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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2024
OR
☐ Transmission Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______
Commission file number: 001-41052
Tivic Health Systems, Inc.
(Exact name of registrant as specified in its charter)
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Delaware (State or other jurisdiction of incorporation or organization) |
81-4016391 (I.R.S. Employer Identification No.) |
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47685 Lakeview Blvd. Fremont, CA 94538 (Address of principal executive offices including zip code) |
(888) 276-6888 (Registrant’s telephone number, including area code) |
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Title of Each Class Common Stock, par value $0.0001 per share |
Trading Symbol(s) TIVC |
Name of Each Exchange on Which Registered The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act (Check one):
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☐ Large accelerated Filer |
☐ Accelerated Filer |
☒ Non-accelerated Filer |
☒ Smaller reporting company |
☒ Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒
As of November 12, 2024, 8,266,085 shares of the registrant’s common stock, par value $0.0001 per share, were issued and outstanding.
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our condensed financial statements included in this Quarterly Report on Form 10‑Q are as follows:
This Quarterly Report on Form 10‑Q for the quarter ended September 30, 2024, should be read in conjunction with the Company’s Annual Report on Form 10‑K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 25, 2024.
The accompanying condensed financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10‑Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2024 are not necessarily indicative of the results that can be expected for the full year.
Tivic Health Systems, Inc.
Condensed Balance Sheets (Unaudited)
September 30, 2024 and December 31, 2023
(in thousands, except share and per share data)
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September 30, |
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December 31, |
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2024 |
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2023 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
2,189 |
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$ |
3,395 |
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Accounts receivable, net |
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9 |
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174 |
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Inventory, net |
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731 |
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756 |
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Prepaid expenses and other current assets |
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234 |
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327 |
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Total current assets |
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3,163 |
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4,652 |
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Property and equipment, net |
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119 |
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122 |
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Right-of-use assets, operating lease |
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— |
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349 |
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Deferred offering costs |
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112 |
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— |
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Other assets |
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— |
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34 |
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Total assets |
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$ |
3,394 |
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$ |
5,157 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
333 |
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$ |
713 |
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Other accrued expenses |
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227 |
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495 |
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Operating lease liability, current |
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— |
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193 |
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Total current liabilities |
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560 |
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1,401 |
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Operating lease liability |
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— |
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176 |
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Total liabilities |
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560 |
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1,577 |
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Commitments and contingencies (Note 6) |
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Stockholders’ equity |
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Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares
issued and outstanding at September 30, 2024 and December 31, 2023 |
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— |
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— |
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Common stock, $0.0001 par value, 200,000,000 shares authorized; 6,243,403
and 1,466,092 shares issued and outstanding at September 30, 2024 and
December 31, 2023, respectively |
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1 |
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— |
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Additional paid in capital |
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44,897 |
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41,466 |
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Accumulated deficit |
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(42,064 |
) |
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(37,886 |
) |
Total stockholders’ equity |
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2,834 |
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3,580 |
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Total liabilities and stockholders’ equity |
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$ |
3,394 |
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$ |
5,157 |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
Tivic Health Systems, Inc.
Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2024 and 2023
(in thousands, except share and per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue |
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$ |
126 |
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$ |
282 |
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$ |
600 |
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$ |
819 |
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Cost of sales |
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82 |
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174 |
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359 |
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537 |
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Gross profit |
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44 |
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108 |
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241 |
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282 |
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Operating expenses: |
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Research and development |
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422 |
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337 |
|
|
|
980 |
|
|
|
1,295 |
|
Sales and marketing |
|
|
234 |
|
|
|
480 |
|
|
|
946 |
|
|
|
1,390 |
|
General and administrative |
|
|
819 |
|
|
|
1,051 |
|
|
|
2,433 |
|
|
|
3,598 |
|
Total operating expenses |
|
|
1,475 |
|
|
|
1,868 |
|
|
|
4,359 |
|
|
|
6,283 |
|
Loss from operations |
|
|
(1,431 |
) |
|
|
(1,760 |
) |
|
|
(4,118 |
) |
|
|
(6,001 |
) |
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Other expense |
|
|
— |
|
|
|
— |
|
|
|
60 |
|
|
|
— |
|
Total other expense |
|
|
— |
|
|
|
— |
|
|
|
60 |
|
|
|
— |
|
Net loss |
|
$ |
(1,431 |
) |
|
$ |
(1,760 |
) |
|
$ |
(4,178 |
) |
|
$ |
(6,001 |
) |
Net loss per share - basic and diluted |
|
$ |
(0.23 |
) |
|
$ |
(1.48 |
) |
|
$ |
(1.07 |
) |
|
$ |
(10.60 |
) |
Weighted-average number of shares - basic and diluted |
|
|
6,191,127 |
|
|
|
1,189,821 |
|
|
|
3,897,938 |
|
|
|
566,228 |
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Tivic Health Systems, Inc.
