of the severance payments and
benefits described above is conditioned upon Mr. Shapiro entering into an effective separation agreement, containing, among other provisions, a general release of claims
against the Company and our affiliates, confidentiality, return of property and non-disparagement.
Separation Agreement and Release with Mr. Atkinson
On December 12, 2019, in connection with Mr. Atkinson’s termination from his position as President and Chief Business Officer of the Company, Mr. Atkinson and
the Company entered into a separation agreement and release. Pursuant to such agreement, Mr. Atkinson is entitled to receive: (i) base salary continuation for 9 months
following termination, (ii) a monthly cash payment in an amount equal to the employer portion of his monthly health insurance premium until the earliest of September 30,
2020, the expiration of his continuation coverage under COBRA or the date he becomes eligible for substantially equivalent health insurance coverage in connection with
new employment or self-employment, (iii) accelerated vesting of 780 shares subject to the Employee Option resulting in a total of 4,545 shares being vested and exercisable.
Severance payments paid to or accrued for Mr. Atkinson pursuant to the separation agreement and release are reported in the “2019 Summary Compensation Table” above.
Employee Benefits
Our executive officers are eligible to participate in all of our employee benefit plans, in each case on the same basis as other employees, including the 401(k) plan.
The Company has not made any contributions to the 401(k) plan to date.
Director Compensation
On December 23, 2016, the Board of Directors adopted an independent director compensation policy designed to compensate non-employee directors of the
Company for their time, commitment and contributions to the Board. The Board amended and restated the independent director compensation policy effective July 17, 2018
and again effective January 9, 2019 (as amended and restated, the “Director Compensation Policy”). Under the Director Compensation Policy, during the year ended
December 31, 2019, all independent directors were eligible to receive cash compensation as set forth below, pro-rated to reflect the number of days served during any
calendar quarter:
Board of Directors:
All Independent Directors
Chairperson Additional Retainer
Audit Committee:
All Audit Committee Members
Chairperson
Compensation Committee:
All Compensation Committee Members
Chairperson
Governance and Nominating Committee:
All Governance and Nominating Committee Members
Chairperson
59
Annual
Retainer($)
35,000
35,000
10,000
20,000
5,000
10,000
3,750
7,500
Under the Director Compensation Policy, all independent directors eligible to receive cash compensation have the option to elect to receive all or any portion of such
cash compensation in the form of a stock award, in lieu of a cash payment. Such election is to be made quarterly until the 2020 annual meeting and annually thereafter. Such
restricted stock awards have a fair market value equal to the value of the cash retainer to be paid during such period and are fully vested upon grant.
In addition, under the policy, each new non-employee director who is initially appointed or elected to the Board after effectiveness of the policy is granted an equity-
based award with a value at the time of issuance equal to two times the Subsequent Award (defined below) in effect at the time of election, which vests in three equal annual
installments on each of the first three anniversaries of the date of grant, subject to the director’s continued service on the Board (the “Initial Award”). In addition, on the date
of each annual meeting of the Company’s stockholders, each continuing non-employee director is eligible to receive an annual option grant to purchase 35,000 shares of
common stock, which vests in full on the first anniversary of the grant date, subject to the director’s continued service on the Board (each a “Subsequent Award”).
Furthermore, the Chairman of the Board is granted an equity-based initial retainer award in the form of a Stock Option to purchase 35,000 shares, which shall vest and
become exercisable on the first anniversary of the date of grant subject to the Independent Director continuing in service as the Chairman of the Board through such vesting
date. A non-employee director elected for the first time to the Board at an annual meeting of the Company’s stockholders shall only receive an Initial Award in connection
with such election, and shall not receive a Subsequent Award until the annual meeting for the next fiscal year. In the event a non-employee director’s service on the Board
terminates, the vesting and exercise of such director’s unvested stock options shall be subject to the terms of the applicable award agreement.
The Company has also agreed to reimburse all reasonable out-of-pocket expenses incurred by non-employee directors in attending board of directors and committee
meetings.
2019 Director Compensation Table
The following table presents information regarding the compensation of our non-employee directors for the year ended December 31, 2019. Scott Durbin, our Chief
Executive Officer, serves on our Board of Directors but did not receive compensation for his service as a director and the compensation paid to Mr. Durbin as an employee
during the year ended December 31, 2019 is set forth in the “2019 Summary Compensation Table” below.
Name
Steven Basta
Debora Jorn
Arlene Morris
Karen Zaderej
Daniel Janney (6)
Fees
Earned or
Paid in
Cash
($)(1)(2)
Stock
Awards
($)(1)(3)
Option
Awards
($)(4)(5)
All Other
Compensation
($)
Total
($)
74,064
21,931
406,579
-
502,574
26,250
9,282
196,317
58,449
-
196,317
28,750
27,316
196,317
-
3,640
-
231,849
254,766
252,383
3,640
-
-
-
(1) Mr. Basta and Mses. Jorn and Zaderej elected to receive a portion of their 2019 director fees in cash and a portion of their 2019 director fees in the form of a
restricted stock award in lieu of cash. Ms. Morris elected to receive all of her 2019 director fees in cash. The number of shares covered by the restricted stock
awards made in lieu of cash compensation are set forth in footnote 3 above.
(2) The amounts represent the non-employee director compensation paid in cash for the four quarters of 2019. The fourth quarter of 2019 compensation was paid in
January 2020.
(3) On April 1, 2019, we made grants of fully vested common stock to certain of our non-employee directors with respect to services for the first quarter of 2019 in
the following amounts: Mr. Basta – 241 shares, Ms. Jorn - 102 shares, Ms. Zaderej - 142 shares and Mr. Janney - 40 shares. On July 1, 2019, we made grants of
fully vested common stock to certain of our non-employee directors with respect to services for the second quarter of 2019 in the following amounts: Ms. Zaderej
- 378. No grants of fully vested common stock were made to non-employee directors with respect to services for the third and fourth quarters of 2019.
(4) The amount reported represents the aggregate grant date fair value of stock options granted to our non-employee directors in 2019, computed in accordance with
Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”), excluding the impact of estimated forfeitures
related to service-based vesting. See Note 12 of the notes to our consolidated financial statements in this annual report on Form 10-K for a discussion of our
assumptions in determining the grant date fair values of equity awards. These amounts do not correspond to the actual value that may be recognized by the
directors.
(5) As of December 31, 2019, each of our non-employee directors serving on that date held outstanding stock options to purchase the following shares of common
stock: Mr. Basta – 661,400 shares, Ms. Jorn - 332,723 shares, Ms. Morris – 331,223 shares, Ms. Zaderej – 331,050 shares and Mr. Janney – 426 shares.
(6) Mr. Janney resigned from the Board of Directors effective January 16, 2019.
60
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The disclosure in Item 5 under the heading “Securities Authorized for Issuance Under Equity Compensation Plans” is hereby incorporated by reference.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 13, 2020 regarding the beneficial ownership of our common stock by the following persons:
●
●
●
●
each person or entity who, to our knowledge, owns more than 5% of our common stock;
our executive officers named in the Summary Compensation Table above;
each director; and
all of our executive officers and directors as a group.
Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power over the securities reported
and that person’s address is c/o Viveve Medical, Inc., 345 Inverness Drive South, Building B, Suite 250, Englewood, Colorado 80112. Shares of common stock subject to
options, warrants, or other rights currently exercisable or exercisable within 60 days of March 13, 2020 are deemed to be beneficially owned and outstanding for computing
the share ownership and percentage of the stockholder holding the options, warrants or other rights, but are not deemed outstanding for computing the percentage of any
other stockholder.
Name and Address of Beneficial Owner
Named Executive Officers and Directors
Scott Durbin
Jim Robbins
Sean Shapiro
Steven Basta
Debora Jorn
Arlene Morris
Karen Zaderej
All executive officers and directors as a group (7 persons)
None.
Owners of More than 5% of Our Common Stock
Amount and
Nature of
Beneficial
Ownership
Percent of
Class (1)
351,573 (2)
36,137 (3)
35,606 (4)
69,854 (5)
37,107 (6)
35,230 (7)
35,231 (8)
600,738
3.50%
0.36%
0.36%
0.70%
0.37%
0.35%
0.35%
5.99%
(1) Based on shares of 10,027,883 common stock issued and outstanding as of March 13, 2020.
(2)
Included in this amount are: (i) 115 shares of common stock; and (ii) warrants and options to purchase 351,458 shares of common stock exercisable within 60 days of
March 13, 2020.
Included in this amount are: (i) 296 shares of common stock; and (ii) warrants and options to purchase 35,841 shares of common stock exercisable within 60 days of
March 13, 2020.
Included in this amount are: (i) 114 shares of common stock; and (ii) options to purchase 35,492 shares of common stock exercisable within 60 days of March 13, 2020.
Included in this amount are: (i) 251 shares of common stock owned by Mr. Basta individually; (ii) 270 shares of common stock owned of record held by Steven Basta,
Trustee of the Basta Revocable Trust; and (iii) options to purchase 69,333 shares of common stock exercisable within 60 days of March 13, 2020.
Included in this amount are: (i) 401 shares of common stock; and (ii) options to purchase 36,706 shares of common stock exercisable within 60 days of March 13, 2020.
Included in this amount are: (i) 24 shares of common stock; and (ii) options to purchase 35,206 shares of common stock exercisable within 60 days of March 13, 2020.
Included in this amount are: (i) 623 shares of common stock; and (ii) options to purchase 34,608 shares of common stock exercisable within 60 days of March 13, 2020.
(3)
(4)
(5)
(6)
(7)
(8)
Change in Control
As of the date of this report, we are not aware of any arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent
date result in a change in control of the Company.
61
Item 13. Certain Relationships and Related Transactions, and Director Independence
The Board of Directors reviews issues involving potential conflicts of interest, and reviews and approves all related party transactions, including those required to be
disclosed as a “related party” transaction under applicable federal securities laws. The Board has not adopted any specific procedures for conducting reviews of potential
conflicts of interest and considers each transaction in light of the specific facts and circumstances presented. However, to the extent a potential related party transaction is
presented to the Board, the Company expects that the Board would become fully informed regarding the potential transaction and the interests of the related party, and
would have the opportunity to deliberate outside of the presence of the related party. The Company expects that the Board would only approve a related party transaction
that was in the best interests of the Company, and further would seek to ensure that any completed related party transaction was on terms no less favorable to the Company
than could be obtained in a transaction with an unaffiliated third party. Other than as described below, no transaction requiring disclosure under applicable federal securities
laws occurred from January 1, 2016 through the date of this proxy statement that was submitted to the Board of Directors for approval as a “related party” transaction.
Related Party Transactions
Securities and Exchange Commission regulations define the related person transactions that require disclosure to include any transaction, arrangement or relationship,
or any proposed transaction, in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two
completed fiscal years in which we were or are to be a participant and in which a related person had or will have a direct or indirect material interest. A related person is: (i)
an executive officer, director or director nominee, (ii) a beneficial owner of more than 5% of our common stock, (iii) an immediate family member of an executive officer,
director or director nominee or beneficial owner of more than 5% of our common stock, or (iv) any entity that is owned or controlled by any of the foregoing persons or in
which any of the foregoing persons has a substantial ownership interest or control.
For the period from January 1, 2018, through the date of this proxy statement (the “Reporting Period”), described below are certain transactions or series of
transactions between us and certain related persons.
Employment and Consulting Agreements
Refer to the discussion under the heading “Employment Agreements, Severance and Change-in Control Arrangements” of this Form 10-K, which is incorporated
herein by reference.
Item 14. Principal Accounting Fees and Services
The following table sets forth fees billed and to be billed to us by our independent registered public accounting firm for the years ended December 31, 2019 and 2018
for (i) services rendered for the audit of our annual consolidated financial statements and the review of our quarterly condensed consolidated financial statements, (ii)
services rendered that are reasonably related to the performance of the audit or review of our consolidated financial statements that are not reported as Audit Fees, and (iii)
services rendered in connection with tax preparation, compliance, advice and assistance.
Audit fees
Audit-related fees
Tax fees
All other fees
Total fees
Year Ended
December 31,
2019
2018
$
$
363,000 $
4,000
53,000
-
420,000 $
440,000
25,000
34,000
-
499,000
Audit Fees: Represents fees for professional services provided for the audit of our annual consolidated financial statements, review of our condensed consolidated
financial statements included in our quarterly reports and services in connection with statutory and regulatory filings.
Audit-Related Fees: Represents the fees for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated
financial statements.
The audit committee of the Board approves all auditing services and the terms thereof and non-audit services (other than non-audit services published under Section
10A(g) of the Exchange Act or the applicable rules of the SEC or the Pubic Company Accounting Oversight Board) to be provided to us by the independent auditor;
provided, however, the pre-approval requirement is waived with respect to the provisions of non-audit services for us if the "de minimis" provisions of Section 10A(i)(1)(B)
of the Exchange Act are satisfied.
Tax Fees: Represents professional services rendered for tax compliance, tax advice and tax planning.
62
All Other Fees: Our independent registered public accounting firm was not paid any other fees for professional services during the fiscal years ended December 31,
2019 and 2018.
Item 15. Exhibits, Financial Statement Schedules
Financial Statements
See Index to Consolidated Financial Statements at Item 8 herein.
PART IV
Financial Statement Schedules have been omitted as they are either not required, not applicable, or the information is otherwise included.
Exhibit Index
Exhibit
No.
