VIVEVE MEDICAL, INC. (Form: 10-K, Received: 03/19/2020 16:13:01)

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

☐

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		04-3153858
(State or other jurisdiction of incorporation or organization)		(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

Securities registered pursuant to Section 12(g) of the Act: None.

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 ☒

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 ☐	Accelerated filer ☐

	Non-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

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):

			Adjustments
			Due to
	December 31,		Adoption of			January 1,
	2018		ASC 842			2019

Other assets	$	171	$	629	⁽¹⁾	$	800
Total assets	$	46,834	$	629	⁽¹⁾	$	47,463
Accrued liabilities	$	6,766	$	230	⁽²⁾	$	6,996
Total current liabilities	$	10,760	$	230	⁽²⁾	$	10,990
Other noncurrent liabilities	$	634	$	399	⁽²⁾	$	1,033
Total liabilities	$	41,922	$	629	⁽²⁾	$	42,551
Total liabilities and stockholders' equity	$	46,834	$	629	⁽²⁾	$	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

	December 31,		December 31,
	2019		2018		Change

Customer contracts liabilities:
Marketing programs	$	108	$	639	$	(531	)
Other		-		47		(47	)
Total	$	108	$	686	$	(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
	As Reported			Balances Without Adoption of ASC 606			Effect of Change Higher/(Lower)
Consolidated Statement of Operations
Revenue	$	18,517		$	17,780		$	737		⁽¹⁾
Cost of revenue	$	11,197		$	11,209		$	(12	)	⁽²⁾
Gross profit	$	7,320		$	6,571		$	749		⁽³⁾
Loss from operations	$	(44,965	)	$	(45,714	)	$	749		⁽³⁾
Comprehensive and net loss	$	(49,981	)	$	(50,730	)	$	749		⁽³⁾
Net loss per share:
Basic and diluted	$	(160.92	)	$	(163.33	)	$	2.41

Weighted average shares		310,589			310,589

⁽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
	As Reported			Balances Without Adoption of ASC 606			Effect of Change Higher/(Lower)
Consolidated Balance Sheets

Liabilities
Accrued liabilities	$	6,766		$	7,014		$	(248	)	⁽¹⁾
Other noncurrent liabilities	$	634		$	1,313		$	(679	)	⁽²⁾

Equity
Accumulated deficit	$	(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).

	Year Ended
	December 31,
	2019		2018

United States	$	3,672		13,606
Asia Pacific		2,349		2,891
Europe and Middle East		254		1,369
Canada		277		563
Latin America		15		51
Other		-		37
Total	$	6,567	$	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.

	Year Ended
	December 31,
	2019			2018

Convertible preferred stock:
Series A convertible preferred stock		1,852,173	(a)		-
Series B convertible preferred stock		31,678	(b)		-
Warrants to purchase common stock		24,737,618		6,408
Stock options to purchase common stock		10,087,678			40,195
Restricted common stock awards		2,620			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.

7.	Note Payable

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 23^rd 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		5,992
Total payments		5,992
Less: Amount representing interest		(1,997	)
Present value of obligations		3,995
Less: Unamortized debt discount		(12	)
Note payable, noncurrent portion	$	3,983

11.

Common Stock

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 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:

					Number of
					Shares
					Outstanding
	Exercisable	Expiration	Exercise		Under
Issuance Date	for	Date	Price		Warrants

February 2015	Common Shares	February 17, 2025	$	400.00		754
March 2015	Common Shares	March 26, 2025	$	272.00		14
May 2015	Common Shares	May 12, 2025	$	424.00		362
May 2015	Common Shares	May 17, 2020	$	424.00		215
December 2015	Common Shares	December 16, 2025	$	560.00		267
April 2016	Common Shares	April 1, 2026	$	608.00		250
May 2016	Common Shares	May 11, 2021	$	774.00		50
June 2016	Common Shares	June 20, 2026	$	498.00		1,004
May 2017	Common Shares	May 25, 2027	$	950.00		2,220
November 2019	Common Shares	November 26, 2020	$	1.55		7,419,353
November 2019	Common Shares	November 26, 2024	$	1.55		7,419,353
November 2019	Common Shares	November 26, 2024	$	1.84		9,893,776
						24,737,618