Condensed Statements of Stockholders’ Equity (Unaudited)
Three and Nine Months Ended September 30, 2024 and 2023
(in thousands except share and per share data)
For the Three and Nine Months Ended September 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
Balances at January 1, 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
96,778 |
|
|
$ |
— |
|
|
$ |
33,272 |
|
|
$ |
(29,642 |
) |
|
$ |
3,630 |
|
Issuance of common stock, net of issuance costs |
|
|
|
|
|
|
|
|
200,000 |
|
|
|
— |
|
|
|
3,412 |
|
|
|
— |
|
|
|
3,412 |
|
Issuance of warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
195 |
|
|
|
— |
|
|
|
195 |
|
Stock-based compensation
expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
84 |
|
|
|
— |
|
|
|
84 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,116 |
) |
|
|
(2,116 |
) |
Balances at March 31, 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
296,778 |
|
|
$ |
— |
|
|
$ |
36,963 |
|
|
$ |
(31,758 |
) |
|
$ |
5,205 |
|
Stock-based compensation
expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
81 |
|
|
|
— |
|
|
|
81 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,125 |
) |
|
|
(2,125 |
) |
Balances at June 30, 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
296,778 |
|
|
$ |
— |
|
|
$ |
37,044 |
|
|
$ |
(33,883 |
) |
|
$ |
3,161 |
|
Issuance of common stock, net of issuance costs |
|
|
— |
|
|
|
— |
|
|
|
1,169,230 |
|
|
|
— |
|
|
|
4,148 |
|
|
|
— |
|
|
|
4,148 |
|
Issuance of warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
168 |
|
|
|
— |
|
|
|
168 |
|
Issuance of fractional shares |
|
|
— |
|
|
|
— |
|
|
|
84 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation
expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
48 |
|
|
|
— |
|
|
|
48 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,760 |
) |
|
|
(1,760 |
) |
Balances at September 30, 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
1,466,092 |
|
|
$ |
— |
|
|
$ |
41,408 |
|
|
$ |
(35,643 |
) |
|
$ |
5,765 |
|
For the Three and Nine Months Ended September 30, 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
Balances at January 1, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
1,466,092 |
|
|
$ |
— |
|
|
$ |
41,466 |
|
|
$ |
(37,886 |
) |
|
$ |
3,580 |
|
Issuance of common stock for restricted stock award |
|
|
— |
|
|
|
— |
|
|
|
7,500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation
expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
54 |
|
|
|
— |
|
|
|
54 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,481 |
) |
|
|
(1,481 |
) |
Balances at March 31, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
1,473,592 |
|
|
$ |
— |
|
|
$ |
41,520 |
|
|
$ |
(39,367 |
) |
|
$ |
2,153 |
|
Issuance of common stock and warrants, net of issuance costs and warrants issued to placement agents |
|
|
— |
|
|
|
— |
|
|
|
4,710,000 |
|
|
|
1 |
|
|
|
3,180 |
|
|
|
— |
|
|
|
3,181 |
|
Issuance of warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
70 |
|
|
|
— |
|
|
|
70 |
|
Stock-based compensation
expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
54 |
|
|
|
— |
|
|
|
54 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,266 |
) |
|
|
(1,266 |
) |
Balances at June 30, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
6,183,592 |
|
|
$ |
1 |
|
|
$ |
44,824 |
|
|
$ |
(40,633 |
) |
|
$ |
4,192 |
|
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of common stock |
|
|
|
|
|
|
|
|
59,811 |
|
|
|
— |
|
|
|
15 |
|
|
|
— |
|
|
|
15 |
|
Stock-based compensation
expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58 |
|
|
|
— |
|
|
|
58 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,431 |
) |
|
|
(1,431 |
) |
Balances at September 30, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
6,243,403 |
|
|
$ |
1 |
|
|
$ |
44,897 |
|
|
$ |
(42,064 |
) |
|
$ |
2,834 |
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Tivic Health Systems, Inc.
Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2024 and 2023
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2024 |
|
|
2023 |
|
Cash flows from operating activities |
|
|
|
|
|
|
Net loss |
|
$ |
(4,178 |
) |
|
$ |
(6,001 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
Stock based compensation |
|
|
166 |
|
|
|
213 |
|
Depreciation |
|
|
3 |
|
|
|
6 |
|
Amortization of right-of-use asset |
|
|
76 |
|
|
|
129 |
|
Inventory allowances |
|
|
16 |
|
|
|
— |
|
Bad debt expenses |
|
|
5 |
|
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
|
160 |
|
|
|
(43 |
) |
Inventory |
|
|
9 |
|
|
|
(65 |
) |
Prepaid expenses and other current assets |
|
|
93 |
|
|
|
8 |
|
Accounts payable |
|
|
(380 |
) |
|
|
(685 |
) |
Accrued expenses |
|
|
(268 |
) |
|
|
(184 |
) |
Lease liabilities |
|
|
(96 |
) |
|
|
(115 |
) |
Other assets |
|
|
34 |
|
|
|
— |
|
Net cash used in operating activities |
|
|
(4,360 |
) |
|
|
(6,737 |
) |
Cash flows from investing activities |
|
|
|
|
|
|
Acquisition of property and equipment |
|
|
— |
|
|
|
(118 |
) |
Net cash used in investing activities |
|
|
— |
|
|
|
(118 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants, net of issuance costs |
|
|
3,266 |
|
|
|
8,507 |
|
Offering costs in advance of sale of common stock |
|
|
(112 |
) |
|
|
— |
|
Net cash provided by financing activities |
|
|
3,154 |
|
|
|
8,507 |
|
Net change in cash and cash equivalents |
|
|
(1,206 |
) |
|
|
1,652 |
|
Cash and cash equivalents |
|
|
|
|
|
|
Beginning of period |
|
|
3,395 |
|
|
|
3,517 |
|
End of period |
|
$ |
2,189 |
|
|
$ |
5,169 |
|
|
|
|
|
|
|
|
Supplemental disclosure on noncash financing activities |
|
|
|
|
|
|
Issuance of common stock warrant |
|
$ |
70 |
|
|
$ |
363 |
|
Deferred offering costs charged to additional paid-in-capital |
|
$ |
— |
|
|
$ |
584 |
|
Write-off of ROU asset and lease liability |
|
$ |
290 |
|
|
$ |
— |
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
Tivic Health Systems, Inc.
Notes to Unaudited Condensed Financial Statements
(amounts are as indicated)
1. Formation and Business of the Company
Tivic Health Systems, Inc. (the “Company”) was incorporated in the state of California on September 22, 2016 for the purpose of developing and commercializing non-invasive bioelectronic medicine. In June 2021, the Company was reincorporated as a Delaware corporation. The Company’s first commercial platform is a handheld design that interfaces non-invasively with the trigeminal, sympathetic, and other facial and cranial nerve structures. This platform is the basis for the Company’s existing product, currently marketed with FDA approval as ClearUP Sinus Pain Relief, for the treatment of sinus pain and congestion. The Company's second platform is a research-stage platform directed to vagus nerve stimulation, which is currently undergoing clinical evaluation. The Company is headquartered in Fremont, California.
2. Summary of Significant Accounting Policies
The accompanying condensed balance sheet as of December 31, 2023, which has been derived from audited financial statements, and the unaudited interim condensed financial statements as of September 30, 2024, and for the three and nine months ended September 30, 2024 and September 30, 2023, have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, all accounting entries and adjustments (including normal, recurring adjustments) considered necessary for a fair presentation of the financial position and the results of operations for the interim periods have been made. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024.
Going Concern Uncertainty
During the nine months ended September 30, 2024 and 2023, the Company incurred a net loss of $4.2 million and $6.0 million, respectively. At September 30, 2024, the Company had an accumulated deficit of $42.1 million. Cash and cash equivalents at September 30, 2024 were $2.2 million. During the nine month periods ended September 30, 2024 and 2023, the Company had negative cash flows from operations of $4.4 million and $6.7 million, respectively. The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance date of the financial statements. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern within one year after the date the financial statements are issued.