Description
Agreement and Plan of Merger dated May 9, 2014 by and among Viveve, Inc., PLC Systems, Inc. and PLC Systems Acquisition Corporation (1)
2.1
2.1.1 Amendment to Agreement and Plan of Merger (1)
RenalGuard Reorganization Agreement (2)
2.2
Certificate of Conversion for Delaware (3)
3.1
Amended and Restated Certificate of Incorporation (4)
3.2
Articles of Amendment to the Articles of Continuance of Viveve Medical, Inc. (5)
3.3
Certificate of Amendment to the Amended and Restated Certificate of Incorporation (6)
3.4
Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock (7)
3.5
Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock (7)
3.6
Amended and Restated Bylaws (4)
3.7
Common Stock Purchase Warrant issued on February 17, 2015 to Scott Durbin (8)+
4.1
Common Stock Purchase Warrant issued on February 17, 2015 to Jim Robbins (8)+
4.2
Common Stock Purchase Warrant issued on February 17, 2015 to Patricia Scheller (8)+
4.3
Common Stock Purchase Warrant issued on May 12, 2015 to James Atkinson (8)+
4.4
Common Stock Purchase Warrant issued on December 16, 2015 to James Atkinson (8)+
4.5
Common Stock Purchase Warrant issued on December 16, 2015 to Jim Robbins (8)+
4.6
Common Stock Purchase Warrant issued on April 1, 2016 to Dynamic Medical Technologies (Hong Kong) Limited (3)
4.7
Common Stock Purchase Warrant issued on May 11, 2016 to Theresa Stern (9)
4.8
4.9
Common Stock Purchase Warrant issued on May 11, 2016 to Chris Rowan (9)
4.10 Common Stock Purchase Warrant issued on June 20, 2016 to Western Alliance Bank (10)
4.11 Common Stock Purchase Warrant, dated May 25, 2017, by and between the Registrant and CRG Partners III - Parallel Fund "A" L.P. (11)
4.12 Common Stock Purchase Warrant, dated May 25, 2017, by and between the Registrant and CRG Partners III L.P. (11)
4.13
4.14
4.15 Warrant Agent Agreement by and between VStock Transfer LLC and the Registrant (7)
4.16
4.17 Description of Securities*
10.1
Intellectual Property Assignment and License Agreement dated February 10, 2006, as amended, between Dr. Edward Knowlton and TivaMed, Inc (13)
10.2 Amended and Restated Development and Manufacturing Agreement dated October 4, 2007 between TivaMed, Inc. and Stellartech Research Corporation (13)
Sublease Agreement, entered into on February 1, 2017 and effective as of January 26, 2017, between the Registrant and Ingredion Incorporated (16)
10.3
10.4
Settlement and License Agreement by and among the Registrant, ThermiGen LLC and ThermiAesthetics LLC, dated June 3, 2018. (24)†
10.5 Membership Subscription Agreement, dated August 1, 2017, by and between the Registrant and InControl Medical, LLC (18)
10.6
10.7 Amended and Restated Employment Agreement by and between the Registrant and Scott C. Durbin, dated May 11, 2018. (23) +
10.8 Amended and Restated Employment Agreement by and between the Registrant and Jim Robbins, dated May 11, 2018. (23) +
10.9 Amended and Restated Independent Director Compensation Policy (15) +
Form of Series A/B Common Stock Purchase Warrant issued on November 26, 2019 (7)
Form of Common Stock Purchase Warrant issued to affiliates of CRG LP on November 26, 2019 (7)
Employment Agreement by and between the Registrant and James G. Atkinson, dated February 27, 2018 (14)+
Specimen Common Stock Certificate (12)
63
10.10 Amended and Restated 2013 Stock Option and Incentive Plan and amendment thereto (20) +
10.11 2017 Employee Stock Purchase Plan (21) +
10.12 Forms of Indemnification Agreement (28) +
10.13 Security Agreement, dated May 25, 2017, by and among the Registrant, Viveve, Inc. and CRG Servicing LLC (11)
10.14 Patent and Trademark Security Agreement, dated May 25, 2017, by and among the Registrant, Viveve, Inc. and CRG Servicing LLC (11)
10.15 Term Loan Agreement, dated May 22, 2017, among the Registrant, Viveve, Inc., CRG Servicing LLC, as administrative agent, and certain lenders (17)
10.16 Waiver No. 2 to Loan Agreement, dated December 12, 2017, among the Registrant, CRG Servicing LLC and the lenders party thereto (19)
10.17 Amendment No. 2 to Loan Agreement, dated November 29, 2018, among the Registrant, CRG Servicing LLC, as administrative agent and collateral agent, the
lenders from time to time party thereto and Viveve, Inc., as subsidiary guarantor (25)
10.18 Amendment No. 3 to the Loan Agreement, dated as of November 12, 2019, by and between the Registrant and CRG LP (26)
10.19 Form of Registration Rights Agreement by and between the Registrant and CRG LP entered into on November 26, 2019 (26)
10.20 Series B Preferred Stock and Warrant Purchase Agreement, dated as of November 12, 2019, by and between the Registrant and affiliates of CRG LP (26)
10.21 Amendment No. 1 to the Series B Preferred Stock and Warrant Purchase Agreement, dated as of November 20, 2019, by and between the Registrant and affiliates
of CRG LP (7)
List of the Registrant’s Subsidiaries (22)
10.22 Lock-Up Agreement between affiliates of CRG LP and Ladenburg Thalmann & Co. Inc., dated as of November 12, 2019 (26)
14.1 Code of Conduct, adopted September 23, 2014 (27)
21
23.1 Consent of BPM LLP, independent registered public accounting firm*
24.1
31.1 Certification of the Company’s Principal Executive Officer pursuant to 15d-15(e), under the Securities and Exchange Act of 1934*
31.2 Certification of the Company’s Principal Accounting and Financial Officer pursuant to 15d-15(e), under the Securities and Exchange Act of 1934*
32.1 Certification of the Company’s Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
Power of Attorney* (included on signature page hereto)
2002**
32.2 Certification of the Company’s Principal Accounting and Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002**
Filed herewith.
These exhibits are furnished, not filed.
*
**
+ Management contract or compensation plan, contract or arrangement.
† Certain provisions of this exhibit have been omitted pursuant to a request for confidential treatment.
(1)
Incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on August
11, 2014.
Incorporated by reference to Annex B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on August
11, 2014.
Incorporated by reference from the Form 10-Q filed with the Securities and Exchange Commission on May 13, 2016.
Incorporated by reference from the Form 8-K filed with the Securities and Exchange Commission on August 17, 2017.
Incorporated by reference from the Form 8-K filed with the Securities and Exchange Commission on April 14, 2016.
Incorporated by reference from the Form 8-K filed with the Securities and Exchange Commission on September 18, 2019.
(2)
(3)
(4)
(5)
(6)
64
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
Incorporated by reference from the Form S-1/A filed with the Securities and Exchange Commission on November 21, 2019.
Incorporated by reference from the Form 10-K filed with the Securities and Exchange Commission on March 24, 2016.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 11, 2016.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 21, 2016.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 1, 2017.
Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on October 5, 2017.
Incorporated by reference to the Registrant’s on Form S-1 filed with the Securities and Exchange Commission on November 21, 2014.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 1, 2018.
Incorporated by reference to the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on May 16, 2017.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on February 3, 2017.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2017.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on November 8, 2017.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 14, 2017.
Incorporated by reference to the Registrant’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on August 19, 2019.
Incorporated by reference to the Registrant’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on July 7, 2017.
Incorporated by reference to the Registrant's Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 16, 2017.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2018.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 9, 2018.
Incorporated by reference to the Registrant’s Quarterly Report on Form 8-K filed with the Securities and Exchange Commission on December 4, 2018.
Incorporated by reference from the Form S-1/A filed with the Securities and Exchange Commission on November 13, 2019.
Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2015.
Incorporated by reference to the Registrant's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2018.
101.INS XBRL Instance Document*
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*
65
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
SIGNATURES
March 19, 2020
VIVEVE MEDICAL, INC.
(Registrant)
By:
/s/ Scott Durbin
Scott Durbin
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Viveve Medical, Inc., hereby severally constitute and appoint Scott Durbin and Jim Robbins, and each of them singly
(with full power to each of them to act alone), our true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each of them for him or
her and, place and stead, and in any and all capacities, to sign conformed for us and in our names in the capacities indicated below any and all signatures and amendments to
this report, and to file the same, with all exhibits thereto filing date and other documents in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and
about the premises, as full to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully 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 on behalf of the Registrant in the capacities
and on the dates indicated.
Signature
Title
Date
/s/Scott Durbin
Scott Durbin
/s/Jim Robbins
Jim Robbins
/s/Steven Basta
Steven Basta
/s/Debora Jorn
Debora Jorn
/s/Arlene Morris
Arlene Morris
/s/Karen Zaderej
Karen Zaderej
Chief Executive Officer and Director
(Principal Executive Officer)
Vice President of Finance and Administration
(Principal Accounting and Financial Officer)
Chairman of the Board of Directors
Director
Director
Director
66
March 19, 2020
March 19, 2020
March 19, 2020
March 19, 2020
March 19, 2020
March 19, 2020
VIVEVE MEDICAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 31, 2019 and 2018
Consolidated Statements of Operations and Comprehensive Loss - Years Ended December 31, 2019 and 2018
Consolidated Statements of Stockholders’ Equity (Deficit) - Years Ended December 31, 2019 and 2018
Consolidated Statements of Cash Flows - Years Ended December 31, 2019 and 2018
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7 – F-32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Viveve Medical, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Viveve Medical, Inc. (a Delaware corporation) and its subsidiaries (the “Company”) as of December 31,
2019 and 2018, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the two years in the
period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that Viveve Medical, Inc. and its subsidiaries will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the Company’s recurring losses from operations, available cash and accumulated deficit raise substantial doubt
about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of the new lease
standard.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of 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 a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BPM LLP
We have served as the Company’s auditor since 2013.
San Jose, California
March 19, 2020
F-2
VIVEVE MEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 31,
2019
December 31,
2018
Current assets:
ASSETS
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $407 and $284 as of December 31, 2019 and
$
2018, respectively
Inventory
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Investment in limited liability company
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Total current liabilities
Note payable, noncurrent portion
Other noncurrent liabilities
Total liabilities
Commitments and contingences (Note 9)
Stockholders’ equity:
Convertible preferred stock; 10,000,000 shares authorized as of December 31, 2019 and 2018;
Series A preferred stock, $0.0001 par value; 1,852,173 and 0 shares issued and outstanding as of
December 31, 2019 and 2018, respectively
Series B preferred stock, $0.0001 par value; 31,678 and 0 shares and outstanding as of December 31,
2019 and 2018, respectively
Common stock, $0.0001 par value; 75,000,000 shares authorized as of December 31, 2019 and 2018;
7,075,684 and 463,630 shares issued and outstanding as of December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
13,308 $
1,573
4,861
2,447
22,189
3,046
1,216
526
26,977 $
1,608 $
4,698
6,306
3,983
167
10,456
-
-
1
214,431
(197,911)
16,521
26,977 $
29,523
5,704
4,119
2,558
41,904
2,916
1,843
171
46,834
3,994
6,766
10,760
30,528
634
41,922
-
-
-
160,297
(155,385)
4,912
46,834
Note: All share and per share data has been adjusted to reflect the 1-for-100 reverse stock split which became effective after market close on September 18, 2019, as
discussed in Note 2.
The accompanying notes are an integral part of these consolidated financial statements.
F-3
VIVEVE MEDICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
Revenue
Cost of revenue
Gross profit (loss)
Operating expenses:
Research and development
Selling, general and administrative
Restructuring costs
Total operating expenses
Loss from operations
Loss on debt restructuring
Interest expense, net
Other income (expense), net
Net loss from consolidated companies
Loss from minority interest in limited liability company
Comprehensive and net loss
Series B convertible preferred stock dividends
Net loss attributable to common stockholders
Net loss per share of common stock:
Basic and diluted
Weighted average shares used in computing net loss per common share:
Basic and diluted
$
$
$
Year Ended
December 31,
2019
2018
6,567 $
5,551
1,016
8,590
22,363
742
31,695
(30,679)
(6,705)
(4,354)
(161)
(41,899)
(627)
(42,526)
(380)
(42,906) $
18,517
11,197
7,320
13,616
38,669
-
52,285
(44,965)
-
(4,372)
13
(49,324)
(657)
(49,981)
-
(49,981)
(34.39) $
(160.92)
1,247,768
310,589
Note: All share and per share data has been adjusted to reflect the 1-for-100 reverse stock split which became effective after market close on September 18, 2019, as
discussed in Note 2.
The accompanying notes are an integral part of these consolidated financial statements.
F-4
VIVEVE MEDICAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For each of the two years in the period ended December 31, 2019
(in thousands, except share data)
Serie A Convertible
Preferred Stock,
$0.0001 par value
Serie B Convertible
Preferred Stock,
$0.0001 par value
Common Stock,
$0.0001 par value
Shares
Amount
Shares
Amount
Shares
Amount
Additional
Paid-In
Capital
-
- $
-
102,981
Accumulated
Deficit
-
$
(105,581)
Total
Stockholders’
Equity (Deficit)
-
(2,600)
$
Balances as of January 1, 2018
December 2018 Offering, net of issuance
costs
February 2018 Offering, net of issuance costs
November 2017 ATM Facility, net of issuance
cost
Stock-based compensation expense
Issuance of restricted stock awards to
directors, employees and consultants
Issuance of restricted common shares
Issuance of common shares from employee
stock purchase plan
Cumulative effect adjustment from adoption
of new accounting standard – ASC 606
Net loss
Balances as of December 31, 2018
August 2019 ATM Facility, net of issuance
cost
-
- $
-
-
-
-
-
-
-
-
-
-
-
November 2019 Offering, net of issuance
costs
5,473,410
Conversion of Series A convertible preferred
stock into common stock
(3,621,237)
Issuance of Series B convertible preferred
stock and common stock warrants in
connection with debt conversion, net of
issuance costs
Series B convertible preferred stock dividends
Stock-based compensation expense
Issuance of restricted common shares in
connection with consulting agreement
Issuance of common shares from employee
stock purchase plan
Issuance of restricted stock awards to
directors, employees and consultants
Reverse stock split - cancellation and payout
-
-
-
-
-
-
of fractional shares
Net loss
Balances as of December 31, 2019
-
-
1,852,173 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
31,300
378
-
-
-
-
-
-
31,678 $
-
195,033
$
147,285
115,000
2,771
-
1,285
1,000
-
-
-
-
-
-
-
-
1,256
-
-
-
-
-
463,630
-
-
-
-
-
-
-
-
-
-
20,384
32,214
1,193
2,699
336
257
233
-
-
160,297
-
-
-
-
-
-
-
177
(49,981)
(155,385) #
- 1,004,171
-
6,322
- 1,945,943
1
9,951
- 3,621,237
-
-
-
-
-
-
-
-
-
38,689
-
1,531
-
1,169
-
-
-
-
-
-
35,413
(2)
2,251
75
56
74
(686)
-
-
-
- 7,075,684
$
-
-
1 $
(6)
-
214,431
$
-
-
-
-
-
-
-
-
-
-
(42,526)
(197,911)
$
20,384
32,214
1,193
2,699
336
257
233
177
(49,981)
4,912
6,322
9,952
-
35,413
(2)
2,251
75
56
74
(6)
(42,526)
16,521
Note: All share and per share data has been adjusted to reflect the 1-for-100 reverse stock split which became effective after market close on September 18, 2019, as
discussed in Note 2.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
VIVEVE MEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts and write off of accounts receivable
Depreciation and amortization
Stock-based compensation
Fair value of common shares issued
Non-cash interest expense
Amortization of operating lease right-of-use assets and accretion of operating lease liabilities
Loss on debt restructuring
Loss from minority interest in limited liability company
Loss on disposal of property and equipment
Changes in assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other current assets
Other noncurrent assets
Accounts payable
Accrued and other liabilities
Other noncurrent liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from equity financings, net of issuance costs
Proceeds from issuance of common shares from employee stock purchase plan
Transaction costs in connection with note payable
Reverse stock split - cancellation and payout of fractional shares
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents - beginning of period
Cash and cash equivalents - end of period
Supplemental disclosure:
Cash paid for interest
Cash paid for income taxes
Supplemental disclosure of cash flow information as of end of period:
Issuance of Series B convertible preferred stock and common stock warrants in connection with debt
conversion
Issuance of note payable in settlement of accrued interest
Issuance of Series B convertible preferred stock in settlement of dividends
Net transfer of equipment between inventory and property and equipment
Supplemental cash flow information related to leases was as follows:
Operating cash outflows from operating leases
Right-of-use assets obtained in exchange for operating lease liabilities (upon adoption of ASC 842)
Year Ended
December 31,
2019
2018
$
(42,526) $
(49,981)
179
786
3,035
256
1,580
-
657
-
330
(1,986)
183
31
(805)
2,143
502
(43,090)
(2,142)
(2,142)
53,792
233
-
-
54,025
8,793
20,730
29,523
2,673
2
-
1,256
-
257
1,028
1,177
2,400
-
1,577
5
6,705
627
108
3,103
(1,070)
111
40
(2,386)
(1,536)
(599)
(31,236)
(1,087)
(1,087)
16,274
56
(216)
(6)
16,108
(16,215)
29,523
13,308 $
2,508 $
- $
35,529 $
1,226 $
378 $
207 $
295
629
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
VIVEVE MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
The Company and Basis of Presentation
Viveve Medical, Inc. (“Viveve Medical”, the “Company”, “we”, “our”, or “us”) designs, develops, manufactures and markets a platform medical technology,
which we refer to as Cryogen-cooled Monopolar RadioFrequency, or CMRF. Our proprietary CMRF technology is delivered through a radiofrequency
generator, handpiece and treatment tip, which collectively, we refer to as the Viveve® System. Viveve Medical competes in the women’s intimate health
industry in some countries by marketing the Viveve System as a way to improve the overall well-being and quality of life of women suffering from vaginal
introital laxity, for improved sexual function, or stress urinary incontinence, depending on the relevant country-specific clearance or approval. In the United
States, the Viveve System is currently indicated for use in general surgical procedures for electrocoagulation and hemostasis.
