10-Q 1 tivc-20240331.htm 10-Q 10-Q
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ppju5

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2024

 

OR

 

Transmission Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______

 

Commission file number: 001-41052

 

 

img41941548_0.jpg 

Tivic Health Systems, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Delaware

(State or other jurisdiction of incorporation or organization)

81-4016391

(I.R.S. Employer Identification No.)

25821 Industrial Blvd., Suite 100

Hayward, CA 94545

(Address of principal executive offices including zip code)

 

(888) 276-6888

(Registrant’s telephone number, including area code)

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

 

 

 

 

 

 

Title of Each Class

Common Stock, par value $0.0001 per share

Trading Symbol(s)

TIVC

Name of Each Exchange on Which Registered

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act (Check one):

 

 

 

☐ 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 in Rule 12b‑2 of the Exchange Act). Yes ☐ No

 

As of May 14, 2024, 6,183,592 shares of the registrant’s common stock, par value $0.0001 per share, were issued and outstanding.

 

 

 

 

 


 

Table of Contents

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

Page

Item 1.

Financial Statements

1

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

28

 

Item 4.

Controls and Procedures

28

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings

29

 

 

Item 1A.

Risk Factors

29

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

Item 3.

Defaults upon Senior Securities

29

 

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

 

Signatures

32

 

 

 

 


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Our condensed financial statements included in this Quarterly Report on Form 10‑Q are as follows:

Condensed Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023

2

Condensed Statements of Operations for the three months ended March 31, 2024 and 2023 (unaudited)

3

Condensed Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023 (unaudited)

4

Condensed Statements of Cash Flow for the three months ended March 31, 2024 and 2023 (unaudited)

4

Notes to Condensed Financial Statements (unaudited)

6

 

This Quarterly Report on Form 10‑Q for the quarter ended March 31, 2024, should be read in conjunction with the Company’s Annual Report on Form 10‑K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 25, 2024.

The accompanying condensed financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10‑Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended March 31, 2024 are not necessarily indicative of the results that can be expected for the full year.

 

 

1


Tivic Health Systems, Inc.

Condensed Balance Sheets (Unaudited)

March 31, 2024 and December 31, 2023

(in thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,668

 

 

$

3,395

 

Accounts receivable, net

 

 

74

 

 

 

174

 

Inventory, net

 

 

774

 

 

 

756

 

Deferred offering costs

 

 

61

 

 

 

 

Prepaid expenses and other current assets

 

 

250

 

 

 

327

 

Total current assets

 

 

2,827

 

 

 

4,652

 

Property and equipment, net

 

 

121

 

 

 

122

 

Right-of-use assets, operating lease

 

 

304

 

 

 

349

 

Other assets

 

 

34

 

 

 

34

 

Total assets

 

$

3,286

 

 

$

5,157

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

547

 

 

$

713

 

Other accrued expenses

 

 

265

 

 

 

495

 

Operating lease liability, current

 

 

180

 

 

 

193

 

Total current liabilities

 

 

992

 

 

 

1,401

 

Operating lease liability

 

 

141

 

 

 

176

 

Total liabilities

 

 

1,133

 

 

 

1,577

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares
   issued and outstanding at March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock, $0.0001 par value, 200,000,000 shares authorized; 1,473,592
   and
1,466,092 shares issued and outstanding at March 31, 2024 and
   December 31, 2023, respectively

 

 

 

 

 

 

Additional paid in capital

 

 

41,520

 

 

 

41,466

 

Accumulated deficit

 

 

(39,367

)

 

 

(37,886

)

Total stockholders’ equity

 

 

2,153

 

 

 

3,580

 

Total liabilities and stockholders’ equity

 

$

3,286

 

 

$

5,157

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

2


Tivic Health Systems, Inc.

Condensed Statements of Operations (Unaudited)

Three Months Ended March 31, 2024 and 2023

(in thousands, except share and per share data)

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2024

 

 

2023

 

 

Revenue

 

$

334

 

 

$

376

 

 

Cost of sales

 

 

167

 

 

 

263

 

 

Gross profit

 

 

167

 

 

 

113

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

256

 

 

 

490

 

 

Sales and marketing

 

 

505

 

 

 

458

 

 

General and administrative

 

 

887

 

 

 

1,281

 

 

Total operating expenses

 

 

1,648

 

 

 

2,229

 

 

Loss from operations

 

 

(1,481

)

 

 

(2,116

)

 

Net loss

 

$

(1,481

)

 

$

(2,116

)

 

Net loss per share - basic and diluted

 

$

(1.01

)

 

$

(10.52

)

 

Weighted-average number of shares - basic and diluted

 

 

1,467,740

 

 

 

201,222

 

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

3


Tivic Health Systems, Inc.