Future capital requirements will depend upon many factors, including, without limitation, progress with developing, manufacturing and marketing our technologies; the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights; our ability to establish collaborative arrangements; completion of any acquisitions or other strategic transactions; marketing activities and competing technological and market developments, including regulatory changes and overall economic conditions in our target markets. Our ability to generate revenue and achieve profitability requires us to successfully market and secure purchase orders for our products and services from existing as well as new customers. We also will be required to efficiently manufacture and deliver on those purchase orders. These activities, including our planned research and development efforts, may require significant uses of working capital. There can be no assurance that we will generate revenue and cash as expected in our current business plan.
The Company recognizes it will need to raise additional capital to continue research and development and to fund its planned operations, clinical trials and, if regulatory approval is obtained, commercialization of future products. We may seek additional funds through equity or debt offerings and/or borrowings under notes payable, lines of credit or other sources. We do not know whether additional financing will be available on commercially acceptable terms, or at all, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to fund our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or limited, which could materially adversely affect our business, financial conditions, or results of operations.
Reverse Stock Split
In August 2023, the Company’s Board of Directors and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to effect a 1-for-100 reverse stock split of the issued and outstanding shares of the Company’s common stock, which was effected on August 23, 2023. There was no change to the par value, or authorized shares, of either the common stock or preferred stock, as a result of the reverse stock split. Fractional shares were not issued, and instead, the Company issued one whole share of the post reverse split common stock to any stockholder who otherwise would have been entitled to receive a fractional share as a result of the reverse stock split. Consequently, 84 shares of common stock were issued in lieu of fractional shares. In addition, all options, warrants and other convertible securities of the Company outstanding immediately prior to the reverse stock split were adjusted by dividing the number of shares of common stock into which such options, warrants and other convertible securities were exercisable or convertible by 100 and multiplying the exercise or conversion price thereof by 100, all in accordance with the terms of the plans, agreements or arrangements governing such options, warrants and other convertible securities and subject to rounding pursuant to such terms. All share and per share amounts for the common stock, as well as the stock options, and warrants outstanding and exercise prices thereof, included in the financial statements and these footnotes thereto have been retroactively restated to give effect to the reverse stock split.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ materially from those estimates. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents. As of September 30, 2024 and December 31, 2023, cash and cash equivalents totaled $2.2 million and $3.4 million, respectively.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount, net of allowances for credit losses and returns reserves. The allowance for credit losses is based on our assessment of the collectability of accounts. Management regularly reviews the adequacy of the allowance for credit losses by considering the age of each outstanding invoice, each customer’s expected ability to pay, and the collection history with each customer, when applicable, to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified. As of each September 30, 2024 and December 31, 2023, the allowance for credit losses balance was zero.
Inventory
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. Inventories are reviewed periodically to identify slow-moving inventory based on anticipated sales activity. As of September 30, 2024 and December 31, 2023, the reserve for obsolescence was zero and $32 thousand, respectively.
The Company complies with the requirements of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 340-10-S99-1. The Company capitalizes incremental legal, professional, accounting, and other third-party fees that are directly associated with an equity or debt offering as other current assets. As of September 30, 2024 the balance of deferred offering costs is $112 thousand and consists of legal and accounting fees paid in connection with the filing of Form 1-A in August 2024 and the Equity Distribution Agreement discussed further in Footnote 9 Common Stock below. If the Company consummates an equity offering, the deferred financing costs will be allocated to additional paid-in capital. If the Company consummates a debt offering, the deferred financing costs will be recorded as a discount to the debt. The costs relating to the Equity Distribution Agreement are reclassified to additional paid in capital on a pro-rata basis when the Company completes offerings under the Equity Distribution Agreement.
Property and Equipment
Property and equipment are recorded at cost net of accumulated depreciation. Depreciation is computed on a straight-line method over the estimated useful lives of the assets, three to four years. Upon retirement or sale of assets, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations. Repairs and maintenance costs that do not improve or extend the lives of the respective assets are charged to operations as incurred.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of these asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. When indications of impairment are present and the estimated undiscounted future cash flows from the use of these assets is less than the assets’ carrying value, the related assets will be written down to fair value. There were no impairments of the Company’s long-lived assets for the periods presented.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Revenue Recognition
The Company recognizes revenue from product sales in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”). The standard applies to all contracts with customers, except contracts that are within scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.
Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are in within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inceptions, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The Company sells its products through direct sales and resellers. Revenue is recognized when control of the promised goods is transferred to the customers or the resellers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Revenue associated with products holding rights of return are recognized when the Company concludes there is not a risk of significant revenue reversal in the future periods for the expected consideration in the transaction.
The Company may receive payments at the onset of the contract and before goods have been delivered. In such instances, the Company records a deferred revenue liability. The Company recognizes these contract liabilities as revenue after the revenue criteria are met. As of September 30, 2024 and December 31, 2023, the contract liability related to the Company’s deferred revenues approximated $4 thousand and $8 thousand, respectively, and is included in “Other Accrued Expenses” on the accompanying balance sheets.
The Company relies on third parties to have procedures in place to detect and prevent credit card fraud, as the Company has exposure to losses from fraudulent charges. The Company records the losses related to chargebacks as incurred.
The Company has also elected to exclude from the measurement of the transaction price sales taxes remitted to governmental authorities.
The table below presents revenue by channel for the three and nine months ended September 30, 2024 and 2023 (in thousands):
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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Product Revenue by Sales Channel |
2024 |
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2023 |
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2024 |
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2023 |
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Product Revenue |
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|
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|
Direct-to-consumer |
$ |
130 |
|
|
$ |
205 |
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|
$ |
557 |
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|
$ |
679 |
|
Reseller |
|
16 |
|
|
|
114 |
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|
110 |
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|
223 |
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Returns |
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(20 |
) |
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|
(37 |
) |
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|
(67 |
) |
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|
(83 |
) |
Revenue |
$ |
126 |
|
|
$ |
282 |
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|
$ |
600 |
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|
$ |
819 |
|
Sales Tax
Sales tax collected from customers and remitted to governmental authorities is accounted for on a net basis and therefore, is excluded from net sales.
Shipping and Handling
Shipping and handling fees paid by customers are recorded in revenue, with the related expenses recorded in cost of sales. There were no shipping and handling fees paid by customers for the three and nine months ended September 30, 2024 and 2023.
Shipping costs for delivery of product to customers in the three and nine months ended September 30, 2024 were $5 thousand and $28 thousand, respectively, and for the three and nine months ended September 30, 2023 were $13 thousand and $35 thousand, respectively.
Product Warranty
The Company generally offers a one-year limited warranty on its products. The Company estimates the costs associated with the warranty obligation using historical data of warranty claims and costs incurred to satisfy those claims. Estimated warranty costs are expensed to cost of sales.
Returns
The Company estimates a reserve for future product returns based on several factors, including historical returns as a percentage of revenue, an understanding of the reasons for past returns and any other known factors that indicate a return is imminent. Reserves for sales returns are estimated and recorded in the same period as the underlying revenue recognition as a deduction to arrive at net product sales and as a liability classified as “Other Accrued Expenses” on the balance sheet. As of September 30, 2024 and December 31, 2023, the reserve for sales returns was $10 thousand and $52 thousand, respectively.
Sales and Marketing Expenses
Sales and marketing expenses are expensed as incurred and consist primarily of merchandising, customer service and targeted online marketing costs, such as display advertising, keyword search campaigns, search engine optimization and social media and offline marketing costs such as television, radio and print advertising. Sales and marketing expenses also include payroll costs and stock-based compensation expense for employees involved in marketing activities. Sales and marketing expenses are primarily related to growing the customer base.
Research and Development Expenses
Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies, depreciation on and maintenance of research equipment, the cost of services provided by outside contractors, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation, and general support services. All costs associated with research and development are expensed as incurred.
Stock-Based Compensation
The Company accounts for stock-based compensation arrangements with employees and non-employee consultants using a fair value method, which requires the recognition of compensation expense for costs related to all stock-based payments, including stock options.
The fair value method requires the Company to estimate the fair value of stock-based payment awards to employees and non-employees on the date of grant using an option pricing model.