2019 Public Offering and CRG Debt Conversion
In November 2019, the Company closed an underwritten public offering of units (the “November 2019 Offering”) for gross proceeds of approximately
$11,500,000, which included the full exercise of the underwriter's overallotment option to purchase additional shares and warrants. The net proceeds to the
Company, after deducting underwriting discounts and commissions and other offering expenses and payable by the Company, were approximately $9,952,000.
The offering comprised of: (1) Class A Units, priced at a public offering price of $1.55 per unit, with each unit consisting of one share of common stock, a
Series A warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the first anniversary of the date of issuance and
a Series B warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the fifth anniversary of the issuance; and (2)
Class B Units, priced at a public offering price of $1.55 per unit, with each unit consisting of one share of Series A convertible preferred stock, convertible
into one share of common stock, a Series A warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the first
anniversary of the date of issuance and a Series B warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the
fifth anniversary of the issuance.
The securities comprising the units were immediately separable and were issued separately.
A total of 1,945,943 shares of common stock, 5,473,410 shares of Series A convertible preferred stock, Series A warrants to purchase up to 7,419,353 shares of
common stock, and Series B warrants to purchase up to 7,419,353 shares of common stock were issued in the offering, including the full exercise of the over-
allotment option.
In November and December 2019, the holders of Series A preferred stock converted 600,000 shares and 3,021,237 shares into common stock, respectively. As
of December 31, 2019, 1,852,173 remaining shares of Series A convertible preferred stock were outstanding.
In connection with the closing of the November 2019 Offering, the Company’s secured lender, affiliates of CRG LP (“CRG”), converted approximately
$28,981,000 of the outstanding principal amount under its term loan with CRG (plus accrued interest, the prepayment premium and the back-end facility fee
applicable thereto), for an aggregate amount of converted debt obligations of approximately $31,300,000, into 31,300 shares of the newly authorized Series B
convertible preferred stock and issued warrants to purchase up to 9,893,776 shares of common stock (see Note 7 – Note Payable). These warrants have a term
of 5 years and an exercise price equal to 120% of the Series B convertible preferred stock conversion price of $1.53 or $1.836 per share. CRG also entered into
a one year lock up agreement on all securities that it holds.
ATM Equity Offerings
The Company established an “at-the-market” equity offering program through the filing of a prospectus supplement to its shelf registration statement on Form
S-3, which was filed on August 16, 2019, under which the Company may offer and sell, from time-to-time, up to $6,760,000 aggregate offering price of shares
of its common stock (the “August 2019 ATM Facility”). The Company’s offering of $6,760,000 of its common stock under the August 2019 ATM Facility
was completed in late September 2019. During the year ended December 31, 2019, the Company sold 1,004,171 shares of common stock under the August
2019 ATM Facility for net proceeds, after deducting sales commissions and other offering costs, of approximately $6,322,000. As of December 31, 2019, the
Company had no remaining capacity to issue shares under the August 2019 ATM Facility.
F-7
The Company had previously established an “at-the-market” equity offering program through the filing of a prospectus supplement to its shelf registration
statement on Form S-3, which was filed on November 8, 2017, under which the Company could offer and sell, from time-to-time, up to $25,000,000 aggregate
offering price of shares of its common stock (the “November 2017 ATM Facility”). On August 16, 2019, the Company suspended and subsequently
terminated the November 2017 ATM Facility pursuant to the prospectus supplement, dated November 7, 2017. The Company will no longer make any sales of
its common stock under the November 2017 ATM Facility. During the year ended December 31, 2019, the Company sold zero shares of common stock under
the November 2017 ATM Facility. During the year ended December 31, 2018, the Company sold 2,771 shares of common stock under the November 2017
ATM Facility for net proceeds of approximately $1,193,000. Through the closing of the November 2017 ATM Facility in August 2019, the Company sold
3,364 shares of common stock under the equity offering program for net proceeds, after deducting sales commissions and other offering costs, of
approximately $1,318,000.
2018 Public Offerings
In December 2018, in connection with the closing of a public offering (the “December 2018 Offering”), the Company issued an aggregate of 147,285 shares of
common stock, including the shares issued in connection with the exercise of the underwriters’ overallotment option, for gross proceeds of approximately
$22,093,000. The net proceeds to the Company, after deducting underwriting discounts and commissions and other offering expenses, were approximately
$20,384,000.
In February 2018, in connection with the closing of a public offering (the “February 2018 Offering”), the Company issued an aggregate of 115,000 shares of
common stock, including the shares issued in connection with the exercise of the underwriters’ overallotment option for gross proceeds of approximately
$34,500,000. The net proceeds to the Company, after deducting underwriting discounts and commissions and other offering expenses, were approximately
$32,214,000.
Liquidity and Management Plans
The Company has adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 205-40, Presentation of
Financial Statements – Going Concern, which requires that management evaluate whether there are relevant conditions and events that, in the aggregate, raise
substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the
financial statements are issued.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. However, since inception, the
Company has sustained significant operating losses and such losses are expected to continue for the foreseeable future. As of December 31, 2019, the
Company had accumulated deficit of $197,911,000, cash and cash equivalents of $13,308,000 and working capital of $15,883,000. Additionally, the Company
used $31,236,000 in cash for operations in the year ended December 31, 2019. The Company will require additional cash proceeds to fund operations through
March 31, 2021. Accordingly, management has concluded that the Company does not have sufficient funds to support operations within one year after the date
the financial statements are issued and, therefore, the Company concluded there was substantial doubt about the Company’s ability to continue as a going
concern.
To fund further operations, the Company will need to raise additional capital. The Company may obtain additional financing in the future through the issuance
of its common stock, or through other equity or debt financings. The Company’s ability to continue as a going concern or meet the minimum liquidity
requirements in the future is dependent on its ability to raise significant additional capital, of which there can be no assurance. If the necessary financing is not
obtained or achieved, the Company will likely be required to reduce its planned expenditures, which could have an adverse impact on the results of operations,
financial condition and the Company’s ability to achieve its strategic objective. There can be no assurance that financing will be available on acceptable terms,
or at all.
2.
Summary of Significant Accounting Policies
Financial Statement Presentation
The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries, Viveve, Inc. and Viveve BV. All significant
intercompany accounts and transactions have been eliminated in consolidation.
F-8
Reverse Stock Split
The Company effected a 1-for-100 reverse stock split of its common stock that became effective after market close on September 18, 2019. The reverse stock
split uniformly affected all issued and outstanding shares of the Company’s common stock. The reverse stock split did not alter any stockholder's percentage
ownership interest in the Company, except to the extent that the reverse stock split resulted in fractional shares. No fractional shares were issued in connection
with the reverse stock split. Any fractional shares that resulted from the reverse stock split were rounded down, and stockholders were issued cash in lieu of
such fractional share interest of approximately $6,000.
The par value of the Company’s common stock remained unchanged at $0.0001 per share after the reverse stock split.
The number of authorized shares of common stock remained at 75,000,000.
The reverse stock split proportionately affected the number of shares of common stock available for issuance under the Company’s equity incentive plans. All
stock options, warrants and restricted stock awards of the Company outstanding shares immediately prior to the reverse stock split were adjusted in accordance
with their terms.
On the effective date of the reverse stock split, (i) each 100 shares of outstanding common stock were reduced to one share of common stock; (ii) the number
of shares of common stock into which each outstanding stock option or warrant to purchase common stock is exercisable were proportionately reduced on an
100-to-1 basis; (iii) the exercise price of each outstanding stock option or warrant to purchase common stock were proportionately increased on a 1-to-100
basis; and (iv) the number of shares of common stock each outstanding restricted stock award will be issued upon vesting were proportionally reduced on a
100-to-1 basis.
All of the share numbers, share prices, and exercise prices have been adjusted, on a retroactive basis, to reflect this 1-for-100 reverse stock split.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosure
of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates. In addition, any change in these estimates or their related assumptions could have an adverse
effect on our operating results.
Changes in Accounting Policies
Except for the changes for the adoption of the new accounting standard for leases, the Company has consistently applied the accounting policies to all periods
presented in these condensed consolidated financial statements.
Adoption of New Accounting Standard-Leases
The Company adopted FASB’s Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as of January 1, 2019, using the modified
retrospective approach. The modified retrospective approach provides a method for recording existing leases at the beginning of the period of adoption. In
addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things,
allowed us to carry forward the historical lease classification and we elected the hindsight practical expedient to determine the lease term for existing leases.
We determined that the renewal options for the facilities lease would be reasonably certain to be renewed and as such, included that renewal period in
determining the expected lease term of that lease. Adoption of the new standard resulted in the recording of operating lease right-of-use assets of $629,000 and
operating lease liabilities of $629,000, as of January 1, 2019. The standard did not have an impact on our consolidated results of operations, cash flows or
stockholders’ equity previously reported. The comparative information has not been restated and continues to be reported under the accounting standards in
effect for those periods.
F-9
The effect of the changes made to our consolidated January 1, 2019 balance sheet for the adoption of the new lease standard was as follows (in thousands):
Other assets
Total assets
Accrued liabilities
Total current liabilities
Other noncurrent liabilities
Total liabilities
Total liabilities and stockholders' equity
December 31,
2018
Adjustments
Due to
Adoption of
ASC 842
January 1,
2019
$
$
$
$
$
$
$
171 $
46,834 $
6,766 $
10,760 $
634 $
41,922 $
46,834 $
629(1) $
629(1) $
230(2) $
230(2) $
399(2) $
629(2) $
629(2) $
800
47,463
6,996
10,990
1,033
42,551
47,463
(1) Represents capitalization of operating lease right-of-use assets and reclassification of deferred rent.
(2) Represents recognition of operating lease liabilities.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less, at the time of purchase, to be cash
equivalents. The Company’s cash and cash equivalents are deposited in demand accounts primarily at one financial institution. Deposits in this institution may,
from time to time, exceed the federally insured amounts.
Concentration of Credit Risk and Other Risks and Uncertainties
To achieve profitable operations, the Company must successfully develop, manufacture, and market its products. There can be no assurance that any such
products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully
marketed. These factors could have a material adverse effect upon the Company’s financial results, financial position, and future cash flows.
Most of the Company’s products to date require clearance or approvals from the U.S. Food and Drug Administration (“FDA”) or other international regulatory
agencies prior to commencing commercial sales. There can be no assurance that the Company’s products will receive any of these required clearances or
approvals or for the indications requested. If the Company was denied such clearances or approvals or if such clearances or approvals were delayed, it would
have a material adverse effect on the Company’s financial results, financial position and future cash flows.
The Company is subject to risks common to companies in the medical device industry including, but not limited to, new technological innovations,
dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products,
product liability, and the need to obtain additional financing. The Company’s ultimate success is dependent upon its ability to raise additional capital and to
successfully develop and market its products.
The Company designs, develops, manufactures and markets a medical device that it refers to as the Viveve System, which is intended for the non-invasive
treatment of vaginal introital laxity, for improved sexual function, for vaginal rejuvenation, for use in general surgical procedures for electrocoagulation and
hemostasis, and stress urinary incontinence, depending on the relevant country-specific clearance or approval. The Viveve System consists of three main
components: a radiofrequency generator housed in a table-top console, a reusable handpiece and a single-use treatment tip. Included with the system are single-
use accessories (e.g. return pad, coupling fluid), as well as a cryogen canister that can be used for approximately four to five procedures, and a foot pedal. The
Company outsources the manufacture and repair of the Viveve System to a single contract manufacturer. Also, certain other components and materials that
comprise the device are currently manufactured by a single supplier or a limited number of suppliers. A significant supply interruption or disruption in the
operations of the contract manufacturer or these third-party suppliers would adversely impact the production of our products for a substantial period of time,
which could have a material adverse effect on our business, financial condition, operating results and cash flows.
In North America, the Company sells its products primarily through a direct sales force to health care practitioners. Outside North America, the Company sells
through an extensive network of distribution partners. During the year ended December 31, 2019, one distributor accounted for 16% of the Company’s
revenue. During the year ended December 31, 2018, one distributor accounted for 21% of the Company’s revenue.
F-10
There were no direct sales to customers that accounted for more than 10% of the Company’s revenue during the years ended December 31, 2019 and 2018.
As of December 31, 2019, two distributors, collectively, accounted for 49% of total accounts receivable, net. As of December 31, 2018, three distributors,
collectively, accounted for 54% of total accounts receivable, net.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount and are not interest bearing. Our typical payment terms vary by region and type of customer
(distributor or physician). Occasionally, payment terms of up to six months may be granted to customers with an established history of collections without
concessions. Should we grant payment terms greater than six months or terms that are not in accordance with established history for similar arrangements,
revenue would be recognized as payments become due and payable assuming all other criteria for revenue recognition have been met. The Company maintains
an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing
assumptions relating to the collectability of its accounts receivable in its calculation of the allowance for doubtful accounts. In determining the amount of the
allowance, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations and assesses current economic trends
affecting its customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. The Company
also considers its historical level of credit losses. The allowance for doubtful accounts was $407,000 and $284,000 as of December 31, 2019 and 2018,
respectively.
During the year ended December 31, 2019, the Company wrote-off accounts receivable totaling $1,028,000 primarily related to U.S. distributors in connection
with the Company’s shift in its U.S. business model to a recurring revenue rental model versus selling systems under a capital equipment sales model. There
were no write-offs of customers’ accounts receivable during the year ended December 31, 2018.