Condensed Statements of Stockholders’ Equity (Unaudited)

Three Months Ended March 31, 2024 and 2023

(in thousands except share and per share data)

For the Three Months Ended March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at January 1, 2023

 

 

 

 

$

 

 

 

96,778

 

 

$

 

 

$

33,272

 

 

$

(29,642

)

 

$

3,630

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

 

 

 

200,000

 

 

 

 

 

 

3,412

 

 

 

 

 

 

3,412

 

Issuance of warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

195

 

 

 

 

 

 

195

 

Stock-based compensation
   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84

 

 

 

 

 

 

84

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,116

)

 

 

(2,116

)

Balances at March 31, 2023

 

 

 

 

$

 

 

 

296,778

 

 

$

 

 

$

36,963

 

 

$

(31,758

)

 

$

5,205

 

 

For the Three Months Ended March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at January 1, 2024

 

 

 

 

$

 

 

 

1,466,092

 

 

$

 

 

$

41,466

 

 

$

(37,886

)

 

$

3,580

 

Issuance of common stock for restricted stock award

 

 

 

 

 

 

 

 

7,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation
   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

54

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,481

)

 

 

(1,481

)

Balances at March 31, 2024

 

 

 

 

$

 

 

 

1,473,592

 

 

$

 

 

$

41,520

 

 

$

(39,367

)

 

$

2,153

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

Tivic Health Systems, Inc.

Condensed Statements of Cash Flows (Unaudited)

Three Months Ended March 31, 2024 and 2023

(in thousands)

 

4


 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(1,481

)

 

$

(2,116

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock based compensation

 

 

54

 

 

 

84

 

Depreciation

 

 

1

 

 

 

2

 

Amortization of right-of-use asset

 

 

45

 

 

 

42

 

Inventory allowances

 

 

(4

)

 

 

 

Changes is operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

100

 

 

 

31

 

Inventory

 

 

(14

)

 

 

(80

)

Prepaid expenses and other current assets

 

 

77

 

 

 

(59

)

Accounts payable

 

 

(166

)

 

 

(229

)

Accrued expenses

 

 

(230

)

 

 

(76

)

Lease liabilities

 

 

(48

)

 

 

(25

)

Net cash used in operating activities

 

 

(1,666

)

 

 

(2,426

)

Cash flows from investing activities

 

 

 

 

 

 

Acquisition of property and equipment

 

 

 

 

 

(94

)

Net cash used in investing activities

 

 

 

 

 

(94

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

 

 

 

4,191

 

Offering costs in advance of sale of common stock

 

 

(61

)

 

 

(21

)

Net cash provided by (used in) financing activities

 

 

(61

)

 

 

4,170

 

Net increase (decrease) in cash and cash equivalents

 

 

(1,727

)

 

 

1,650

 

Cash and cash equivalents

 

 

 

 

 

 

Beginning of period

 

 

3,395

 

 

 

3,517

 

End of period

 

$

1,668

 

 

$

5,167

 

 

 

 

 

 

 

 

Supplemental disclosure on noncash financing activities

 

 

 

 

 

 

Issuance of common stock warrant

 

$

 

 

$

195

 

Deferred offering costs charged to additional paid-in-capital

 

$

 

 

$

584

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

5


Tivic Health Systems, Inc.

Notes to Unaudited Condensed Financial Statements

(amounts are as indicated)

1. Formation and Business of the Company

Tivic Health Systems, Inc. (the “Company”) was incorporated in the state of California on September 22, 2016 for the purpose of developing and commercializing non-invasive bioelectronic medicine. In June 2021, the Company was reincorporated as a Delaware corporation. The Company's first commercial product, ClearUP, is an FDA approved medical device for the treatment of sinus pain, pressure and nasal congestion. The Company is headquartered in Hayward, California.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed balance sheet as of December 31, 2023, which has been derived from audited financial statements, and the unaudited interim condensed financial statements as of March 31, 2024, and for the three months ended March 31, 2024 and March 31, 2023, have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, all accounting entries and adjustments (including normal, recurring adjustments) considered necessary for a fair presentation of the financial position and the results of operations for the interim periods have been made. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024.

Going Concern Uncertainty

During the three months ended March 31, 2024 and 2023, the Company incurred a net loss of $1.5 million and $2.1 million, respectively. At March 31, 2024, the Company had an accumulated deficit of $39.4 million. Cash and cash equivalents at March 31, 2024 were $1.7 million. During the three month periods ended March 31, 2024 and 2023, the Company had negative cash flows from operations of $1.7 million and $2.4 million, respectively. The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance date of the financial statements. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern within one year after the date the financial statements are issued.

