You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q (the "Quarterly Report") and those in our Annual Report on Form 10-K.
This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements relate to expectations concerning matters that are not historical facts. Words such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "might," "plans," "projects," "will," "would," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, but are not limited to, statements related to our expected business, new product introductions, results of clinical studies, expectations regarding regulatory clearance and the timing of FDA or non-US filings or approvals including meetings with FDA or non-US regulatory bodies, procedures and procedure adoption, future results of operations, future financial position, our ability to generate revenues, the anticipated mix of our revenues between procedure and system revenues, our financing plans and future capital requirements, anticipated costs of revenue, anticipated expenses, the effect of recent accounting pronouncements, our investments, anticipated cash flows, our ability to finance operations from cash flows and similar matters, the impact of the recent COVID-19 coronavirus pandemic and related public health measures on our business, and statements based on current expectations, estimates, forecasts and projections about the economies and markets in which we intend to operate and our beliefs and assumptions regarding these economies and markets. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. You should read the "Risk Factors" section of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. We do not assume any obligation to update any forward-looking statements.
Overview
We are a novel bioelectric medicine company committed to health innovation that has the potential to improve the lives of patients. The CellFX System is the first commercial product to harness the distinctive advantages of the Company's proprietary NPS technology, such as the ability to non-thermally clear cells while sparing non-cellular tissue, to treat a variety of applications for which an optimal solution remains unfulfilled.
In
In
We have also submitted a Medical Device License application to
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Plan of Operation
We plan to establish ourselves as a medical therapy company with a local, non-thermal, and drug-free treatment platform that initiates cell death in targeted tissue by a process of cell signaling and also induces an adaptive immune response to the targeted tissue. In order to accomplish this, we plan to:
?Improve our technology by continuing our research and product development efforts. We expect to develop interchangeable tissue applicators to target different tissue types that will leverage the novel characteristics of our technology platform.
?Further explore and understand the benefits of NPS technology platform with the objectives of broadening the currently planned cosmetic and therapeutic applications and identifying new applications. We anticipate that results of our clinical studies will enable us to recognize certain unmet medical needs that may be addressed by our technology.
?Continue to protect and expand our intellectual property portfolio with respect to NPS technology, which we expect will increase our ability to deter competitors and position our company for favorable licensing and partnering opportunities.
?Partner with medical or biomedical device companies for certain applications which we anticipate may accelerate product development and acceptance into target market areas and allow us to gain the sales and marketing advantages of the distribution infrastructure.
COVID-19 Pandemic
The COVID-19 pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. In accordance with these measures, we are requiring all of our employees to work remotely unless they cannot perform their essential functions remotely, and have also suspended all non-essential travel for our employees. While many of our employees are accustomed to working remotely, much of our workforce has not historically been remote. Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance becomes available, temporarily suspending travel and restricting the ability to do business in person may create operational or other challenges, any of which could harm our business, financial condition and results of operations.
In addition, our clinical trials may be affected by the COVID-19 pandemic. Site initiation and patient enrollment may be delayed, for example, due to prioritization of hospital resources toward the COVID-19 pandemic, travel restrictions imposed by governments, and the inability to access sites for initiation and monitoring. Also, it is possible that delivery from some of our suppliers of certain materials used in the production of our product candidates could be delayed due to COVID-19 which could affect our ability to obtain sufficient materials for our product candidates. COVID-19 has and will continue to adversely affect global economies and financial markets, resulting in an economic downturn that could affect demand for our product candidates and impact our operating results. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of the continued global economic impact of the pandemic. We cannot anticipate all of the ways in which health epidemics such as COVID-19 could adversely impact our business. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. See the Risk Factors section for further discussion of the possible impact of the COVID-19 pandemic on our business.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
are based upon our unaudited condensed consolidated financial statements, which
have been prepared in accordance with the rules and regulations of
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Our significant accounting policies and estimates are described in our Annual
Report on Form 10-K for the year ended
Valuation of Inventory
Inventory is stated at lower of cost or net realizable value. We established the
inventory basis by determining the cost based on standard costs approximating
the purchase costs on a first-in, first-out basis. Net realizable value is the
estimated selling price in the ordinary course of our business, less reasonably
predictable costs of completion, disposal, and transportation. The cost basis of
our inventory will be reduced for any products that are considered excessive or
obsolete based upon assumptions about future demand and market conditions. At
Recent Accounting Pronouncements
Refer to "Recent Accounting Pronouncements" in Note 2 of Notes to Condensed Consolidated Financial Statements of this Quarterly Report.
Segment and Geographical Information
We operate and manage our business as one reportable and operating segment. Our
Chief Executive Officer, who is the chief operating decision maker, reviews
financial information on an aggregate basis for purposes of allocating resources
and evaluating financial performance. All of our long-lived assets are based in
Results of Operations
Comparison of the three-month periods ended
Our condensed consolidated statements of operations as discussed herein are presented below: Three-Month Periods Ended March 31, (in thousands) 2021 2020* $ Change Revenue $ - $ - $ - Operating expenses: Research and development 9,063 6,181 2,882 Sales and marketing 4,146 1,695 2,451 General and administrative 5,316 4,074 1,242 Total operating expenses 18,525 11,950 6,575 Other income (expense): Interest income (expense), net (114) 78 (192) Total other income (expense) (114) 78 (192) Net loss$ (18,639) $ (11,872) $ (6,767)
* Certain 2020 amounts have been reclassified to conform to the current period presentation. Sales and marketing expenses have been reclassified out of general and administrative and presented as a separate line item. Amortization of intangible assets have been reclassified to general and administrative expenses.