Stock-based compensation costs are based on the fair value of the underlying option calculated using the Black-Scholes option-pricing model and recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. The Company measures equity-based compensation awards granted to non-employees at fair value as the awards vest and recognizes the resulting value as compensation expense at each financial reporting period.
Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, expected dividend yield, expected term, risk-free rate of return, and the estimated fair value of the underlying common stock. Due to the lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The group of representative companies have characteristics similar to the Company, including stage of product development and focus on the life science industry. Changes to the group are made on an as needed basis to ensure it remains representative of the Company. The Company uses the simplified method, which is the average of the final vesting tranche date and the contractual term, to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company uses an assumed dividend yield of zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. The Company accounts for forfeitures as they occur.
Net Loss per Common Share
The Company computes net loss per share of common stock in conformity with the two-class method required for participating securities. Diluted net loss per share is computed similar to basic net loss per share, except that the denominator is increased to include the number of additional shares for the potential dilutive effects of warrants, convertible preferred stock and stock options outstanding during the period calculated in accordance with the treasury stock method, or the two-class method, whichever is more dilutive. For all periods presented, basic and diluted net loss per share is the same, as inclusion of any additional share equivalents would be anti-dilutive.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents include a checking account and a money market account held at one national financial institution in the United States. At times, such deposits may be in excess of insured limits. Management believes that the financial institution at which the Company holds its deposits is financially sound, and accordingly, minimal credit risk exists with respect to the financial institution. The Company has not experienced any losses on its deposits of cash and cash equivalents. As of each September 30, 2024 and December 31, 2023, the Company had cash and cash equivalents balances exceeding FDIC insured limits by $1.9 million and $3.0 million, respectively.
The Company extends credit to customers in the normal course of business and performs credit evaluations of its customers. Concentrations of credit risk with respect to accounts receivable exist to the full extent of amounts presented in the financial statements.
During the nine months ended September 30, 2024, the majority, or 82%, of the Company’s sales have been to individual customers. In 2023, the majority, or 75%, of the Company’s sales were to individual consumers. As of September 30, 2024, the Company had no reseller customers whose accounts receivable balance totaled more than 10% or more of the Company’s total accounts receivable compared with one such customer at December 31, 2023 (81%).
For the three months ended September 30, 2024, the Company had one customer who individually accounted for 10% or more of the Company’s total revenue (13%) compared to one customer for the three months ended September 30, 2023, (40%).
For the nine months ended September 30, 2024, the Company had one customer who individually accounted for 10% or more of the Company’s total revenue (10%) compared to one customer for the nine months ended September 30, 2023 (25%).
The lingering negative impacts of the COVID-19 pandemic, the ongoing conflicts between Russia and Ukraine as well as Israel and Hamas, certain other macroeconomic factors including inflation, and rising interest rates, have contributed to economic uncertainty. Additionally, events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. Furthermore, it is possible that U.S. policy changes,
including changes and uncertainty as a result of the upcoming U.S. presidential election, could increase market volatility in the coming months. These factors, amongst other things, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. We will continue to monitor material impacts on our business strategies and operating results.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The guidance, which becomes effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, requires public entities that are required to report segment information in accordance with Topic 280, Segment Reporting, to improve reportable segment disclosures about significant segment expenses. We do not believe that ASU 2023-07 will have a material impact on our reporting as we operate in one reportable segment.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)- Improvements to Income Tax Disclosures. The guidance applies to all entities that are subject to Topic 740, Income taxes and becomes effective for public business entities for annual periods beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2024. The guidance requires enhanced disclosures related to income taxes including: additional information in the rate reconciliation; further breakdown of income taxes paid; and other disclosures that may help investors to better understand the entities tax landscape. We do not believe that ASU 2023-09 will have a material impact on our financial reporting.