Future capital requirements will depend upon many factors, including, without limitation, progress with developing, manufacturing and marketing our technologies; the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights; our ability to establish collaborative arrangements; completion of any acquisitions or other strategic transactions; marketing activities and competing technological and market developments, including regulatory changes and overall economic conditions in our target markets. Our ability to generate revenue and achieve profitability requires us to successfully market and secure purchase orders for our products and services from existing as well as new customers. We also will be required to efficiently manufacture and deliver on those purchase orders. These activities, including our planned research and development efforts, may require significant uses of working capital. There can be no assurance that we will generate revenue and cash as expected in our current business plan.

 

The Company recognizes it will need to raise additional capital to continue research and development and to fund its planned operations, clinical trials and, if regulatory approval is obtained, commercialization of future products. We may seek additional funds through equity or debt offerings and/or borrowings under notes payable, lines of credit or other sources. We do not know whether additional financing will be available on commercially acceptable terms, or at all, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to fund our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or limited, which could materially adversely affect our business, financial conditions, or results of operations.

 

Reverse Stock Split

 

In August 2023, the Company’s Board of Directors and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to effect a 1-for-100 reverse stock split of the issued and outstanding shares of the Company’s common

6


stock, which was effected on August 23, 2023. There was no change to the par value, or authorized shares, of either the common stock or preferred stock, as a result of the reverse stock split. Fractional shares were not issued, and instead, the Company issued one whole share of the post reverse split common stock to any stockholder who otherwise would have been entitled to receive a fractional share as a result of the reverse stock split. Consequently, 84 shares of common stock were issued in lieu of fractional shares. In addition, all options, warrants and other convertible securities of the Company outstanding immediately prior to the reverse stock split were adjusted by dividing the number of shares of common stock into which such options, warrants and other convertible securities were exercisable or convertible by 100 and multiplying the exercise or conversion price thereof by 100, all in accordance with the terms of the plans, agreements or arrangements governing such options, warrants and other convertible securities and subject to rounding pursuant to such terms. All share and per share amounts for the common stock, as well as the stock options, and warrants outstanding and exercise prices thereof, included in the financial statements and these footnotes thereto have been retroactively restated to give effect to the reverse stock split.

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ materially from those estimates. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents. As of March 31, 2024 and December 31, 2023, cash and cash equivalents totaled $1.7 million and $3.4 million, respectively.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount, net of allowances for credit losses and returns reserves. The allowance for credit losses is based on our assessment of the collectability of accounts. Management regularly reviews the adequacy of the allowance for credit losses by considering the age of each outstanding invoice, each customer’s expected ability to pay, and the collection history with each customer, when applicable, to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified. As of each March 31, 2024 and December 31, 2023, the allowance for credit losses balance was zero.

Inventory

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. Inventories are reviewed periodically to identify slow-moving inventory based on anticipated sales activity. As of March 31, 2024 and December 31, 2023, the reserve for obsolescence was $28 thousand and $32 thousand, respectively.

Deferred Offering Costs

Deferred offering costs are comprised of costs incurred in connection with financing arrangements that have not closed as of the end of the period. As of March 31, 2024, deferred offering costs of $61 thousand, primarily consisted of legal fees, technical accounting support, printer costs and other regulatory filing fees related to the sale of Company securities in a registered public offering, which closed subsequent to quarter-end (see Note 13 for additional information regarding the offering). Deferred offering costs are reclassified to additional paid in capital upon closing of the financing transaction. There were no deferred offering costs as of December 31, 2023.

 

Property and Equipment

 

Property and equipment are recorded at cost net of accumulated depreciation. Depreciation is computed on a straight-line method over the estimated useful lives of the assets, three to four years. Upon retirement or sale of assets, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations. Repairs and maintenance costs that do not improve or extend the lives of the respective assets are charged to operations as incurred.

 

7


Impairment of Long-Lived Assets

 

The Company evaluates its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of these asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. When indications of impairment are present and the estimated undiscounted future cash flows from the use of these assets is less than the assets’ carrying value, the related assets will be written down to fair value. There were no impairments of the Company’s long-lived assets for the periods presented.

 

Commitments and Contingencies

 

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

 

Revenue Recognition

The Company recognizes revenue from product sales in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”). The standard applies to all contracts with customers, except contracts that are within scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.

Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are in within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inceptions, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company sells its products through direct sales and resellers. Revenue is recognized when control of the promised goods is transferred to the customers or the resellers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Revenue associated with products holding rights of return are recognized when the Company concludes there is not a risk of significant revenue reversal in the future periods for the expected consideration in the transaction.

The Company may receive payments at the onset of the contract and before goods have been delivered. In such instances, the Company records a deferred revenue liability. The Company recognizes these contract liabilities as revenue after the revenue criteria are met. As of March 31, 2024 and December 31, 2023, the contract liability related to the Company’s deferred revenues approximated $3 thousand and $8 thousand, respectively, and is included in “Other Accrued Expenses” on the accompanying balance sheets.