F-24

As of December 31, 2018, outstanding warrants to purchase shares of common stock were as follows:

					Number of
					Shares
					Outstanding
	Exercisable	Expiration	Exercise		Under
Issuance Date	for	Date	Price		Warrants

September 2014	Common Shares	September 23, 2019	$	424.00		859
October 2014	Common Shares	October 13, 2019	$	424.00		288
November 2014	Common Shares	November 12, 2019	$	424.00		125
February 2015	Common Shares	February 17, 2025	$	400.00		754
March 2015	Common Shares	March 26, 2025	$	272.00		14
May 2015	Common Shares	May 12, 2025	$	424.00		362
May 2015	Common Shares	May 17, 2020	$	424.00		215
December 2015	Common Shares	December 16, 2025	$	560.00		267
April 2016	Common Shares	April 1, 2026	$	608.00		250
May 2016	Common Shares	May 11, 2021	$	774.00		50
June 2016	Common Shares	June 20, 2026	$	498.00		1,004
May 2017	Common Shares	May 25, 2027	$	950.00		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:

	Year Ened December 31, 2019
						Weighted
				Weighted		Average
	Number			Average		Remaining		Aggregate
	of			Exercise		Contractual		Intrinsic
	Shares			Price		Term (years)		Value
Options outstanding, January 1, 2018		26,903		$	579.81		8.6	$	249,154
Options granted		23,542		$	351.81
Options exercised		-		$	-
Options canceled		(10,301	)	$	548.13
Options outstanding, December 31, 2018		40,144		$	455.68		7.4	$	-
Options granted		10,065,844		$	1.14
Options exercised		-
Options canceled		(18,310	)	$	403.31
Options outstanding, December 31, 2019		10,087,678		$	2.22		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:

							Weighted
			Number		Weighted		Average		Number		Weighted
			Outstanding		Average		Remaining		Exercisable		Average
Range of			as of		Exercise		Contractual		as of		Exercise
Exercise Prices			December 31, 2019		Price		Term (Years)		December 31, 2019		Price

$0.86	-	$0.89		10,042,500	$	0.87		9.9		198,312	$	0.87
$38.00	-	$58.00		1,650	$	55.42		9.4		-	$	-
$100.00	-	$197.00		22,385	$	140.23		8.1		9,141	$	144.93
$202.00	-	$283.00		775	$	252.06		8.0		355	$	255.75
$311.00	-	$382.00		3,833	$	355.39		6.0		2,423	$	362.12
$430.00	-	$497.00		7,870	$	453.47		6.4		5,066	$	454.44
$501.00	-	$567.00		4,215	$	536.47		5.7		3,258	$	535.73
$600.00	-	$661.00		2,372	$	601.29		3.6		2,352	$	600.78
$700.00	-	$792.00		1,974	$	768.12		6.7		1,571	$	768.19
$992.00	-	$992.00		104	$	992.00		3.1		104	$	992.00
Total:				10,087,678	$	2.22		9.9		222,582	$	41.49

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:

	Year Ended
	December 31,
	2019	2018

Expected term (in years)	0.25	0.25
Average volatility	87%	72%
Risk-free interest rate	2.29%	1.92%
Dividend yield	0%	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:

	Year Ended
	December 31,
	2019	2018

Expected term (in years)	6	5
Average volatility	70%	73%
Risk-free interest rate	1.62%	2.65%
Dividend yield	0%	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:

	Year Ended
	December 31,
	2019	2018

Expected term (in years)	6	9
Average volatility	70%	69%
Risk-free interest rate	1.69%	2.69%
Dividend yield	0%	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):

	Year Ended
	December 31,
	2019		2018

Cost of revenue	$	135	$	69
Research and development		192		328
Selling, general and administrative		2,073		2,638
Total	$	2,400	$	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.