Inventory
Inventory is stated at the lower of cost or net realizable value. Inventory as of December 31, 2019 consisted of $4,051,000 of finished goods and $810,000 of
raw materials. Inventory as of December 31, 2018 consisted of $3,232,000 of finished goods and $887,000 of raw materials. Cost is determined on an actual
cost basis on a first-in, first-out method. Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory,
deterioration and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence
or impaired inventory. Excess and obsolete inventory is charged to cost of revenue and a new lower-cost basis for that inventory is established and subsequent
changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
As part of the Company’s normal business, the Company generally utilizes various finished goods inventory as sales demos to facilitate the sale of its products
to prospective customers. The Company is amortizing these demos over an estimated useful life of five years. The amortization of the demos is charged to
selling, general and administrative expense and the demos are included in the medical equipment line within the property and equipment, net balance on the
consolidated balance sheets as of December 31, 2019 and 2018.
Property and Equipment, net
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation of property and equipment is computed using the
straight-line method over their estimated useful lives of three to seven years. Leasehold improvements are amortized on a straight-line basis over the lesser of
their useful lives or the life of the lease. Upon sale or retirement of assets, the cost and related accumulated depreciation and amortization are removed from
the balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not
be recoverable. When such an event occurs, management determines whether there has been an impairment by comparing the anticipated undiscounted future
net cash flows to the related asset’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either
on discounted cash flows or appraised value, depending on the nature of the asset. The Company has not identified any such impairment losses to date.
F-11
Revenue from Contracts with Customers
Revenue consists primarily of the sale of the Viveve System, single-use treatment tips and ancillary consumables. The Company applies the following five
steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the
transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company considers
customer purchase orders to be the contracts with a customer. Revenues, net of expected discounts, are recognized when the performance obligations of the
contract with the customer are satisfied and when control of the promised goods are transferred to the customer, typically when products, which have been
determined to be the only distinct performance obligations, are shipped to the customer. Expected costs of assurance warranties and claims are recognized as
expense. Revenue is recognized net of any sales taxes from the sale of the products.
Rental revenue is generated through the lease of the Viveve System. In 2019, the Company’s operating leases for the Viveve System had a rental period of six
months which could be extended or terminated by the customer after that time or the Viveve System could be purchased by the customer. Rental revenue on
those operating leases is recognized on a straight-line basis over the terms of the underlying leases. The Company began this rental program in the quarter
ended June 30, 2019 and the revenue associated with it has not been material to the periods presented. As of December 31, 2019, the Company had deferred
revenue in the amount of $662,000 related to its rental program.
In connection with the lease of the Viveve System, the Company offers single-use treatment tips and ancillary consumables that are considered non-lease
components. In the contracts with lease and non-lease components, the Company follows the relevant guidance in ASC 606, Revenue from Contracts with
Customers, to determine how to allocate contractual consideration between the lease and non-lease components.
Sales of our products are subject to regulatory requirements that vary from country to country. The Company has regulatory clearance for differing indications,
or can sell its products without a clearance, in many countries throughout the world, including countries within the following regions: North America, Latin
America, Europe, the Middle East and Asia Pacific. In North America, we market and sell primarily through a direct sales force. Outside of North America, we
market and sell primarily through distribution partners.
The Company does not provide its customers with a right of return.
Customer Advance Payments
From time to time, customers will pay for a portion of the products ordered in advance. Upon receipt of such payments, the Company records the customer
advance payment as a component of accrued liabilities. The Company will remove the customer advance payment from accrued liabilities when revenue is
recognized upon shipment of the products.
Contract Assets and Liabilities
The Company continually evaluates whether the revenue generating activities and advanced payment arrangements with customers result in the recognition of
contract assets or liabilities. No such assets existed as of December 31, 2019 or 2018. The Company had customer contract liabilities in the amount of
$108,000 and $686,000, primarily related to marketing programs that performance had not yet been delivered to its customers as of December 31, 2019 and
December 31, 2018, respectively. Contract liabilities are recorded in accrued liabilities on the consolidated balance sheet.
The following table reflects the changes in our customer contract liabilities for the year ended December 31, 2019
Customer contracts liabilities:
Marketing programs
Other
Total
December 31,
2019
December 31,
2018
Change
$
$
108 $
-
108 $
639 $
47
686 $
(531)
(47)
(578)
Separately, accounts receivable, net represents receivables from contracts with customers.
Significant Financing Component
The Company applies the practical expedient to not make any adjustment for a significant financing component if, at contract inception, the Company does not
expect the period between customer payment and transfer of control of the promised goods or services to the customer to exceed one year. During the year
ended December 31, 2019 and 2018, the Company did not have any contracts for the sale of its products with its customers with a significant financing
component.
F-12
Contract Costs
The Company expects that commissions paid to obtain subscriptions are recoverable and has therefore capitalized them as a contract costs in the amount of
$486,000 and $0 at December 31, 2019 and 2018, respectively. Capitalized commissions are amortized based on the subscription periods to which the assets
relate and are included in selling, general and administrative expenses. For the year ended December 31, 2019 and 2018, the amount of amortization was
$143,000 and $0, respectively. There was no impairment loss in relation to the costs capitalized. The Company has elected the practical expedient to recognize
the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise would have
recognized is one year or less.
Shipping and Handling
Shipping costs billed to customers are recorded as revenue. Shipping and handling expense related to costs incurred to deliver product are recognized within
cost of goods sold. The Company accounts for shipping and handling activities that occur after control has transferred as a fulfillment cost as opposed to a
separate performance obligation, and the costs of shipping and handling are recognized concurrently with the related revenue.
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated statement of operations for the year
ended December 31, 2018 and consolidated balance sheet as of December 31, 2018 was as follows (in thousands):
For the year ended December 31, 2018
Balances
Without
Adoption of
ASC 606
Effect of Change
Higher/(Lower)
As Reported
Consolidated Statement of Operations
Revenue
Cost of revenue
Gross profit
Loss from operations
Comprehensive and net loss
Net loss per share:
Basic and diluted
Weighted average shares
$
$
$
$
$
$
18,517 $
11,197 $
7,320 $
(44,965) $
(49,981) $
17,780 $
11,209 $
6,571 $
(45,714) $
(50,730) $
(160.92) $
(163.33) $
310,589
310,589
737 (1)
(12) (2)
749 (3)
749 (3)
749 (3)
2.41
(1) Change relates to revenue from extended assurance warranties for which no deferral is required on the adoption of ASC 606.
(2) Change relates to the future costs associated with extended assurance warranties required to be recorded on the adoption of ASC 606.
(3) Change relates to the net gain adjustment on the adoption of ASC 606.
As of December 31, 2018
Balances
Without
Adoption of
ASC 606
Effect of Change
Higher/(Lower)
As Reported
Consolidated Balance Sheets
Liabilities
Accrued liabilities
Other noncurrent liabilities
Equity
Accumulated deficit
$
$
$
6,766 $
634 $
7,014 $
1,313 $
(248) (1)
(679) (2)
(155,385) $
(156,311) $
926 (3)
(1) Change relates to the current portion of deferred revenue in connection with the extended warranties not required to be recorded under ASC 606,
partially offset by future costs associated with extended warranties required to be recorded on the adoption of ASC 606.
(2) Change relates to noncurrent portion of deferred revenue in connection with the extended warranties not required to be recorded under ASC 606.
(3) Change relates to $177,000 cumulative effect adjustment on the adoption of ASC 606 and the net gain adjustment of $749,000 for the year ended
December 31, 2018.
F-13
Revenue by Geographic Area:
Management has determined that the sales by geography is a key indicator for understanding the Company’s financials because of the different sales
and business models that are required in the various regions of the world (including regulatory, selling channels, pricing, customers and marketing efforts).
United States
Asia Pacific
Europe and Middle East
Canada
Latin America
Other
Total
Year Ended
December 31,
2019
2018
$
$
3,672
2,349
254
277
15
-
6,567 $
13,606
2,891
1,369
563
51
37
18,517
The Company determines geographic location of its revenue based upon the destination of the shipments of its products.
Investments in Unconsolidated Affiliates
The Company uses the equity method to account for its investments in entities that it does not control but have the ability to exercise significant influence over
the investee. Equity method investments are recorded at original cost and adjusted periodically to recognize (1) the proportionate share of the investees’ net
income or losses after the date of investment, (2) additional contributions made and dividends or distributions received, and (3) impairment losses resulting
from adjustments to net realizable value. The Company eliminates all intercompany transactions in accounting for equity method investments. The Company
records the proportionate share of the investees’ net income or losses in equity in earnings of unconsolidated affiliates on the consolidated statements of
operations. The Company utilizes a three-month lag in reporting equity income from its investments, adjusted for known amounts and events, when the
investee’s financial information is not available timely or when the investee’s reporting period differs from our reporting period.
The Company assesses the potential impairment of the equity method investments when indicators such as a history of operating losses, a negative earnings
and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate a loss in value. The carrying value of the
investments is reviewed annually for changes in circumstances or the occurrence of events that suggest the investment may not be recoverable. During the
years ended December 31, 2019 and 2018, no impairment charges have been recorded.
Product Warranty
The Company’s products are generally subject to warranties between one and three years, which provides for the repair, rework or replacement of products (at
the Company’s option) that fail to perform within stated specifications. The Company has assessed the historical claims and, to date, product warranty claims
have not been significant.
Advertising Costs
Advertising costs are charged to selling, general and administrative expenses as incurred. Advertising expenses, which are recorded in selling, general and
administrative expenses, were immaterial for the years ended December 31, 2019 and 2018.
F-14
Research and Development
Research and development costs are charged to operations as incurred. Research and development costs include, but are not limited to, payroll and personnel
expenses, prototype materials, laboratory supplies, consulting costs, and allocated overhead, including rent, equipment depreciation, and utilities.
Income Taxes
The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes
represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income
taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences
between the financial and tax basis of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
The Company must assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and to the extent the Company
believes that recovery is not likely, the Company establishes a valuation allowance. Management judgment is required in determining the Company’s
provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the net deferred tax assets. The Company recorded
a full valuation allowance as of December 31, 2019 and 2018. Based on the available evidence, the Company believes it is more likely than not that it will not
be able to utilize its deferred tax assets in the future. The Company intends to maintain valuation allowances until sufficient evidence exists to support the
reversal of such valuation allowances. The Company makes estimates and judgments about its future taxable income that are based on assumptions that are
consistent with its plans. Should the actual amounts differ from the Company’s estimates, the carrying value of the Company’s deferred tax assets could be
materially impacted.
The Company recognizes in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on
the technical merits of the position. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of
income tax expense. The Company does not believe there are any tax positions for which it is reasonably possible that the total amounts of unrecognized tax
benefits will significantly increase or decrease within 12 months of the reporting date.
Accounting for Stock-Based Compensation
Share-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee’s service
period. The Company recognizes compensation expense on a straight-line basis over the requisite service period of the award.
The Company determined that the Black-Scholes option pricing model is the most appropriate method for determining the estimated fair value for stock
options and purchase rights under the employee stock purchase plan. The Black-Scholes option pricing model requires the use of highly subjective and
complex assumptions which determine the fair value of share-based awards, including the option’s expected term and the price volatility of the underlying
stock.
Equity instruments issued to nonemployees are recorded in the same manner as similar instruments issued to employees.
Comprehensive Loss
Comprehensive loss represents the changes in equity of an enterprise, other than those resulting from stockholder transactions. Accordingly, comprehensive
loss may include certain changes in equity that are excluded from net loss. For the years ended December 31, 2019 and 2018, the Company’s comprehensive
loss is the same as its net loss.
Net Loss per Share
The Company’s basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the
period. The diluted net loss per share is computed by giving effect to all potentially dilutive common stock equivalents outstanding during the period. For
purposes of this calculation, stock options and warrants to purchase common stock and restricted common stock awards are considered common stock
equivalents. For periods in which the Company has reported net losses, diluted net loss per share is the same as basic net loss per share, since dilutive common
shares are not assumed to have been issued if their effect is anti-dilutive.
F-15
The following securities were excluded from the calculation of net loss per share because the inclusion would be anti-dilutive.
Convertible preferred stock:
Series A convertible preferred stock
Series B convertible preferred stock
Warrants to purchase common stock
Stock options to purchase common stock
Restricted common stock awards
Year Ended
December 31,
2019
2018
1,852,173 (a)
31,678 (b)
24,737,618
10,087,678
2,620
-
-
6,408
40,195
575
(a)
Each share of Series A preferred stock is convertible at any time at the holder's option into one share of common stock.
(b)
Each share of Series B preferred stock is convertible at the holder's option into shares of common stock at a conversion ratio of 1-for-
653.59 per share determined by dividing the Series B preferred stock liquidation amount of $1,000 per share by the Series B preferred
stock conversion price of $1.53 per share. However, under the terms of the Series B Preferred Stock and Warrant Purchase Agreement, as
amended, CRG will not convert the Series B preferred stock or exercise the CRG warrants until the Company’s stockholders act to
authorize additional number of shares of common stock sufficient to cover the conversion shares.
Other Recently Issued and Adopted Accounting Standards
In June 2018, the FASB issued ASU 2018-07, “Stock Compensation (Topic 718) – Improvements to Nonemployee Share- Based Payment Accounting”. The
intent of this guidance is to simplify the accounting for nonemployee share-based payment accounting. The amendments in this guidance expand the scope of
Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Consistent with the accounting requirement for
employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the
equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to
earn the right to benefit from the instruments have been satisfied. Equity- classified nonemployee share-based payment awards are measured at the grant date.
Consistent with the accounting for employee share-based payment awards, an entity considers the probability of satisfying performance conditions when
nonemployee share-based payment awards contain such conditions. This guidance is effective for annual reporting periods beginning after December 15,
2018, including interim periods within the reporting period. We adopted this guidance as of January 1, 2019 and the adoption of the guidance did not have a
significant impact on the consolidated financial statements.
In November 2019, the FASB issued ASU 2019-08, “Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606). The
amendments in this Update require measurement and classification of share-based payment awards granted to a customer by applying the guidance in Topic
718. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, with
early adoption permitted. We will adopt this guidance as of January 1, 2020 and the adoption of the guidance is not expected to have a significant impact on the
consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740). The amendments in this Update provide further simplification of accounting
standards for the accounting for income taxes. Certain exceptions for are removed and requirements regarding the accounting for franchise taxes, tax basis of
goodwill, and tax law rate changes are made. This guidance is effective for annual reporting periods beginning after December 15, 2020, including interim
periods within that reporting period, with early adoption permitted. We will adopt this guidance as of January 1, 2021 and the adoption of the guidance is not
expected to have a significant impact on the consolidated financial statements.
We have reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material effect is expected on
the consolidated financial statements as a result of future adoption.
F-16
3.
Fair Value Measurements
The Company recognizes and discloses the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements).
Each level of input has different levels of subjectivity and difficulty involved in determining fair value.
Level 1
Level 2
Level 3
Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or
liabilities as of the reporting date. Therefore, determining fair value for Level 1 investments generally does not require significant
judgment, and the estimation is not difficult.