The Company relies on third parties to have procedures in place to detect and prevent credit card fraud, as the Company has exposure to losses from fraudulent charges. The Company records the losses related to chargebacks as incurred.

The Company has also elected to exclude from the measurement of the transaction price sales taxes remitted to governmental authorities.

The table below presents revenue by channel for the three months ended March 31, 2024 and 2023 (in thousands):

 

 

Three Months Ended March 31,

 

Product Revenue by Sales Channel

 

2024

 

 

2023

 

Product Revenue

 

 

 

 

 

 

Direct-to-consumer

 

$

301

 

 

$

303

 

Reseller

 

 

62

 

 

 

98

 

Returns

 

 

(29

)

 

 

(25

)

Revenue

 

$

334

 

 

$

376

 

 

8


 

Sales Tax

 

Sales tax collected from customers and remitted to governmental authorities is accounted for on a net basis and therefore, is excluded from net sales.

 

Shipping and Handling

Shipping and handling fees paid by customers are recorded in revenue, with the related expenses recorded in cost of sales. There were no shipping and handling fees paid by customers for the three months ended March 31, 2024 and 2023.

Shipping costs for delivery of product to customers in the three months ended March 31, 2024 and 2023 were $17 thousand and $15 thousand, respectively.

Product Warranty

The Company generally offers a one-year limited warranty on its products. The Company estimates the costs associated with the warranty obligation using historical data of warranty claims and costs incurred to satisfy those claims. Estimated warranty costs are expensed to cost of sales.

Returns

 

The Company estimates a reserve for future product returns based on several factors, including historical returns as a percentage of revenue, an understanding of the reasons for past returns and any other known factors that indicate a return is imminent. Reserves for sales returns are estimated and recorded in the same period as the underlying revenue recognition as a deduction to arrive at net product sales and as a liability classified as "Other Accrued Expenses" on the balance sheet. As of March 31, 2024 and December 31, 2023, the reserve for sales returns was $11 thousand and $52 thousand, respectively.

 

Sales and Marketing Expenses

Sales and marketing expenses are expensed as incurred and consist primarily of merchandising, customer service and targeted online marketing costs, such as display advertising, keyword search campaigns, search engine optimization and social media and offline marketing costs such as television, radio and print advertising. Sales and marketing expenses also include payroll costs and stock-based compensation expense for employees involved in marketing activities. Sales and marketing expenses are primarily related to growing the customer base.

Research and Development Expenses

Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies, depreciation on and maintenance of research equipment, the cost of services provided by outside contractors, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation, and general support services. All costs associated with research and development are expensed as incurred.

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements with employees and non-employee consultants using a fair value method, which requires the recognition of compensation expense for costs related to all stock-based payments, including stock options. The fair value method requires the Company to estimate the fair value of stock-based payment awards to employees and non-employees on the date of grant using an option pricing model.

Stock-based compensation costs are based on the fair value of the underlying option calculated using the Black-Scholes option-pricing model and recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. The Company measures equity-based compensation awards granted to non-employees at fair value as the awards vest and recognizes the resulting value as compensation expense at each financial reporting period.

9


Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, expected dividend yield, expected term, risk-free rate of return, and the estimated fair value of the underlying common stock. Due to the lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The group of representative companies have characteristics similar to the Company, including stage of product development and focus on the life science industry. The Company uses the simplified method, which is the average of the final vesting tranche date and the contractual term, to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company uses an assumed dividend yield of zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. The Company accounts for forfeitures as they occur.

 

Net Loss per Common Share

The Company computes net loss per share of common stock in conformity with the two-class method required for participating securities. Diluted net loss per share is computed similar to basic net loss per share, except that the denominator is increased to include the number of additional shares for the potential dilutive effects of warrants, convertible preferred stock and stock options outstanding during the period calculated in accordance with the treasury stock method, or the two-class method, whichever is more dilutive. For all periods presented, basic and diluted net loss per share is the same, as inclusion of any additional share equivalents would be anti-dilutive.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents include a checking account and a money market account held at one national financial institution in the United States. At times, such deposits may be in excess of insured limits. Management believes that the financial institution at which the Company holds its deposits is financially sound, and accordingly, minimal credit risk exists with respect to the financial institution. The Company has not experienced any losses on its deposits of cash and cash equivalents. As of each March 31, 2024 and December 31, 2023, the Company had cash and cash equivalents balances exceeding FDIC insured limits by $1.0 million and $3.0 million, respectively.

 

The Company extends credit to customers in the normal course of business and performs credit evaluations of its customers. Concentrations of credit risk with respect to accounts receivable exist to the full extent of amounts presented in the financial statements.