Part I

Item 1	Business	1
Item 1A	Risk Factors	19
Item 1B	Unresolved Staff Comments	37
Item 2	Properties	38
Item 3	Legal Proceedings	38
Item 4	Mine Safety Disclosures	38

Part II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	38
Item 6	Selected Financial Data	39
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 7A	Quantitative and Qualitative Disclosure about Market Risk	52
Item 8	Financial Statements and Supplementary Data	52
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	52
Item 9A	Controls and Procedures	52
Item 9B	Other Information	52

Part III

Item 10	Directors, Executive Officers and Corporate Governance	53
Item 11	Executive Compensation	56
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	61
Item 13	Certain Relationships and Related Transactions, and Director Independence	62
Item 14	Principal Accountant Fees and Services	62

Part IV

Item 15	Exhibits, Financial Statement Schedules	63

Signatures		66

Indication for Use:	No. of Countries:
General surgical procedures for electrocoagulation and hemostasis	4	(including the U.S.)
General surgical procedures for electrocoagulation and hemostasis of vaginal tissue and the treatment of vaginal laxity	32
For treatment of vaginal laxity	4
For treatment of the vaginal introitus, after vaginal childbirth, to improve sexual function	14
General surgical procedures for electrocoagulation and hemostasis as well as for the treatment of vaginal laxity	1
For vaginal rejuvenation	1
For treatment of vaginal laxity and to improve mild urinary incontinence and sexual function	1

U.S. Patents		Foreign Patents
Issued	Pending	Issued	Pending
4	8	73	14

Indication for Use:	No. of Countries:
General surgical procedures for electrocoagulation and hemostasis	4	(including the U.S.)
General surgical procedures for electrocoagulation and hemostasis of vaginal tissue and the treatment of vaginal laxity	32
For treatment of vaginal laxity	4
For treatment of the vaginal introitus, after vaginal childbirth, to improve sexual function	14
General surgical procedures for electrocoagulation and hemostasis as well as for the treatment of vaginal laxity	1
For vaginal rejuvenation	1
For treatment of vaginal laxity and to improve mild urinary incontinence and sexual function	1

Indication for Use:	No. of Countries:
General surgical procedures for electrocoagulation and hemostasis	4	(including the U.S.)
General surgical procedures for electrocoagulation and hemostasis of vaginal tissue and the treatment of vaginal laxity	32
For treatment of vaginal laxity	4
For treatment of the vaginal introitus, after vaginal childbirth, to improve sexual function	14
General surgical procedures for electrocoagulation and hemostasis as well as for the treatment of vaginal laxity	1
For vaginal rejuvenation	1
For treatment of vaginal laxity and to improve mild urinary incontinence and sexual function	1

	●	our limited cash and our history of losses;
	●	our ability to achieve profitability;
	●	our limited operating history;
	●	emerging competition and rapidly advancing technology;
	●	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;
	●	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;
	●	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;

	●	a safe, minimally-invasive, non-ablative procedure;
	●	requiring only a single treatment;
	●	compelling physician economics; and
	●	ease of use.

	●	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.

	●	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.

	●	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.

	●	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.

	●	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.

	●	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.

	●	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.

	●	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.

	●	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.

	●	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.
	●	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.

	●	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”.)

	●	warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;

	●	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.

	●	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.

	●	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.

	●	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;

	●	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;

	●	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;

	●	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.

	●	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.

	●	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.

	●	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.

	●	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;
	●	Compliance with anti-bribery laws such as U.S. Foreign Corrupt Practices Act and its foreign counterparts;
	●	political and economic instability; and

	●	hire qualified individuals as needed;
	●	provide adequate training for the effective sale of our device; and
	●	retain and motivate sales employees.

	●	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.

	●	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.

	●	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.

Year Ending December 31,

2020	–	$272,000
2021	–	$115,000
2022		$0

	●	designing new treatment tips optimized for both ease-of-use and to reduce procedure times for patients and physicians; and
	●	developing new RF consoles.