Pricing is provided by third party sources of market information obtained through investment advisors. The Company does not
adjust for or apply any additional assumptions or estimates to the pricing information received from its advisors.
Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of
significant management judgment. These values are generally determined using pricing models for which the assumptions utilize
management’s estimates of market participant assumptions. The determination of fair value for Level 3 instruments involves the
most management judgment and subjectivity.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and
consider factors specific to the asset or liability.
There were no financial instruments that were measured at fair value on a recurring basis as of December 31, 2019 and 2018.
The carrying amounts of the Company’s financial assets and liabilities, including cash and cash equivalents, accounts receivable, accounts payable, and
accrued expenses as of December 31, 2019 and 2018 approximate fair value because of the short maturity of these instruments. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying value of the note payable approximates fair value.
There were no changes in valuation techniques from prior periods.
4.
Property and Equipment, Net
Property and equipment, net, consisted of the following as of December 31, 2019 and 2018 (in thousands):
Medical equipment
Rental program equipment
Computer equipment
Leasehold Improvements
Furniture and fixtures
Software
Less: Accumulated depreciation and amortization
Property and equipment, net
Life
(in years)
December 31,
2019
2018
5
5
3
3
7
3
$
$
2,933 $
1,619
243
384
123
25
5,327
(2,281)
3,046 $
3,571
-
309
403
121
25
4,429
(1,513)
2,916
Depreciation and amortization expense for the years ended December 31, 2019 and 2018 was $1,177,000 and $786,000, respectively.
5.
Investment in Limited Liability Company
On August 8, 2017, the Company entered into an exclusive Distributorship Agreement (the “Distributorship Agreement”) with InControl Medical, LLC
(“ICM”), a Wisconsin limited liability company focused on women's health, pursuant to which the Company will directly market, promote, distribute and sell
ICM’s products to licensed medical professional offices and hospitals in North America.
F-17
Under the terms of the Distributorship Agreement, ICM agreed to not directly or indirectly appoint or authorize any third party to market, promote, distribute
or sell any of the licensed products to any licensed medical professional offices and hospitals in the United States. In exchange, the Company agreed to not
market, promote, distribute or sell (or contract to do so) any product which substantially replicates all or almost all of the key features of the licensed products.
The Company has a minimum purchase requirement to purchase a certain quantity of ICM products per month during the term of this Distributorship
Agreement. In addition, the parties agreed to certain mutual marketing obligations to promote sales of the licensed products. During the years ended December
31, 2019 and 2018, the Company has purchased 300 and 3,300 units of ICM products for approximately $26,000 and $327,000, respectively. The Company
paid ICM approximately $27,000 and $337,000 for product related costs during the years ended December 31, 2019 and 2018, respectively.
In connection with the Distributorship Agreement, the Company also entered into a Membership Unit Subscription Agreement with ICM and the associated
limited liability company operating agreement of ICM, pursuant to which the Company invested $2,500,000 in, and acquired membership units of, ICM. This
investment has been recorded in investment in a limited liability company in the consolidated balance sheets. The Company used the equity method to account
for the investment in ICM because the Company does not control it but has the ability to exercise significant influence over it. As of December 31, 2019, the
Company owns approximately 7% ownership interest in ICM. The Company recognizes its allocated portion of ICM’s results of operations on a three-month
lag due to the timing of financial information. For the years ended December 31, 2019 and 2018, the allocated net loss from ICM’s operations was $627,000
and $657,000 respectively. The allocated net loss from ICM’s operations was recorded as a loss from minority interest in limited liability company in the
consolidated statements of operations.
In February 2019, the Company executed a mutual termination of the Distributorship Agreement with ICM. As a result, the Company no longer has a
minimum purchase requirement to purchase a certain quantity of ICM products per month.
6.
Accrued Liabilities
Accrued liabilities consisted of the following as of December 31, 2019 and 2018 (in thousands):
Accrued payroll and other related expenses
Accrued bonuses
Deferred revenue - subscription rental program
Accrued professional fees
Accrued inventory purchases
Accrued interest
Accrued sales commission
Current operating lease liabilities
Customer contracts liabilities
Travel and entertainment
Other accruals
Total accrued liabilities
7.
Note Payable
December 31,
2019
2018
$
$
839 $
726
662
592
474
440
281
268
108
78
230
4,698 $
877
837
-
978
-
683
1,743
-
686
280
682
6,766
On May 22, 2017, the Company entered into a Term Loan Agreement, as amended on December 12, 2017 and November 29, 2018 (collectively, the “2017
Loan Agreement”) with affiliates of CRG LP (“CRG”). The credit facility consists of $20,000,000 drawn at closing and access to additional funding of up to an
aggregate of $10,000,000 for a total of $30,000,000 available under the credit facility. On December 29, 2017, the Company accessed the remaining
$10,000,000 available under the credit facility.
A portion of the initial loan proceeds were used to repay all of the amounts owed by the Company under its 2016 Loan Agreement with Western Alliance
Bank. The remainder of the loan proceeds (after deducting loan origination costs and other fees and expenses incurred in connection with the 2017 Loan
Agreement), plus any additional amounts that may be borrowed in the future, will be used for general corporate purposes and working capital.
F-18
In connection with the 2017 Loan Agreement, the Company issued two 10-year warrants to CRG to purchase a total of 2,220 shares of the Company’s
common stock at an exercise price of $950.00 per share (See Note 12).
Under the 2017 Loan Agreement, the credit facility had a six-year term with four years of interest-only payments after which quarterly principal and interest
payments were to be due through the maturity date. Amounts borrowed under the 2017 Loan Agreement accrued interest at an annual fixed rate of 12.5%,
4.0% of which, at the election of the Company, could be paid in-kind during the interest-only period by adding such accrued amount to the principal loan
amount each quarter. During the years ended December 31, 2019 and 2018, the Company paid interest in-kind of $1,226,000 and $1,256,000, respectively,
which was added to the total outstanding principal loan in that period. The Company was also required to pay CRG a final payment fee upon repayment of the
loans in full equal to 5.0% of the sum of the aggregate principal amount plus the deferred interest added to the principal loan amount during the interest-only
period.
As security for its obligations under the 2017 Loan Agreement, the Company entered into security agreements with CRG whereby the Company granted CRG a
lien on substantially all of the Company’s assets, including intellectual property.
The terms of the 2017 Loan Agreement also required the Company to meet certain financial and other covenants. These covenants required the Company to
maintain cash and cash equivalents of $2,000,000 and, each year through the end of 2022, to meet a minimum total annual revenue threshold. In the event that
the Company did not meet the minimum total annual revenue threshold for a particular year, then the Company could retroactively cure the shortfall by either
issuing additional equity in exchange for cash or incurring certain additional permitted indebtedness, in each case, in an amount equal to 2.0 times the shortfall.
Any such amounts would be applied to prepay the loans. The 2017 Loan Agreement also contained customary affirmative and negative covenants for a credit
facility of this size and type, including covenants that limit or restrict the Company’s ability to, among other things, incur indebtedness, grant liens, merge or
consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends or make distributions, license
intellectual property rights on an exclusive basis or repurchase stock, in each case subject to customary exceptions.
On November 12, 2019, the Company and CRG amended the 2017 Loan Agreement. In connection with the amendment, the Company converted
approximately $28,981,000 of the outstanding principal amount under the term loan plus accrued interest, the prepayment premium and the back-end facility
fee for an aggregate amount of converted debt obligations of approximately $31,300,000. The debt obligations converted in to 31,300 shares of the newly
authorized Series B convertible preferred stock and warrants to purchase up to 9,893,776 shares of common stock were also issued. The warrants have a term
of 5 years and an exercise price equal to 120% of the Series convertible B preferred stock conversion price of $1.53 or $1.836 per share (see Note 11). CRG
entered into a one year lock up agreement on all securities that it holds.
The Amendment No. 3 to the 2017 Loan Agreement addressed, among other things:
●
●
repayment provisions were amended such that repayment is permitted only with, or after, the redemption in full of the Series B convertible preferred
stock issued to CRG;
the interest only payment period and the period during which the Company may elect to pay the full interest in PIK interest payments was extended
through the 23rd date after the first payment date. Pursuant to the amendment, CRG shall consent to the payment of such interest in the form of PIK
loans, provided that (i) as of such payment date, no default shall have occurred and be continuing, and (ii) the principal amount of each PIK loan
shall accrue interest in accordance with the provisions of the 2017 Loan Agreement;
● modified certain of the covenants, including (i) to permit issuance of the Series B convertible preferred stock and any preferred stock issued in the
equity financing and the exercise and performance by the Company of its rights and obligations in connection with such CRG preferred stock and
any preferred stock issued in the equity financing, (ii) eliminate the Company’s ability to enter into permitted acquisitions, (iii) further restrict the
incurrence of additional indebtedness and removal of the equity cure right, and (iv) eliminate the minimum revenue requirement; and
the back-end facility fee on the aggregate remaining principal balance on the term loan shall be increased from 5% to 25%.
●
As of December 31, 2019, the Company was in compliance with all covenants.
As of December 31, 2019, and 2018, $3,983,000 and $30,528,000 was recorded on the consolidated balance sheets as Note payable, noncurrent portion, which
is net of the remaining unamortized debt discount.
F-19
The Company accounted for the changes in the 2017 Loan Agreement as a troubled debt restructuring. The Company reduced the amount of the debt
obligation by the fair value of the equity interests transferred. The remaining difference was charged to the loss on debt restructuring and reported on the
consolidated statements of operations and comprehensive loss. The equity interests transferred included the 31,300 shares of the newly authorized Series B
convertible preferred stock and warrants to purchase up to 9,893,776 shares of common stock. The Company determined the fair value of the Series B
convertible preferred stock on November 26, 2019 using the option pricing method. The following assumptions were present in the calculation: (1) value of
Company equity based on $0.869 per common share, which was the closing common stock price on the date of the valuation (November 26, 2019); (2)
volatility of 73%; (3) term of 2 years; and (4) risk-free rate of 1.58%. The fair value of the Series B convertible preferred stock was determined to be $1,023.23
for an aggregate fair value amount of approximately $32,027,000. The Company determined the fair value of the warrants on the date of issuance to be
approximately $3,502,000 using the Black-Scholes option pricing model (see Note 11 – Common Stock.) After consideration of the fair value of the equity
interests transferred and the carrying value of the debt, the remaining difference is the loss on debt restructuring of $6,705,000.
As of December 31, 2019, future minimum payments under the note payable are as follows (in thousands):
Year Ending December 31,
2020
2021
2022
2023
Total payments
Less: Amount representing interest
Present value of obligations
Less: Unamortized debt discount
Note payable, noncurrent portion
8.
Leases
Lessee:
$
$
-
-
-
5,992
5,992
(1,997)
3,995
(12)
3,983
The following information pertains to those operating lease agreements where the Company is the lessee.
In January 2012, the Company entered into a lease agreement for office and laboratory facilities in Sunnyvale, California. The lease agreement, as amended,
commenced in March 2012 and terminated in April 2018.
On February 1, 2017, the Company entered into a sublease agreement (the “Sublease”) for approximately 12,400 square feet of building space for the
relocation of the Company’s corporate headquarters to Englewood, Colorado (the “Sublease Premises”), which was effective as of January 26, 2017. The lease
term commenced on June 1, 2017 and will terminate in May 2020. The Company relocated its corporate headquarters from Sunnyvale, California to
Englewood, Colorado in June 2017.
The monthly base rent under the Sublease is equal to $20.50 per rentable square foot of the Sublease Premises during the first year. The monthly base rent is
equal to $21.12 and $21.75 per rentable square foot during the second and third years, respectively. In connection with the execution of the Sublease, the
Company also agreed to pay a security deposit of approximately $22,000. The Company was also provided an allowance of approximately $88,000 for certain
tenant improvements relating to the engineering, design and construction of the Sublease Premises which has been reimbursed.
The office rent expense for the year ended December 31, 2018 was $358,000.
In September 2018, the Company entered into a 36-month noncancelable operating lease agreement for office equipment. The lease commenced on September
20, 2018. The monthly lease payment is approximately $3,000.
After the adoption of ASU 842 – Leases on January 1, 2019, operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on
the date the Company takes possession of the property. At lease inception, the Company determines the lease term by assuming the exercise of those renewal
options that are reasonably assured. The lease term is used to determine whether a lease is financing or operating and is used to calculate straight-line rent
expense. Additionally, the depreciable life of leasehold improvements is limited by the expected lease term. Leases with an initial term of 12 months or less are
not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.
F-20
The following table reflects the Company's lease assets and lease liabilities at December 31, 2019 and January 1, 2019 (in thousands):
Assets:
Operating lease right-of-use assets
Liabilities:
Current operating lease liabilities
Noncurrent operating lease liabilities
December 31,
2019
January 1,
2019
$
$
$
395 $
268 $
132
400 $
629
230
399
629
The operating lease right-of-use assets are included in other assets on the condensed consolidated balance sheet. The operating lease liabilities are included in
accrued liabilities and other noncurrent liabilities on the condensed consolidated balance sheet.
The operating leases expense for the year ended December 31, 2019 was $301,000.
As of December 31, 2019, the maturity of operating lease liabilities was as follows (in thousands):
Year Ending December 31,
2020
2021
Total lease payments
Less: Amount representing interest
Present value of lease liabilities
$
$
303
137
440
(40)
400
The weighted average remaining lease term was approximately 17 months as of December 31, 2019. The weighted average discount rate for the year ended
December 31, 2019 was 12.5%.
Lessor:
The following information pertains to those operating lease agreements where the Company is the lessor.
As of December 31, 2019, minimum future rentals from customers on non-cancellable operating leases of Viveve Systems are as follows (in thousands):
Year Ending December 31,
2020
Thereafter
Total
$
$
662
-
662
As of December 31, 2019, $1,117,000 of property and equipment is related to these operating lease agreements. The depreciation expense for that property and
equipment for the year ended December 31, 2019 is $121,000.
9.
Commitments and Contingencies
Indemnification Agreements
The Company enters into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies,
holds harmless and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with performance of
services within the scope of the agreement, breach of the agreement by the Company, or noncompliance of regulations or laws by the Company, in all cases
provided the indemnified party has not breached the agreement and/or the loss is not attributable to the indemnified party’s negligence or willful malfeasance.
The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future
payments the Company could be required to make under these arrangements is not determinable. The Company has never incurred costs to defend lawsuits or
settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal.
F-21
Loss Contingencies
The Company is or has been subject to proceedings, lawsuits and other claims arising in the ordinary course of business. The Company evaluates contingent
liabilities, including threatened or pending litigation, for potential losses. If the potential loss from any claim or legal proceeding is considered probable and
the amount can be estimated, the Company accrues a liability for the estimated loss. Because of uncertainties related to these matters, accruals are based upon
the best information available. For potential losses for which there is a reasonable possibility (meaning the likelihood is more than remote but less than
probable) that a loss exists, the Company will disclose an estimate of the potential loss or range of such potential loss or include a statement that an estimate of
the potential loss cannot be made. As additional information becomes available, the Company reassesses the potential liability related to pending claims and
litigation and may revise its estimates, which could materially impact the consolidated financial statements. Management does not believe that the outcome of
any outstanding legal matters will have a material adverse effect on the Company's consolidated financial position, results of operations and cash flows.