 

During the first quarter of 2024, the majority, or 82%, of the Company's sales have been to individual customers. In 2023, the majority, or 79%, of the Company’s sales were to individual consumers. As of March 31, 2024, the Company had two reseller customers whose accounts receivable balance totaled more than 10% or more of the Company’s total accounts receivable (77% and 12%) compared with one such customer at December 31, 2023 (81%).

For the three months ended March 31, 2024, the Company had one customer who individually accounted for 10% or more of the Company’s total revenue (18%), compared to one such customer for the same period in 2023 (20%).

The lingering negative impacts of the COVID-19 pandemic, the ongoing conflicts between Russia and Ukraine as well as Israel and Hamas, economic uncertainty in human capital management and certain other macroeconomic factors including climate change, inflation, and rising interest rates. Additionally, events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. These factors, amongst other things, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. We will continue to monitor material impacts on our business strategies and operating results.

 

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The guidance, which becomes effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, requires public entities that are required to report segment information in accordance with Topic 280, Segment Reporting, to improve reportable segment

10


disclosures about significant segment expenses. We do not believe that ASU 2023-07 will have a material impact on our reporting as we operate in one reportable segment.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)- Improvements to Income Tax Disclosures. The guidance applies to all entities that are subject to Topic 740, Income taxes and becomes effective for public business entities for annual periods beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2024. The guidance requires enhanced disclosures related to income taxes including: additional information in the rate reconciliation; further breakdown of income taxes paid; and other disclosures that may help investors to better understand the entities tax landscape. We do not believe that ASU 2023-09 will have a material impact on our financial reporting.

 

3. Financial Instruments and Fair Value Measurements

The Company’s financial instruments consist of money market funds. The following tables show the Company’s cash equivalents carrying value and fair value at March 31, 2024 and December 31, 2023 (in thousands):

 

 

 

As of March 31, 2024 (unaudited)

 

 

 

 

 

 

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

 

Priced in

 

 

other

 

 

Significant

 

 

 

 

 

 

 

 

 

active

 

 

observable

 

 

unobservable

 

 

 

Carrying

 

 

Fair

 

 

markets

 

 

inputs

 

 

inputs

 

 

 

Amount

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

1,243

 

 

$

1,243

 

 

$

1,243

 

 

$

 

 

$

 

Total assets

 

$

1,243

 

 

$

1,243

 

 

$

1,243

 

 

$

 

 

$

 

 

 

 

As of December 31, 2023

 

 

 

 

 

 

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

 

Priced in

 

 

other

 

 

Significant

 

 

 

 

 

 

 

 

 

active

 

 

observable

 

 

unobservable

 

 

 

Carrying

 

 

Fair

 

 

markets

 

 

inputs

 

 

inputs

 

 

 

Amount

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

3,243

 

 

$

3,243

 

 

$

3,243

 

 

$

 

 

$

 

Total assets

 

$

3,243

 

 

$

3,243

 

 

$

3,243

 

 

$

 

 

$

 

 

Cash equivalents – Cash equivalents of $1.2 million and $3.2 million as of March 31, 2024 and December 31, 2023, respectively, consisted of money market funds. Money market funds are classified as Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

There have been no changes to the valuation methodologies utilized by the Company during the three months ended March 31, 2024 compared to the year ended December 31, 2023. The Company evaluates transfers between levels at the end of each reporting period. There were no transfers of financial instruments between levels during the three months ended March 31, 2024 and the year ended December 31, 2023.

 

4. Inventory, net (in thousands)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

 

 

 

Raw materials

 

$

618

 

 

$

752

 

Work in process

 

 

19

 

 

 

 

Finished goods

 

 

165

 

 

 

36

 

Inventory at cost

 

 

802

 

 

 

788

 

Less reserve for obsolescence

 

 

(28

)

 

 

(32

)

Inventory, net

 

$

774

 

 

$

756

 

 

11


 

 

5.
Property and equipment, net (in thousands)

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Computers and equipment

 

$

11

 

 

$

11

 

Manufacturing tools and dies

 

 

148

 

 

 

148

 

Total property and equipment

 

 

159

 

 

 

159

 

Less accumulated depreciation

 

 

(38

)

 

 

(37

)

Property and equipment, net

 

$

121

 

 

$

122

 

Depreciation expense was $1 thousand and $2 thousand for the three months ended March 31, 2024 and 2023, respectively.