3. Financial Instruments and Fair Value Measurements
The Company’s financial instruments consist of money market funds. The following tables show the Company’s cash equivalents carrying value and fair value at September 30, 2024 and December 31, 2023 (in thousands):
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As of September 30, 2024 (unaudited) |
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Quoted |
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Significant |
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Priced in |
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other |
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Significant |
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active |
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observable |
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unobservable |
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Carrying |
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Fair |
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markets |
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inputs |
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inputs |
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Amount |
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Value |
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(Level 1) |
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(Level 2) |
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(Level 3) |
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Assets |
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Money market funds |
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$ |
2,136 |
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$ |
2,136 |
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$ |
2,136 |
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$ |
— |
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$ |
— |
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Total assets |
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$ |
2,136 |
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$ |
2,136 |
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$ |
2,136 |
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$ |
— |
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$ |
— |
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As of December 31, 2023 |
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Quoted |
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Significant |
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Priced in |
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other |
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Significant |
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active |
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observable |
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unobservable |
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Carrying |
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Fair |
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markets |
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inputs |
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inputs |
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Amount |
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Value |
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(Level 1) |
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(Level 2) |
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(Level 3) |
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Assets |
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Money market funds |
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$ |
3,243 |
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$ |
3,243 |
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$ |
3,243 |
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$ |
— |
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$ |
— |
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Total assets |
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$ |
3,243 |
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$ |
3,243 |
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$ |
3,243 |
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|
$ |
— |
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$ |
— |
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Cash equivalents – Cash equivalents of $2.1 million as of September 30, 2024 and $3.2 million as of December 31, 2023, consisted of money market funds. Money market funds are classified as Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
There have been no changes to the valuation methodologies utilized by the Company during the nine months ended September 30, 2024 compared to the year ended December 31, 2023. The Company evaluates transfers between levels at the end of each reporting period. There were no transfers of financial instruments between levels during the nine months ended September 30, 2024 and the year ended December 31, 2023.
4. Inventory, net (in thousands)
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September 30, |
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December 31, |
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2024 |
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2023 |
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(unaudited) |
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Raw materials |
|
$ |
481 |
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$ |
752 |
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Work in process |
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5 |
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— |
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Finished goods |
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|
245 |
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36 |
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Inventory at cost |
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|
731 |
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|
788 |
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Less reserve for obsolescence |
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— |
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(32 |
) |
Inventory, net |
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$ |
731 |
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$ |
756 |
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5.Property and equipment, net (in thousands)
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September 30,
2024 |
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December 31,
2023 |
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Computers and equipment |
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$ |
11 |
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$ |
11 |
|
Manufacturing tools and dies |
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|
148 |
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|
148 |
|
Total property and equipment |
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|
159 |
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|
159 |
|
Less accumulated depreciation |
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(40 |
) |
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(37 |
) |
Property and equipment, net |
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$ |
119 |
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$ |
122 |
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Depreciation expense was $1 thousand for each of the three month periods ended September 30, 2024 and 2023, and was $3 thousand and $6 thousand for the nine months ended September 30, 2024 and 2023, respectively.
6. Commitments and Contingencies
Lease
The Company executed a noncancelable operating lease for approximately 9,091 square feet of office space in Hayward, California in November 2021 as its headquarters. The lease was set to expire in October 2025. The Company was obligated to pay, on a pro-rata basis, real estate taxes and operating costs related to the premises. Upon lease execution, the Company evaluated the lease and determined it should be capitalized as an operating lease. As there was no interest rate implicit in the lease, the Company estimated the incremental borrowing rate at 6% based on the rate available under its revolving credit line, as well as an assessment of the Company’s risk based on its financial position at the time and its potential to obtain a collateralized loan for a period similar to the lease term. The lease was terminated effective May 31, 2024. The Company incurred termination fees of $77 thousand, which were partially offset by a remaining security deposit of $16 thousand. The Company recorded a loss of $60 thousand in connection with the lease termination, which is included in other expense in the statement of operations.
Lease costs for the three and nine months ended September 30, 2024 were zero and $84 thousand, respectively, and for the three and nine months ended September 30, 2023 were $50 thousand and $151 thousand, respectively.
Cash paid for amounts included in the measurement of operating lease liabilities were zero and $87 thousand for the three and nine months ended September 30, 2024, respectively, which is included in operating activities in the statement of operations. Cash paid for amounts included in the measurement of operating lease liabilities were $51 thousand and $154 thousand for the three and nine months ended September 30, 2023, respectively, which is included in operating activities in the statement of operations.
In June 2024, the Company entered into a short-term rental agreement for office space located in Fremont, California. The Company evaluated the agreement and determined the short-term rental agreement does not meet the criteria for capitalization. Monthly rent payments required are $1 thousand per month and the agreement terminates on December 1, 2024. After expiration of the initial term, the agreement will automatically renew on a month to month basis until terminated by either party upon 30 days' advance written notice.