			Less than						More than
Contractual Obligations (including interest):	Total		1 Year		1 - 3 Year		3 -5 Years		5 Years
Debt obligations	$	5,992	$	-	$	-	$	5,992	$	-
Non-cancellable operating lease obligations		440		303		137		-		-
Total	$	6,432	$	303	$	137	$	5,992	$	-

Name	Age	Position

Scott Durbin	51	Director and Chief Executive Officer
Steven Basta	54	Chairman of the Board
Debora Jorn	61	Director
Arlene Morris	68	Director
Karen Zaderej	58	Director
Jim Robbins	56	Vice President of Finance and Administration
Sean Shapiro	44	Vice President of U.S. Sales

	●	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.

Name and Principal Position	Year	Salary ($)		Bonus ($)⁽¹⁾		Non-Equity Incentive Plan Compensation ($)⁽²⁾		Option Awards ($)⁽³⁾		All Other Compensation ($)			Total ($)

Scott Durbin,	2019		415,000		207,500		-		2,312,787		48,282	⁽⁴⁾		2,983,569
Chief Executive Officer	2018		389,958		137,512				686,751		16,140	⁽⁴⁾		1,230,361

James Atkinson,	2019		329,934		-		-		226,298		298,546			854,778
Chief Business Officer and President	2018		353,500		147,572		-		422,198		-			923,270

Jim Robbins,	2019		260,000		62,400				255,461		19,998	⁽⁴⁾		597,859
Vice President of Finance and Administration (Principal Accounting
and Financial Officer)	2018		256,897		61,305		-		203,169		59,807	⁽⁵⁾		581,178

Sean Shapiro,	2019		315,334		-		157,500		255,461		9,600	⁽⁶⁾		737,895
Vice President of U.S. Sales	2018		208,000		10,000		161,785		86,973		9,400	⁽⁶⁾		476,158

	Option Awards
		Number of Securities Underlying Unexercised Options (#)⁽¹⁾
Name	Vesting Start Date	Exercisable		Unexercisable		Option Exercise Price ($)		Option Expiration Date
Scott Durbin
	11/26/2019		68,708		3,229,292		0.87	11/26/2029
	1/15/2019 ⁽²⁾		1,925		4,375		124.00	1/15/2029
	5/11/18 ⁽³⁾		1,063		1,936		197.00	5/11/2028
	01/23/2018		575		624		448.00	1/23/2028
	03/03/2017		913		414		446.00	03/03/2027
	12/23/2016		375		125		522.00	12/23/2026
	12/16/2015 ⁽³⁾		966		—		600.00	12/16/2025
	9/26/2014		478		—		480.00	9/26/2024
	1/22/2013 ⁽⁵⁾		103		—		992.00	2/2/2023
James Atkinson
	1/15/2019 ⁽²⁾		1,333		—		124.00	1/15/2029
	1/23/2018		874		—		448.00	1/23/2028
	12/23/2016 ⁽⁴⁾		22		—		522.00	12/23/2026
	12/23/2016		640		—		522.00	12/23/2026
	12/16/2015		879		—		600.00	12/16/2025
	2/4/2015		668		—		376.00	2/4/2025
Jim Robbins
	11/26/2019		6,875		323,125		0.87	11/26/2029
	1/15/2019 ⁽²⁾		290		659		124.00	1/15/2029
	5/11/2018 ⁽³⁾		66		258		197.00	5/11/2028
	1/23/2018		280		306		448.00	1/23/2028
	12/23/2016		150		50		522.00	12/23/2026
	12/16/2015		242		—		600.00	12/16/2025
	7/1/2014 ⁽³⁾		145		—		480.00	9/26/2024

Sean Shapiro	11/26/2019		6,875		323,125		0.87	11/26/2029
	1/15/2019 ⁽²⁾		290		659		124.00	1/15/2029
	1/23/2018		148		160		448.00	1/23/2028
	9/6/2016 ⁽³⁾		486		113		758.00	9/6/2026