 

 

 

6. Commitments and Contingencies

 

Lease

 

The Company executed a noncancelable operating lease for approximately 9,091 square feet of office space in Hayward, California in November 2021 as its headquarters. The lease expires in October 2025 and there is no option to renew for an additional term. The Company is obligated to pay, on a pro-rata basis, real estate taxes and operating costs related to the premises. Upon lease execution, the Company evaluated the lease and determined it should be capitalized as an operating lease. As there was no interest rate implicit in the lease, the Company estimated the incremental borrowing rate at 6% based on the rate available under its revolving credit line, as well as an assessment of the Company's risk based on its financial position at the time and its potential to obtain a collateralized loan for a period similar to the lease term.

 

Lease costs for the three months ended March 31, 2024 and 2023 were $51 thousand and $50 thousand, respectively.

 

The Company’s weighted average remaining lease term and weighted average discount rate as of March 31, 2024 is shown below:

 

Remaining lease term (in years)

 

 

1.50

 

Discount rate

 

 

6.0

%

 

Cash paid for amounts included in the measurement of operating lease liabilities were $51 thousand and $50 thousand for the three months ended March 31, 2024 and 2023, respectively, which is included in operating activities in the statement of operations.

Future minimum maturities of lease liabilities recognized on the condensed balance sheets as of March 31, 2024 are as follows (in thousands):

 

Fiscal Year

 

 

 

Remainder of 2024

 

$

157

 

2025

 

 

178

 

Total minimum lease payments

 

 

335

 

Less imputed interest

 

 

(14

)

Present value of lease payments

 

$

321

 

 

 

 

ALOM Fulfillment Services Agreement

 

On November 25, 2022, the Company entered into a Fulfillment Services Agreement (the “ALOM Agreement”), with ALOM Technologies Corporation (“ALOM”). Pursuant to the ALOM Agreement, commencing on November 28, 2022, ALOM began providing, on a non-exclusive basis, certain assembly, procurement, storage, returns, and fulfillment services to our end customers and retailers within the United States. During the term of the ALOM Agreement, ALOM shall provide the services in accordance with

12


purchase orders issued by us from time to time. The consideration payable by us to ALOM for services rendered under the ALOM Agreement will be calculated and invoiced based on fixed hourly rates and fixed unit pricing, as applicable, subject to certain exceptions; provided that, commencing April 1, 2023, we became subject to $25 thousand minimum monthly purchase requirement. The ALOM Agreement has a three-year initial term, with automatic annual renewals, and may be terminated for convenience by either party upon sixty days written notice to the other party. On March 5, 2024, the ALOM Agreement was amended to waive hourly account management charges and minimum monthly purchase requirements for the period from January 2024 through June 2024, and to extend the initial term of the agreement to December 31, 2024.

 

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when future expenditures are probable and such expenditures can be reasonably estimated. The Company recorded no liabilities for contingent matters as of March 31, 2024.

7. Other Accrued Expenses (in thousands)

 

 

March 31,
2024

 

 

December 31,
2023

 

Accrued payroll and related

 

$

100

 

 

$

218

 

Delaware franchise tax

 

 

20

 

 

 

160

 

Research study costs

 

 

66

 

 

 

51

 

Other

 

 

79

 

 

 

66

 

Total other accrued expenses

 

$

265

 

 

$

495

 

 

8. Preferred Stock

There were no series of preferred stock designated and no shares issued or outstanding at March 31, 2024 and December 31, 2023.

 

The Company’s board of directors is authorized, without action by its stockholders, to designate and issue up to 10,000,000 shares of preferred stock in one or more series, and to fix the voting rights, designations, powers, preferences, the relative, participating, optional or other special rights, if any, and any qualifications, limitations and restrictions thereof, applicable to the shares of any series of preferred stock that they may designate in the future.

 

9. Common Stock

At March 31, 2024 and December 31, 2023, there were 1,473,592 and 1,466,092 shares of Company common stock issued and outstanding, respectively.

 

On February 13, 2023, the Company sold 200,000 shares of its common stock in an underwritten public offering at a price of $25 per share, less underwriting discounts and commissions, resulting in gross proceeds to the Company of $5.0 million. The net proceeds to the Company, after deducting the underwriting discount and commissions and expenses paid by the Company, was approximately $3.6 million. In addition, pursuant to the underwriting agreement entered into in connection with the offering, the Company granted the underwriter a 45-day option to purchase up to an additional 30,000 shares of common stock, solely to cover over-allotments. This option expired in March 2023, and the underwriter did not exercise its option to purchase any additional shares prior to such expiration. Additionally, as partial consideration for services rendered in connection with the offering, the Company issued warrants to purchase an aggregate of 10,000 shares of Company common stock to designees of ThinkEquity. The designees paid an aggregate of $100 for the warrants. The warrants have an initial exercise price of $31.25 per share, have a term of four years from the commencement of sales in the offering, and are exercisable commencing six months from closing.