Legal Proceedings
In December 2018, the Company settled an arbitration matter with a former employee, and the arbitration has now been dismissed with prejudice. The matter
involved affirmative claims for negligence by the Company against the employee arising out of her negligent performance of certain work duties, as well as
various employment-related counterclaims by the employee.
On June 4, 2018, the Company entered into a Settlement and License Agreement (the “Settlement Agreement”) with ThermiGen LLC and ThermiAesthetics
LLC (“ThermiGen,” collectively) as well as Red Alinsod, M.D. resolving the Company’s patent litigation against ThermiGen and Dr. Alinsod. The Settlement
Agreement also resolved ThermiGen’s inter partes review proceedings against the Company. The litigation arose from the Company’s claim that ThermiGen
and Dr. Alinsod were improperly using the Company’s patented technology without consent. Pursuant to the Settlement Agreement, the parties agreed to
resolve all currently pending disputes between them.
Under the terms of the Settlement Agreement, the Company received an initial monetary payment to settle the litigation and past claims and an on-going
royalty for future sales. Viveve granted to ThermiGen a non-exclusive, non-transferable license to use the Company’s U.S. patent for the then current version
of ThermiGen’s ThermiVa system (which includes RF generators and consumables). The Company has recorded the monetary payment as a gain on litigation
settlement in selling, general and administrative expenses on the consolidated statements of operations during the year ended December 31, 2018.
10.
Preferred Stock
In connection with the closing of the public offering, on November 26, 2019, the Company filed the Certificate of Designation of Preferences, Rights and
Limitations of Series A Convertible Preferred Stock (the “Series A Certificate of Designation”) with the Secretary of State of the State of Delaware. The Series
A Certificate of Designation provides for the issuance of the shares of Series A convertible preferred stock. The shares of Series A convertible preferred stock
rank on par with the shares of the common stock, in each case, as to dividend rights and distributions of assets upon liquidation, dissolution or winding up of
the Company.
With certain exceptions, as described in the Series A Certificate of Designation, the shares of Series A preferred stock have no voting rights.
Each share of Series A convertible preferred stock is convertible at any time at the holder’s option into one share of common stock, which conversion ratio
will be subject to adjustment for stock splits, stock dividends, distributions, subdivisions and combinations and other similar transactions as specified in the
Series A Certificate of Designation.
In November and December 2019, the holders of Series A convertible preferred stock converted 600,000 shares and 3,021,237 shares into common stock,
respectively. As of December 31, 2019, 1,852,173 shares of Series A convertible preferred stock remain outstanding (see Note 15 – Subsequent Events).
In connection with the CRG debt conversion, on November 26, 2019, the Company filed the Certificate of Designation of Preferences, Rights and Limitations
of Series B Convertible Preferred Stock (the “Series B Certificate of Designation”) with the Secretary of State of the State of Delaware. The Series B
Certificate of Designation provides for the issuance of the shares of Series B convertible preferred stock. The holders of Series B convertible preferred stock
are entitled to receive compounding dividends at a rate of 12.5% per annum payable quarterly at the Company’s option through additional paid in-kind shares
of Series B convertible preferred stock or in cash. During the year ended December 31, 2019, the Company paid dividend in-kind of an additional 378 shares
of Series B convertible preferred stock and a cash dividend of approximately $2,400 for the remaining fractional shares. This cash dividend amount was
included in accrued liabilities at December 31, 2019 and was paid in February 2020. The shares of Series B convertible preferred stock have no voting rights
and rank senior to all other classes and series of our equity in terms of repayment and certain other rights.
F-22
The Series B convertible preferred stock provides that for so long as any shares are outstanding, the consent of the holders of the Series B convertible preferred
stockholders would be required to amend the Company’s organizational documents, approve any merger, sale of assets, or other major corporate transaction,
or incur additional indebtedness, among other items.
The fair value of the Series B convertible preferred stock was determined in connection with the CRG debt conversion as part of the accounting for that
transaction as a troubled debt restructuring. (See Note 7 – Note Payable.) Based on our valuation analysis, as of November 26, 2019, the date of issuance, the
estimated fair value of the Series B convertible preferred stock was $1,023.23 per share or a total value of approximately $32,027,000 for the 31,300 shares of
Series B convertible preferred stock that were issued.
Under the terms of the Series B Preferred Stock and Warrant Purchase Agreement, as amended, CRG will not convert the Series B preferred stock or exercise
the warrants until the Company’s stockholders act to authorize additional number of shares of common stock sufficient to cover the conversion shares.
11.
Common Stock
In November 2019, the Company closed an underwritten public offering of units (the “November 2019 Offering”) for gross proceeds of approximately
$11,500,000, which included the full exercise of the underwriter's overallotment option to purchase additional shares and warrants. The net proceeds to the
Company, after deducting underwriting discounts and commissions and other offering expenses and payable by the Company, were approximately $9,952,000.
The offering comprised of: (1) Class A Units, priced at a public offering price of $1.55 per unit, with each unit consisting of one share of common stock, a
Series A warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the first anniversary of the date of issuance and
a Series B warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the fifth anniversary of the issuance; and (2)
Class B Units, priced at a public offering price of $1.55 per unit, with each unit consisting of one share of Series A preferred stock, convertible into one share
of common stock, a Series A warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the first anniversary of the
date of issuance and a Series B warrant to purchase one share of common stock at an exercise price of $1.55 per share that expires on the fifth anniversary of
the issuance.
The securities comprising the units were immediately separable and were issued separately.
A total of 1,945,943 shares of common stock, 5,473,410 shares of Series A preferred stock, Series A warrants to purchase up to 7,419,353 shares of common
stock, and Series B warrants to purchase up to 7,419,353 shares of common stock were issued in the offering, including the full exercise of the over-allotment
option.
In November and December 2019, the holders of Series A convertible preferred stock converted 600,000 shares and 3,021,237 shares into Common Stock,
respectively.
ATM Equity Offerings
Through the August 2019 ATM Facility, the Company may offer and sell, from time-to-time, up to $6,760,000 aggregate offering price of shares of its
common stock”). The Company’s offering of $6,760,000 of its common stock under the August 2019 ATM Facility was completed in late September 2019.
During the year ended December 31, 2019, the Company sold 1,004,171 shares of common stock under the August 2019 ATM Facility for net proceeds, after
deducting sales commissions and other offering costs, of approximately $6,322,000.
In August 2019, the Company terminated the November 2017 ATM Facility under which the Company could offer and sell, from time-to-time, up to
$25,000,000 aggregate offering price of shares of its common stock. During the year ended December 31, 2019, the Company sold zero shares of common
stock under the November 2017 ATM Facility. During the year ended December 31, 2018 the Company sold 2,771 shares of common stock under the
November 2017 ATM Facility for net proceeds of approximately $1,193,000. Through the closing of the November 2017 ATM Facility in August 2019, the
Company sold 3,364 shares of common stock under the equity offering program for net proceeds of approximately $1,318,000.
F-23
Restricted Common Shares
In December 2019, the Company issued 30,675 restricted shares of its common stock at an aggregate value of approximately $25,000.
In October 2019, the Company issued 7,740 restricted shares of its common stock at an aggregate value of approximately $25,000.
In March 2019, the Company issued 274 restricted shares of its common stock at an aggregate value of approximately $25,000.
2018 Public Offerings
In December 2018, in connection with the closing of a public offering (the “December 2018 Offering”), the Company issued an aggregate of 147,285 shares of
common stock, including the shares issued in connection with the exercise of the underwriters’ overallotment option, for gross proceeds of approximately
$22,093,000. The net proceeds to the Company, after deducting underwriting discounts and commissions and other offering expenses, were approximately
$20,384,000.
In June 2018, the Company issued 1,000 restricted shares of its common stock at a value of $2.56 a share, or an aggregate value of approximately $256,000.
In February 2018, in connection with the closing of the February 2018 Offering, the Company issued an aggregate of 115,000 shares of common stock,
including the shares issued in connection with the exercise of the underwriters’ overallotment option, for gross proceeds of approximately $34,500,000. The net
proceeds to the Company, after deducting underwriting discounts and commissions and other offering expenses, were approximately $32,214,000.
Warrants for Common Stock
As of December 31, 2019, outstanding warrants to purchase shares of common stock were as follows:
Issuance Date
February 2015
March 2015
May 2015
May 2015
December 2015
April 2016
May 2016
June 2016
May 2017
November 2019
November 2019
November 2019
Exercisable
for
Expiration
Date
Exercise
Price
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
February 17, 2025
March 26, 2025
May 12, 2025
May 17, 2020
December 16, 2025
April 1, 2026
May 11, 2021
June 20, 2026
May 25, 2027
November 26, 2020
November 26, 2024
November 26, 2024
$
$
$
$
$
$
$
$
$
$
$
$
400.00
272.00
424.00
424.00
560.00
608.00
774.00
498.00
950.00
1.55
1.55
1.84
F-24
Number of
Shares
Outstanding
Under
Warrants
754
14
362
215
267
250
50
1,004
2,220
7,419,353
7,419,353
9,893,776
24,737,618
As of December 31, 2018, outstanding warrants to purchase shares of common stock were as follows:
Issuance Date
September 2014
October 2014
November 2014
February 2015
March 2015
May 2015
May 2015
December 2015
April 2016
May 2016
June 2016
May 2017
Exercisable
for
Expiration
Date
Exercise
Price
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
September 23, 2019
October 13, 2019
November 12, 2019
February 17, 2025
March 26, 2025
May 12, 2025
May 17, 2020
December 16, 2025
April 1, 2026
May 11, 2021
June 20, 2026
May 25, 2027
$
$
$
$
$
$
$
$
$
$
$
$
424.00
424.00
424.00
400.00
272.00
424.00
424.00
560.00
608.00
774.00
498.00
950.00
Number of
Shares
Outstanding
Under
Warrants
859
288
125
754
14
362
215
267
250
50
1,004
2,220
6,408
In connection with the November 2019 Offering, Series A warrants to purchase up to 7,419,353 shares of common stock, and Series B warrants to purchase up
to 7,419,353 shares of common stock were issued in the offering. A Series A warrant to purchase one share of common stock at an exercise price of $1.55 per
share that expires on the first anniversary of the date of issuance and a Series B warrant to purchase one share of common stock at an exercise price of $1.55
per share that expires on the fifth anniversary of the issuance. The Series A warrants to purchase one share of common stock have a contractual term of one
year and an exercise price of $1.55 per share. The Series B warrants to purchase one share of common stock have a contractual term of five years and an
exercise price of $1.55 per share. The Company determined the fair value of the Series A warrants on the date of issuance to be approximately $1,210,000
using the Black-Scholes option pricing model. Assumptions used were dividend yield of 0%, volatility of 91.1%, risk free interest rate of 1.59% and a
contractual life of one year. The Company determined the fair value of the Series B warrants on the date of issuance to be approximately $2,871,000 using the
Black-Scholes option pricing model. Assumptions used were dividend yield of 0%, volatility of 68.8%, risk free interest rate of 1.58% and a contractual life of
five years. The fair value of the Series A and B warrants totaling approximately $4,081,000 is recorded as issuance costs relating to November 2019 Offering.
In connection with the CRG Debt Conversion, CRG received warrants exercisable for 9,893,776 shares of common stock, an amount equal to 15% of our
common stock on a fully diluted basis after taking the November 2019 Offering into account (the “CRG Warrants”). The CRG Warrants have a contractual
term of five years and an exercise price equal to 120% of the Series B convertible preferred stock conversion price of $1.53 or $1.836 per share. The Company
determined the fair value of the warrants on the date of issuance to be approximately $3,502,000 using the Black-Scholes option pricing model. Assumptions
used were dividend yield of 0%, volatility of 68.8%, risk free interest rate of 1.58% and a contractual life of five years. The fair value of the CRG warrants is
recorded as additional paid-in capital as part of the accounting for the debt conversion.
In connection with the 2017 Loan Agreement, the Company issued warrants to purchase a total of 2,220, shares of common stock at an exercise price of $950
per share. The warrants have a contractual life of ten years and are exercisable immediately in whole or in part. The Company determined the fair value of the
warrants on the date of issuance to be $940,000 using the Black-Scholes option pricing model. Assumptions used were dividend yield of 0%, volatility of
55.1%, risk free interest rate of 2.25% and a contractual life of ten years. The fair value of the warrants along with financing and legal fees totaling $790,000,
are recorded as debt issuance costs and presented in the consolidated balance sheets as a deduction from the carrying amount of the note payable. The debt
issuance costs are amortized to interest expense over the loan term. During the years ended December 31, 2019 and 2018, the Company recorded $352,000 and
$325,000, respectively, of interest expense relating to the debt issuance costs using the effective interest method. As of December 31, 2019, the unamortized
debt discount was $12,000.
No shares, issuable pursuant to warrants, were issued in connection with the exercise of warrants during the years ended December 31, 2019 and 2018,
respectively.
No shares issuable pursuant to warrants have been cancelled during the year ended December 31, 2019 and 2018.
F-25
A total of 1,272 shares issuable pursuant to warrants expired during the year ended December 31, 2019. No shares issuable pursuant to warrants expired during
the year ended December 31, 2018.
The stock-based compensation expense related to warrants issued was zero for the years ended December 31, 2019 and 2018, respectively.
12.
Summary of Stock Options
Stock Option Plans
The Company has issued equity awards in the form of stock options and restricted stock awards (“RSAs”) from two employee benefit plans. The plans include
the Viveve Amended and Restated 2006 Stock Plan (the “2006 Plan”) and the Company’s Amended and Restated 2013 Stock Option and Incentive Plan (the
“2013 Plan”).
As of December 31, 2019, there are outstanding stock option awards issued from the 2006 Plan covering a total of 104 shares of the Company’s common stock
and no shares are available for future awards. The weighted average exercise price of the outstanding stock options is $992.00 per share and the weighted
average remaining contractual term is 3.1 years.
The 2013 Plan was also adopted by the Company’s board of directors and approved by its stockholders. The 2013 Plan is administered by the compensation
committee of the Company’s board of directors (the “Administrator”). Under the 2013 Plan, the Company may grant equity awards to eligible participants
which may take the form of stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted, deferred or
unrestricted stock awards, performance-based awards or dividend equivalent rights. Awards may be granted to officers, employees, nonemployee directors (as
defined in the 2013 Plan) and other key persons (including consultants and prospective employees). The term of any stock option award may not exceed 10
years and may be subject to vesting conditions, as determined by the Administrator. Options granted generally vest over four years. Incentive stock options
may be granted only to employees of the Company or any subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Internal
Revenue Code. The exercise price of any stock option award cannot be less than the fair market value of the Company’s common stock, provided, however,
that an incentive stock option granted to an employee who owns more than 10% of the Company’s outstanding voting power must have an exercise price of no
less than 110% of the fair market value of the Company’s common stock and a term that does not exceed five years.