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Research and Development
Research and development expenses consist of compensation and other related
employee expenses for research and development personnel, clinical trials and
consulting costs related to the design, development and enhancement of our
potential future products, prototype material and devices. Research and
development expenses increased by
Sales and Marketing
Sales and marketing expenses consists of compensation and other related employee
expenses for sales and marketing personnel, expenses associated with advertising
and training, and marketing studies including our controlled launch program.
Sales and marketing expenses increased by
General and Administrative
General and administrative expenses consist of compensation and other related
employee expenses for executives, finance, legal, human resources, information
technology and administrative personnel, professional fees, patent fees and
costs, insurance costs and other general corporate expenses. General and
administrative expenses increased by
Other Income (Expense)
Interest income decreased by
Liquidity and Capital Resources
To date, we have not generated any revenues from product sales. Since inception, we have funded our business primarily through the issuance of equity securities and debt. Over the next few years, we intend to invest in research and development to develop new applications for existing products and additional commercially viable products and to assess the feasibility of potential future products. Additionally, we expect that our general and administrative expenses will increase as we continue to incur substantial incremental costs associated with being a public company and our sales and marketing expenses will increase as we commercialize our CellFX System.
During
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On
Additionally, in
Our condensed consolidated statements of cash flows as discussed herein are presented below: Three-Month Periods Ended March 31, (in thousands) 2021 2020
Net cash used in operating activities
7,949 10,323 Net cash provided by financing activities 51,158 264 Net increase in cash$ 47,420 $ 965
At
These expectations are based on our current operating and financing plans which are subject to change. Until we are able to generate sustainable product revenues at profitable levels, we expect to finance our future cash needs through public or private equity offerings, debt financings, our at-the-market equity offering program, licensing fees for our technology, joint ventures with capital partners and project type financing. Such additional funds may not be available on terms acceptable to us or at all. If we raise funds by issuing equity or equity-linked securities, the ownership of some or all of our stockholders will be diluted and the holders of new equity securities may have priority rights over our existing stockholders. If adequate funds are not available, we may be required to curtail operations significantly or to obtain funds by entering into agreements on unattractive terms. Our inability to raise capital could have a material adverse effect on our business, financial condition and results of operations.
Operating Activities
Our primary uses of cash in operating activities are for ongoing product development.
During the three-month period ended
During the three-month period ended
Investing Activities
Our investing activities consist primarily of investment purchases, sales and maturities and capital expenditures.
During the three-month period ended
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During the three-month period ended
Financing Activities
During the three-month period ended
During the three-month period ended
Contractual Obligations
There have been no material changes outside the ordinary course of our business
to the contractual obligations disclosed in our Annual Report on Form 10-K for
the year ended
Off-Balance Sheet Arrangements
At
In the ordinary course of business, we enter into standard indemnification arrangements. Pursuant to these arrangements, we indemnify, hold harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology, or from claims relating to our performance or non-performance under a contract. The maximum potential amount of future payments we could be required to make under these agreements is not determinable because it involves claims that may be made against us in future periods, but have not yet been made. To date, we have not incurred costs to defend lawsuits or settle claims related to these indemnification agreements.
We also enter and have entered into indemnification agreements with our
directors and officers that may require us to indemnify them against liabilities
that arise by reason of their status or service as directors or officers, except
as prohibited by applicable law. In addition, we may have obligations to hold
harmless and indemnify third parties involved with our fundraising efforts and
their respective affiliates, directors, officers, employees, agents or other
representatives against any and all losses, claims, damages and liabilities
related to claims arising against such parties pursuant to the terms of
agreements entered into between us and such third parties in connection with
such fundraising efforts. No liability associated with such indemnification
agreements has been recorded as of
JOBS Act Accounting Election
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Trends, Events and Uncertainties
Research and development of new technologies are, by their nature, unpredictable. Although we undertake development efforts with commercially reasonable diligence, there can be no assurance that the net proceeds from our financings will be sufficient to enable us to develop our technology to the extent needed to generate future sales to sustain our operations. If we do not continue to have enough funds to sustain our operations, we will consider other options to continue the commercialization of our CellFX System, including, but not limited to, additional financing through follow-on stock offerings, debt financings, or co-development agreements and /or other alternatives.
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We cannot assure investors that our technology will be adopted or that we will ever achieve sustainable revenues sufficient to support our operations. Even if we are able to generate revenues, there can be no assurances that we will be able to achieve profitability or positive operating cash flows. There can be no assurances that we will be able to secure additional financing in the future on acceptable terms or at all. If cash resources are insufficient to satisfy our ongoing cash needs, we would be required to scale back or discontinue our technology and product development programs, or obtain funds, if available, although there can be no assurances, through the sale, licensing or strategic alliances that could require us to relinquish rights to our technology and intellectual property, or to curtail, suspend or discontinue our operations entirely.
See the section entitled "COVID-19 Pandemic" above and elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the current and potential future impact of COVID-19 on our business, financial condition and results of operation.
Other than as discussed above and elsewhere in this Quarterly Report, we are not currently aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition in the near term, although it is possible that new trends or events may develop in the future that could have a material effect on our financial condition.
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