 

On July 11, 2023, the Company sold 325,000 shares of its common stock to certain investors at a price of $5.50 per share, resulting in gross proceeds to the Company of approximately $1.8 million. Net proceeds to the Company, after deducting placement agent fees and offering expenses paid by the Company, was approximately $1.5 million. As compensation for services rendered by the placement agent, the Company paid the placement agent a cash fee of 8.0% of the aggregate gross proceeds of the offering (amounting to $143 thousand) at closing, as well as $90 thousand for the reimbursement of certain expenses. Additionally, as partial consideration for services rendered in connection with the offering, the Company issued the placement agent unregistered warrants to purchase an aggregate of 13,000 shares of Company common stock, representing 4.0% of the aggregate shares sold in the offering. The warrants

13


have an initial exercise price of $6.60 per share (equal to 120% of the offering price per share), have a term of five years from the commencement of sales in the offering, and are exercisable commencing six months from closing.

 

On July 19, 2023, the Company sold 512,500 shares of its common stock to certain investors at a price of $4.00 per share, resulting in gross proceeds to the Company of approximately $2.1 million. Net proceeds to the Company, after deducting placement agent fees and offering expenses paid by the Company, was approximately $1.7 million. As compensation for services rendered by the placement agent, the Company paid the placement agent a cash fee of 8.0% of the aggregate gross proceeds of the offering (amounting to $164 thousand) at closing, as well as $60 thousand for the reimbursement of certain expenses. Additionally, as partial consideration for services rendered in connection with the offering, the Company issued the placement agent unregistered warrants to purchase an aggregate of 20,500 shares of common stock, representing 4.0% of the aggregate shares sold in the offering. The warrants have an initial exercise price of $4.80 per share (equal to 120% of the offering price per share), have a term of five years from the commencement of sales in the offering, and are exercisable commencing six months from closing.

 

On August 9, 2023, the Company sold 331,730 shares of its common stock to certain investors at a price of $4.10 per share, resulting in gross proceeds to the Company of approximately $1.4 million. Net proceeds to the Company, after deducting placement agent fees and offering expenses paid by the Company, was approximately $1.1 million. As compensation for services rendered by the placement agent, the Company paid the placement agent a cash fee of 8.0% of the aggregate gross proceeds of the offering (amounting to approximately $109 thousand) at closing, as well as $60 thousand for the reimbursement of certain expenses. Additionally, as partial consideration for services rendered in connection with the offering, the Company issued the placement agent unregistered warrants to purchase an aggregate of 13,270 shares of Company common stock, representing 4.0% of the aggregate shares sold in the offering. The warrants have an initial exercise price of $4.92 per share (equal to 120% of the offering price per share), have a term of five years from the commencement of sales in the offering, and are exercisable commencing six months from closing.

 

Effective August 23, 2023, the Company's board of directors approved a reverse stock split of the Company's issued and outstanding shares of common stock, par value $0.0001 per share, at a ratio of 1-for-100. As a result of the reverse stock split, the total number of shares of common stock held by each stockholder of the Company were converted automatically into the number of shares of common stock equal to the number of issued and outstanding shares of common stock held by each such stockholder immediately prior to the reverse stock split divided by 100. The Company issued one whole share of the post reverse stock split common stock to any stockholder who otherwise would have been entitled to receive a fractional share as a result of the reverse stock split. As a result, no fractional shares were issued in connection with the reverse stock split and no cash or other consideration was paid in connection with any fractional shares that would otherwise have resulted from the reverse stock split. Also, all options, warrants and other convertible securities of the Company outstanding immediately prior to the reverse stock split were adjusted by dividing the number of shares of common stock into which such options, warrants and other convertible securities were exercisable or convertible by 100 and multiplying the exercise or conversion price thereof by 100, all in accordance with the terms of the plans, agreements or arrangements governing such options, warrants and other convertible securities and subject to rounding pursuant to such terms. There was no change to the par value, or authorized shares, of either the common stock or preferred stock, as a result of the reverse stock split. All share and per share amounts for the common stock, as well as the warrants outstanding and exercise prices thereof, have been retroactively restated to give effect to the reverse stock split.

 

Common stockholders are entitled to dividends if and when declared by the Board of Directors subject to the rights of the preferred stockholders. As of March 31, 2024, no dividends on common stock had been declared by the Company. At March 31, 2024 and December 31, 2023, the Company had reserved shares of common stock for issuance as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Warrants to purchase common stock

 

 

59,497

 

 

 

59,497

 

Options issued and outstanding

 

 

54,369

 

 

 

14,661

 

Shares available for future stock option grants

 

 

32,786

 

 

 

7,190

 

Total

 

 

146,652

 

 

 

81,348

 

 

10. Common Stock Warrants

Historically, the Company has entered into warrant agreements in connection with certain consulting agreements and equity offerings. In August 2023, the Company implemented a 1-for-100 reverse stock split wherein, per the terms of the agreements, the number of shares of common stock issuable upon exercise of each of the warrants outstanding at that time was reduced by dividing the quantity outstanding by 100 and the exercise price of each such warrant was multiplied by 100. No other terms of the warrants were changed as a result of the reverse stock split.