On August 22, 2016, the Company’s stockholders approved an amendment to the 2013 Plan to add an “evergreen” provision which will automatically increase
annually, on the first day of each January, the maximum number of shares of common stock reserved and available under the 2013 plan (the “Stock Issuable”)
by an amount equal to the lesser of (i) the number of shares that will increase the Stock Issuable by 4% of the total number of shares of common stock
outstanding (on a fully diluted basis) or (ii) an amount determined by the board of directors.
In December 2017, the board of directors approved the 2018 evergreen increasing the total stock reserved for issuance under the 2013 Plan from 40,000 shares
to a total of 49,140 shares, which was effective January 1, 2018.
In January 2019, the board of directors approved the 2019 evergreen provision increasing the total stock reserved for issuance under the 2013 Plan by 20,431
shares from 49,140 shares to a total of 69,571 shares, which was effective January 1, 2019.
In September 2019, the Company’s stockholders approved an amendment to the 2013 Plan to increase the number of shares of common stock reserved for
issuance thereunder to equal 18% of the issued and outstanding shares of common stock of the Company on a fully diluted basis calculated as of the earlier of:
(1) the day immediately after the consummation of the Company’s next underwritten public equity offering with gross proceeds of $5.0 million or more; or (2)
December 31, 2019. Accordingly, the total stock reserved for issuance under the 2013 Plan increased to a total of 11,872,531 shares, which was effective
November 26, 2019.
As of December 31, 2019, there are outstanding stock option awards issued from the 2013 Plan covering a total of 10,087,574 shares of the Company’s
common stock and there remain reserved for future awards 1,798,337 shares of the Company’s common stock. The weighted average exercise price of the
outstanding stock options is $2.21 per share, and the remaining contractual term is 9.9 years.
F-26
Activity under the 2006 Plan and the 2013 Plan is as follows:
Options outstanding, January 1, 2018
Options granted
Options exercised
Options canceled
Options outstanding, December 31, 2018
Options granted
Options exercised
Options canceled
Options outstanding, December 31, 2019
Year Ened December 31, 2019
Weighted
Average
Remaining
Contractual
Term (years)
Weighted
Average
Exercise
Price
Number
of
Shares
Aggregate
Intrinsic
Value
26,903 $
23,542 $
- $
(10,301) $
40,144 $
10,065,844 $
-
(18,310) $
10,087,678 $
579.81
351.81
-
548.13
455.68
1.14
403.31
2.22
8.6 $
249,154
7.4 $
-
9.9 $
3,928,715
Vested and exercisable and expected to vest, end of period
8,966,825 $
2.36
9.9 $
3,490,722
Vested and exercisable, end of period
222,582 $
41.49
9.5 $
77,540
The aggregate intrinsic value reflects the difference between the exercise price of the underlying stock options and the Company’s closing share price as of
December 31, 2019.
The options outstanding and exercisable as of December 31, 2019 are as follows:
Number
Outstanding
as of
December 31, 2019
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (Years)
Number
Exercisable
as of
December 31, 2019
Weighted
Average
Exercise
Price
10,042,500 $
1,650 $
22,385 $
775 $
3,833 $
7,870 $
4,215 $
2,372 $
1,974 $
104 $
10,087,678 $
0.87
55.42
140.23
252.06
355.39
453.47
536.47
601.29
768.12
992.00
2.22
9.9
9.4
8.1
8.0
6.0
6.4
5.7
3.6
6.7
3.1
9.9
198,312 $
- $
9,141 $
355 $
2,423 $
5,066 $
3,258 $
2,352 $
1,571 $
104 $
222,582 $
0.87
-
144.93
255.75
362.12
454.44
535.73
600.78
768.19
992.00
41.49
Range of
Exercise Prices
$0.86
- $0.89
$38.00 - $58.00
$100.00 - $197.00
$202.00 - $283.00
$311.00 - $382.00
$430.00 - $497.00
$501.00 - $567.00
$600.00 - $661.00
$700.00 - $792.00
$992.00 - $992.00
Total:
Stock Option Modifications
On May 30, 2018, under approval by the Company’s Board of Directors, the Company entered into a Separation and Release Agreement with the former Chief
Executive Officer. The provisions of the agreement specify that the stock options previously granted to her will continue to vest through the earlier of the date
she ends her consulting services to the Company or December 31, 2019. As of May 30, 2018, these stock options are being accounted for as a non-employee
option through the consulting term and are being marked-to-market. Additionally, the former Chief Executive Officer will receive six months of accelerated
vesting of the stock options and the post-termination exercise period was extended from three months to one year after the effective date of the agreement. The
Company recognized stock-based compensation expense of $97,000 for the incremental value of the accelerated vesting and the change in the exercise period
upon the signing of the agreement.
F-27
Restricted Stock Awards
In July 2019, the Company issued 378 shares of common stock under the 2013 Plan to members of the Company’s board of directors with a weighted average
grant date fair value of $38.08 per share, based on the market price of the Company’s common stock on the award date. The RSAs were fully vested on the
date of grant and 378 shares of common stock were issued.
In June 2019, the Company issued 250 shares to a consultant in connection with the vesting of an RSA granted to the consultant in June 2018.
In April 2019, the Company issued 525 shares of common stock under the 2013 Plan to board members as director compensation with a weighted average
grant date fair value of $91.00 per share, based on the market price of the Company’s common stock on the award date. The RSAs were fully vested on the
date of grant and 525 shares of common stock were issued
In January 2019, the Company granted RSAs for 3,625 shares of common stock under the 2013 Plan to employees as part of their 2018 annual performance
bonuses. The bonuses for 2018 performance were paid 50% in cash and 50% in the form of RSAs that will vest in full upon FDA approval of the Viveve
System for improvement of sexual function or stress urinary incontinence in the United States. During the year ended December 31, 2019, a total of 1,255
shares pursuant to these RSAs were cancelled. As of December 31, 2019, zero shares were vested and issued.
As of December 31, 2019, there are 2,640 shares of unvested restricted stock outstanding that have been granted pursuant to RSAs.
In July 2019, the Company granted RSAs for 378 of common stock under the 2013 Plan to board members as director compensation with a weighted average
grant date fair value of $38.08 per share, based on the market price of the Company’s common stock on the award date. The RSAs were fully vested on the
date of grant and 378 shares of common stock were issued.
In April 2019, the Company granted RSAs for 525 of common stock under the 2013 Plan to board members as director compensation with a weighted average
grant date fair value of $91.00 per share, based on the market price of the Company’s common stock on the award date. The RSAs were fully vested on the
date of grant and 525 shares of common stock were issued.
In December 2018, the Company granted RSAs for 407 of common stock under the 2013 Plan to board members as director compensation with a weighted
average grant date fair value of $105.00 per share, based on the market price of the Company’s common stock on the award date. The RSAs were fully vested
on the date of grant and 407 shares of common stock were issued.
In October 2018, the Company granted RSAs for 178 of common stock under the 2013 Plan to board members as director compensation with a weighted
average grant date fair value of $248.00 per share, based on the market price of the Company’s common stock on the award date. The RSAs were fully vested
on the date of grant and 178 shares of common stock were issued.
In July 2018, the Company granted RSAs for 181 of common stock under the 2013 Plan to board members as director compensation with a weighted average
grant date fair value of $263.00 per share, based on the market price of the Company’s common stock on the award date. The RSAs were fully vested on the
date of grant and 182 shares of common stock were issued.
In June 2018, the Company granted an RSA for 500 shares to a consultant with a weighted average grant date fair value of $358.00 per share, based on the
market price of the Company’s common stock on the award date. The RSA vests over two years beginning as of the award date. As of December 31, 2019,
250 shares were vested and issued.
In April 2018, the Company granted RSAs for 144 shares of common stock under the 2013 Plan to board members as director compensation with a weighted
average grant date fair value of $344.00 per share, based on the market price of the Company’s common stock on the award date. The RSAs were fully vested
on the date of grant and 144 shares of common stock were issued.
In January 2018, the Company granted RSAs for 943 shares of common stock under the 2013 Plan to board members as director compensation with a
weighted average grant date fair value of $519.00 per share, based on the market price of the Company’s common stock on the award date. The RSAs were
fully vested on the date of grant and 94 shares of common stock were issued.
F-28
In January 2018, the Company granted an RSA for 250 shares to a consultant with a weighted average grant date fair value of $497.00 per share, based on the
market price of the Company’s common stock on the award date. The RSA vests over one year beginning as of the award date. As of December 31, 2018, 250
shares were vested and issued.
2017 Employee Stock Purchase Plan
In August 2017, the stockholders approved the Company’s 2017 Employee Stock Purchase Plan (the “2017 ESPP”). Eligible employees may purchase shares
of common stock through periodic payroll deductions, with a maximum purchase of 200 shares of common stock in any offering period. The price of common
stock purchased under the 2017 ESPP is equal to 85% of the lesser of the fair market value of common stock on the first or last day of the offering period. Each
offering period is for a period of three months. The first offering period under the 2017 ESPP began on October 1, 2017 and ended on December 31, 2017.
The second offering period under the Company’s 2017 ESPP began on January 1, 2018 and ended on March 31, 2018, and 198 shares were issued on March
29, 2018 at a purchase price of $311.10.
The third offering period under the Company’s 2017 ESPP began on April 1, 2018 and ended on June 30, 2018, and 243 shares were issued on June 29, 2018
at a purchase price of $231.20.
The fourth offering period under the Company’s 2017 ESPP began on July 1, 2018 and ended on September 30, 2018, and 274 shares were issued on
September 28, 2018 at a purchase price of $223.55.
The fifth offering period under the Company’s 2017 ESPP began on October 1, 2018 and ended on December 31, 2018, and 494 shares were issued on
December 31, 2018 at a purchase price of $89.25.
The sixth offering period under the Company’s 2017 ESPP began on January 1, 2019 and ended on March 31, 2019, and 429 shares were issued on March 29,
2019 at a purchase price of $79.88.
The seventh offering period under the Company’s 2017 ESPP began on April 1, 2019 and ended on June 30, 2019, and 602 shares were issued on June 28,
2019 at a purchase price of $32.30.
The eighth offering period under the Company’s 2017 ESPP began on July 1, 2019 and ended on September 30, 2019, and 200 shares were issued on
September 30, 2019 at a purchase price of $3.75.
The ninth offering period under the Company’s 2017 ESPP began on October 1, 2019 and ended on December 31, 2019, and 300 shares were issued on
December 31, 2019 at a purchase price of $1.07.
During the years ended December 31, 2019 and 2018, the Company’s 2017 ESPP issued 1,531 shares and 1,209 shares, respectively, for aggregate offering
proceeds of approximately $233,000 and $56,000, respectively.
As of December 31, 2019, the remaining shares available for issuance under the 2017 ESPP were 1,092 shares.
The Company estimates the fair value of purchase rights under the ESPP using a Black-Scholes valuation model. The fair value of each purchase right was
estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following weighted-average
assumptions:
Expected term (in years)
Average volatility
Risk-free interest rate
Dividend yield
Year Ended
December 31,
2019
0.25
87%
2.29%
0%
2018
0.25
72%
1.92%
0%
The weighted average grant date fair value of the purchase rights issued under the 2017 ESPP during the years ended December 31, 2019 and 2018 was $22.75
and $89.00 per share, respectively.
F-29
Stock-Based Compensation
During the years ended December 31, 2019 and 2018, the Company granted stock options to employees to purchase 9,528,869 and 21,419 shares of common
stock with a weighted average grant date fair value of $0.73 and $224.35 per share, respectively. There were no stock options exercised by employees during
the years ended December 31, 2019 and 2018.
The Company estimated the fair value of stock options using the Black-Scholes option pricing model. The fair value of employee stock options is being
amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options granted was estimated using the
following weighted average assumptions:
Expected term (in years)
Average volatility
Risk-free interest rate
Dividend yield
Year Ended
December 31,
2019
6
70%
1.62%
0%
2018
5
73%
2.65%
0%
During the years ended December 31, 2019 and 2018, the Company granted stock options to nonemployees to purchase 536,975 and 2,123 shares of common
stock, with a weighted average grant date fair value of $0.61 and $162.17 per share. There were no stock options exercised by nonemployees during the years
ended December 31, 2019 and 2018.
The fair value of nonemployee stock options granted was estimated using the following weighted average assumptions:
Expected term (in years)
Average volatility
Risk-free interest rate
Dividend yield
Year Ended
December 31,
2019
6
70%
1.69%
0%
2018
9
69%
2.69%
0%
Option-pricing models require the input of various subjective assumptions, including the option’s expected life and the price volatility of the underlying stock.
The expected stock price volatility is based on analysis of the Company’s stock price history over a period commensurate with the expected term of the options,
trading volume of comparable companies’ stock, look-back volatilities and the Company specific events that affected volatility in a prior period. The expected
term of stock options represents the weighted average period the stock options are expected to remain outstanding and is based on the history of exercises and
cancellations on all past option grants made by the Company, the contractual term, the vesting period and the expected remaining term of the outstanding
options. The risk-free interest rate is based on the U.S. Treasury interest rates whose term is consistent with the expected life of the stock options. No dividend
yield is included as the Company has not issued any dividends and does not anticipate issuing any dividends in the future.
The following table shows stock-based compensation expense included in the consolidated statements of operations for the years ended December 31, 2019
and 2018 (in thousands):
Cost of revenue
Research and development
Selling, general and administrative
Total
Year Ended
December 31,
2019
2018
$
$
135 $
192
2,073
2,400 $
69
328
2,638
3,035
As of December 31, 2019, the total unrecognized compensation cost in connection with unvested stock options was approximately $7,640,000. These costs are
expected to be recognized over a period of approximately 3.3 years.
F-30
13.
Income Taxes
No provision for income taxes has been recorded due to the net operating losses incurred from inception to date, for which no benefit has been recorded.
A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows:
Income tax provision (benefit) at statutory rate
State income taxes, net of federal benefit
Change in valuation allowance
Debt restructuring
Limitation on net operating loss and credit carryovers
Other
Effective tax rate
The components of the Company’s net deferred tax assets and liabilities are as follows (in thousands):
Year Ended
December 31,
2019
2018
(21)%
(4)%
(39)%
6%
56%
2%
0%
(21)%
(4)%
23%
0%
0%
2%
0%
31,759
3,555
951
1,272
69
37,606
December 31,
2019
2018
$
16,688 $
3,225
527
532
128
21,100
(21,100)
(37,606)
$
- $
-
Deferred tax assets:
Net operating loss carryforwards
Capitalized start up costs
Research and development credits
Accruals and reserves
Fixed assets and depreciation
Total deferred tax assets
Deferred tax liabilities:
Valuation allowance
Net deferred tax assets
The Company has recorded a full valuation allowance for its deferred tax assets based on its past losses and the uncertainty regarding the ability to project
future taxable income. The valuation allowance decreased by approximately $16,506,000 and increased by approximately $11,667,000 during the years ended
December 31, 2019 and 2018, respectively.
As of December 31, 2019, the Company has net operating loss (“NOL”) carryforwards for federal and state income tax purposes of approximately $77,333,000
and $6,171,000, respectively. The federal NOLs do not expire and the state NOLs will begin to expire in the year 2028.
The Company also has California research and development tax credits of approximately $742,000. The credits have no expiration date.
Utilization of the NOL and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership changes that
have occurred previously or that could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986, as well as similar state
provisions. Ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax,
respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public
groups in the stock of a corporation by more than 50 percentage points over a three-year period. The Company experienced a change of control in November
2019, resulting in the expiration of a portion of the NOL and research and development credit carryforwards before utilization. Subsequent ownership changes
could further impact the limitation in future years. A full valuation allowance has been provided against the Company’s NOL carryforwards and research and
development credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there
would be no net impact to the consolidated balance sheets or the consolidated statements of operations if an adjustment were required.
As of December 31, 2019, the Company had not accrued any interest or penalties related to uncertain tax positions.
F-31
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Year Ended
December 31,
2019
2018
Balance at the beginning of the year
Additions (deletions) based upon tax positions related to the current year
Balance at the end of the year
$
$
450 $
(227)
223 $
397
53
450
If the ending balance of $223,000 of unrecognized tax benefits as of December 31, 2019 were recognized, none of the recognition would affect the income tax
rate. The Company does not anticipate any material change in its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may
change during the next year for items that arise in the ordinary course of business.
The Company files U.S. federal and state income tax returns with varying statutes of limitations. All tax years since inception remain open to examination due
to the carryover of unused net operating losses and tax credits.
14.
Related Party Transactions
In June 2006, the Company entered into a Development and Manufacturing Agreement (the “Agreement”) with Stellartech Research Corporation
(“Stellartech”). The Agreement was amended on October 4, 2007. Under the Agreement, the Company agreed to purchase 300 generators manufactured by
Stellartech. As of December 31, 2019, the Company has purchased 855 units. The price per unit is variable and dependent on the volume and timing of units
ordered. In conjunction with the Agreement, Stellartech purchased 375 shares of Viveve, Inc.’s common stock. Under the Agreement, the Company paid
Stellartech $4,889,000 and $10,150,000 for goods and services during the years ended December 31, 2019 and 2018, respectively.
In August 2017, the Company entered into a Distributorship Agreement with ICM. Under the terms of the Distributorship Agreement, the Company had a
minimum purchase requirement to purchase a certain quantity of ICM products per month during the term of this agreement. In February 2019, the Company
executed a mutual termination of the Distributorship Agreement with ICM. As a result, the Company no longer has a minimum purchase requirement to
purchase a certain quantity of ICM products per month.
15.
Segments and Geographic Information
The Company’s long-lived assets by geographic area were as follows (in thousands):
United States
Asia Pacific
Canada
Latin America
Europe
Total
December 31,
2019
2018
$
$
2,818 $
64
142
-
22
3,046 $
2,851
24
28
5
8
2,916
Long-lived assets, comprised of property and equipment, are reported based on the location of the assets at each balance sheet date.
16.
Subsequent Events
In January 2020, the board of directors approved the 2020 evergreen provision increasing the total stock reserved for issuance under the 2013 Plan by
2,639,926 shares from 11,872,531 shares to a total of 14,512,457 shares, which was effective January 1, 2020.
In January and February 2020, the holders of Series A convertible preferred stock converted 1,183,151 shares and 669,022 shares into common stock,
respectively. As of February 19, 2020, all Series A convertible preferred stock had been converted into common stock and there are no remaining shares of
Series A preferred stock outstanding.
In February 2020, a total of 1,026,240 shares of common stock were issued in connection with the exercise of Series A warrants for gross proceeds of
approximately $1,591,000.
In February 2020, a total of 45,473 shares of common stock were issued in connection with the exercise of Series B warrants for gross proceeds of
approximately $70,000.
F-32
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.17
Viveve Medical, Inc. (“Viveve”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): common
stock, par value $0.0001 per share (the “common stock”).
The following summary description sets forth some of the general terms and provisions of the common stock. Because this is a summary description, it does not contain all
of the information that may be important to you. For a more detailed description of the common stock, you should refer to the provisions of our amended and restated
certificate of incorporation and amendments thereto and forms of certificates of designation of our Series A preferred stock and Series B preferred stock (collectively, the
“Charter”) and our amended and restated bylaws (“Bylaws”), each of which is an exhibit to this Annual Report on Form 10-K to which this description is an exhibit.
DESCRIPTION OF COMMON STOCK
General
Under the Charter, Viveve is authorized to issue up to 75,000,000 shares of common stock with a par value $0.0001 per share and 10,000,000 shares of preferred stock, par
value $0.0001 per share. Of our 10,000,000 shares of preferred stock, 5,473,410 shares are designated Series A preferred stock and 100,000 shares are designated Series B
preferred stock.
Common Stock
The holders of common stock are entitled to one vote per share. Our Charter does not expressly prohibit cumulative voting. The holders of our common stock are entitled to
receive ratably such dividends, if any, as may be declared by the board of directors out of legally available funds. Upon liquidation, dissolution or winding-up, the holders of
our common stock are entitled to share ratably in all assets that are legally available for distribution. The holders of our common stock have no preemptive, subscription,
redemption or conversion rights.
The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred
stock, which may be designated solely by action of the board of directors and issued in the future.
Preferred Stock
Our board of directors is authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders, to issue from time to time shares of
preferred stock in one or more series. The directors may from time to time by resolution passed before the issue of any preferred stock of any particular series, fix the
number of shares of preferred stock of any particular series, determine the designation of the shares of preferred stock of that series and create, define and attach special
rights and restrictions to the shares of preferred stock of that series including, but without in any way limiting or restricting the generality of the foregoing: the rate or
amount of dividends, whether cumulative, non-cumulative or partially cumulative; the dates, places and currencies of payment thereof; the consideration for, and the terms
and conditions of, any purchase for cancellation or redemption thereof, including redemption after a fixed term or at a premium; conversion or exchange rights or rights of
retraction (provided that any such conversion or exchange rights or rights of retraction shall be in accordance with the provisions existing at the time of creation of such
series relating to conversion, exchange, or retraction as prescribed by the policies of any stock exchange on which our shares are then listed); the terms and conditions of any
share purchase plan or sinking fund; and voting rights and restrictions.
Holders of preferred stock will be entitled, on the distribution of our assets or in the event of our liquidation, dissolution or winding-up, whether voluntary or involuntary, or
on any other distribution of our assets among our stockholders for the purpose of winding-up our affairs, to receive before any distribution to be made to holders of common
stock or any other shares of stock ranking junior to the preferred stock with respect to repayment of capital, but after any distributions shall be made on any Series B
preferred stock or any of our existing or future indebtedness, the amount due to the holders of preferred stock in accordance with our Charter with respect to each share of
preferred stock held by them, together with all accrued and unpaid cumulative dividends on Series B preferred stock and any preferential dividends on any other series of
preferred stock, and all declared and unpaid non-cumulative dividends (if any and if preferential) on any series of preferred stock.
Except for voting rights that may be attached to any series of the preferred stock by the directors, holders of preferred stock will not be entitled to vote at any meeting of our
stockholders. Holders of Series A preferred stock and Series B preferred stock do not have any rights with respect to such shares prior to conversion of such shares to
common stock. Holders of preferred stock will be given notice of and be invited to attend meetings of our voting stockholders.
It is not possible to state the actual effect of the issuance of any other preferred stock upon the rights of holders of our common stock until the board of directors determines
the specific rights of the holders of such preferred stock. However, the effects might include, among other things:
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impairing dividend rights of our common stock;
diluting the voting power of our common stock;
impairing the liquidation rights of our common stock; and
delaying or preventing a change of control without further action by our stockholders.
Listing
Our common stock is listed on The NASDAQ Capital Market under the symbol “VIVE.”
Delaware as the Exclusive Jurisdiction for State Law Claims
Unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any state law
claim for: (1) any derivative action or proceeding brought on the Company's behalf; (2) any action asserting a claim of, or a claim based on, breach of a fiduciary duty or
other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders; (3) any action asserting a claim against us or our directors, officers,
employees or stockholders arising pursuant to any provision of the Delaware General Corporation Law or our Charter and Bylaws; or (4) any action asserting a claim
governed by the internal affairs doctrine (the “Delaware Forum Provision”); provided, however, that this Delaware Forum Provision does not apply to any actions arising
under the Securities Act or the Exchange Act. The Delaware Forum Provision may impose additional litigation costs on stockholders in pursuing such claims, particularly if
the stockholders do not reside in or near the State of Delaware. Additionally, the Delaware Forum Provision may limit our stockholders' ability to bring a claim in a judicial
forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage the filing of such lawsuits. The Court of Chancery of the
State of Delaware may also reach different judgment or results than would other courts, including courts where a stockholder considering an action may be located or would
otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.
Antitakeover Effects of Delaware Law and Provisions of our Charter and Bylaws
Certain provisions of the Delaware General Corporation Law and of our Charter and Bylaws could have the effect of delaying, deferring or discouraging another party from
acquiring control of us unless such takeover or change of control is approved by the board of directors. These provisions, which are summarized below, are expected to
discourage certain types of coercive takeover practices and inadequate takeover bids and, as a consequence, they might also inhibit temporary fluctuations in the market
price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions are also designed in part to encourage anyone seeking to
acquire control of us to first negotiate with our board of directors. These provisions might also have the effect of preventing changes in our management. It is possible that
these provisions could make it more difficult to accomplish transactions that stockholders might otherwise deem to be in their best interests. However, we believe that the
advantages gained by protecting our ability to negotiate with any unsolicited and potentially unfriendly acquirer outweigh the disadvantages of discouraging such proposals,
including those priced above the then-current market value of our common stock, because, among other reasons, the negotiation of such proposals could improve their
terms.
Delaware Takeover Statute
We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that this stockholder becomes an interested stockholder,
unless the business combination is approved in a prescribed manner. Under Section 203, a business combination between a corporation and an interested stockholder is
prohibited unless it satisfies one of the following conditions:
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before the stockholder became interested, our board of directors approved either the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares
owned by persons who are directors and also officers, and employee stock plans, in some instances, but not the outstanding voting stock owned by the interested
stockholder; or
at or after the time the stockholder became interested, the business combination was approved by our board of directors and authorized at an annual or special
meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
Section 203 defines a business combination to include:
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any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, lease, pledge, exchange, mortgage or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any
entity or person affiliated with or controlling or controlled by the entity or person.
Provisions of our Charter and Bylaws
Our Charter and Bylaws include a number of provisions that may have the effect of delaying, deferring or discouraging another party from acquiring control of us and
encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated
takeover attempts. These provisions include the items described below.
Board composition and filling vacancies. In accordance with our Charter, our board is divided into three classes serving staggered three-year terms, with one class being
elected each year. Our Charter also provides that directors may be removed only for cause and then only by the affirmative vote of the holders of 75% or more of the shares
then entitled to vote at an election of directors. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the
size of our board, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum.
No written consent of stockholders. Our Charter provides that all stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting,
and that stockholders may not take any action by written consent in lieu of a meeting. This limit may lengthen the amount of time required to take stockholder actions and
would prevent the amendment of our Bylaws or removal of directors by our stockholder without holding a meeting of stockholders.
Meetings of stockholders. Our Bylaws provide that only a majority of the members of our board of directors then in office may call special meetings of stockholders and
only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our Bylaws limit the business that
may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.
Advance notice requirements. Our Bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as
directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing
to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less
than 90 days or more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. The notice must contain certain information specified in
our Bylaws.
Amendment to Charter and Bylaws. As required by the Delaware General Corporation Law, any amendment of our Charter must first be approved by a majority of our
board of directors, and if required by law or our Charter, must thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment, and a
majority of the outstanding shares of each class entitled to vote thereon as a class, except that the amendment of the provisions relating to stockholder action, directors,
limitation of liability and the amendment of our Charter must be approved by not less than 75% of the outstanding shares entitled to vote on the amendment, and not less
than 75% of the outstanding shares of each class entitled to vote thereon as a class. Our Bylaws may be amended by the affirmative vote of a majority vote of the directors
then in office, subject to any limitations set forth in the Bylaws; and may also be amended by the affirmative vote of at least 75% of the outstanding shares entitled to vote
on the amendment, or, if the board of directors recommends that the stockholders approve the amendment, by the affirmative vote of the majority of the outstanding shares
entitled to vote on the amendment, in each case voting together as a single class.
Undesignated preferred stock. Our Charter provides for authorized shares of preferred stock. The existence of authorized but unissued shares of preferred stock may enable
our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. For
example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of us or our
stockholders, our board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions
that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard, our Charter grants our board of directors
broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount
of earnings and assets available for distribution to holders of shares of common stock. The issuance may also adversely affect the rights and powers, including voting rights,
of these holders and may have the effect of delaying, deterring or preventing a change in control of us.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-221432) and Form S-8 (Nos. 333-226152, 333-220833, 333-
213363, 333-206041, 333-201551, 333-153535 and 333-127770) of Viveve Medical, Inc. of our report (which contains an explanatory paragraph relating Viveve Medical,
Inc.’s ability to continue as a going concern as described in Note 1 to the consolidated financial statements) dated March 19, 2020 relating to the consolidated financial
statements of Viveve Medical, Inc., which appears in this Annual Report on Form 10-K.
/s/ BPM LLP
San Jose, California
March 19, 2020
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.1
I, Scott Durbin, certify that:
1. I have reviewed this Annual Report on Form 10-K for Viveve Medical, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with 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 all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined 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 designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation 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 our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 19, 2020
/s/ Scott Durbin
Scott Durbin
Chief Executive Officer
(Principal Executive Officer)
Certification of Principal Accounting and Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2
I, Jim Robbins, certify that:
1. I have reviewed this Annual Report on Form 10-K for Viveve Medical, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with 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 all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined 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 designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation 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 our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 19, 2020
/s/ Jim Robbins
Jim Robbins
Vice President of Finance and Administration
(Principal Accounting and Financial Officer)
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (A) and (B) of Section 1350, Chapter 63 of Title 18,
United States Code)
Exhibit 32.1
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of
Viveve Medical, Inc. (the “Company”), does hereby certify with respect to the Annual Report of the Company on Form 10-K for the period ended December 31, 2019 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), that:
(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 of operations of the Company.
Date: March 19, 2020
/s/ Scott Durbin
Scott Durbin
Chief Executive Officer
(Principal Executive Officer)
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (A) and (B) of Section 1350, Chapter 63 of Title 18,
United States Code)
Exhibit 32.2
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of
Viveve Medical, Inc. (the “Company”), does hereby certify with respect to the Annual Report of the Company on Form 10-K for the period ended December 31, 2019 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), that:
(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 of operations of the Company.
Date: March 19, 2020
/s/ Jim Robbins
Jim Robbins
Vice President of Finance and Administration
(Principal Accounting and Financial Officer)