14


In July 2021, the Company entered into a consulting agreement, pursuant to which 500 warrants to purchase common stock were granted and an additional 500 warrants to purchase common stock were granted in November 2021. The warrants are exercisable upon issuance, have an exercise price of $104 per share and have a term of five years. The consulting agreement was effective as of February 2021, had an initial monthly fee of $5 thousand and a term of two years. The agreement was amended in May of 2022 to increase the monthly payment to $7.5 thousand. Currently, the agreement is automatically renewing on a month-to-month basis until terminated by either party. The warrant issuances are indexed to, and settled in, the Company’s own common stock and were classified within stockholders’ equity.

 

In November 2021, the Company issued warrants to purchase 1,727 shares of common stock to designees of ThinkEquity LLC (“ThinkEquity”), the underwriter of the IPO. The warrants may be exercised at any time on or after May 9, 2022, have an exercise price of $625 per share and have a term of five years. The warrant issuances are indexed to and settled in the Company’s own common stock and were classified within stockholders’ equity.

In February 2023, the Company issued warrants to purchase 10,000 shares of common stock to designees of ThinkEquity, the underwriter of the underwritten public offering of 200,000 shares of Company common stock that closed in February 2023. The designees paid an aggregate of $0.1 thousand for the warrants. The warrants may be exercised at any time on or after August 7, 2023, have an exercise price of $31.25 per share, and have a term of four years commencing 180 days following the commencement of sales in the offering. The warrant issuances were indexed to and settled in the Company’s own stock and were classified within stockholders’ equity.

In July and August 2023, the Company issued a total of 47,670 warrants to purchase shares of common stock to Maxim Group LLC ("Maxim"), the placement agent for each of the three public offerings of the Company's common stock completed during the period. The warrants are exercisable at any time beginning six months after the closing date of the applicable equity offering and expire five years from the from the commencement of sales under the applicable offering. Of the warrants issued in the offerings, 13,000 are exercisable beginning on January 11, 2024 at a price of $6.60 per share; 20,500 are exercisable beginning on January 19, 2024 at a price of $4.80 per share; and 13,270 are exercisable beginning on February 9, 2024 at a price of $4.92 per share.

The Company estimated the value of the warrants in 2023 using the Black-Scholes options valuation model. The fair value of the warrants issued in February 2023 was $195 thousand and was recognized as issuance costs of the common stock issued in the underwritten public offering and was classified within stockholders' equity. The fair value of the warrants issued in July and August 2023 totaled $168 thousand and was recognized as issuance costs of the common stock issued in the three offerings during the period and was classified within stockholders' equity.

The fair value of the warrants issued in 2023 was estimated on the date of grant using the following assumptions:

 

 

 

2023

 

 

Minimum

 

Maximum

Expected life (in years)

 

4.0

 

5.0

Expected volatility

 

116.1%

 

123.9%

Risk-free interest rate

 

3.98%

 

4.24%

Dividend yield

 

0%

 

0%

 

A summary of the Company’s outstanding warrants as of March 31, 2024 is as follows:

 

Class of Shares

 

Number of Warrants

 

 

Exercise Price

 

 

Expiration Date

Common Stock

 

 

500

 

 

$

104.00

 

 

July 1, 2026

Common Stock

 

 

500

 

 

$

104.00

 

 

November 15, 2026

Common Stock

 

 

1,727

 

 

$

625.00

 

 

November 10, 2026

Common Stock

 

 

10,000

 

 

$

31.25

 

 

August 9, 2027

Common Stock

 

 

13,000

 

 

$

6.60

 

 

July 10, 2028

Common Stock

 

 

20,500

 

 

$

4.80

 

 

July 14, 2028

Common Stock

 

 

13,270

 

 

$

4.92

 

 

August 4, 2028

 

11. Equity Incentive Plans

In 2017, the Company adopted its 2017 Equity Incentive Plan (the “2017 Plan”).

15


On November 10, 2021, the 2017 Plan terminated and was replaced by the 2021 Plan (defined below), and future issuances of incentive instruments will be governed by the 2021 Plan. To the extent that outstanding awards under the 2017 Plan are forfeited or lapse unexercised, the shares of common stock subject to such awards will no longer be available for future issuance.

 

2021 Equity Incentive Plan

 

In 2021, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”). Options granted under the 2021 Plan may be Incentive Stock Options or Non-statutory Stock Options, as determined by the Compensation Committee of the Company’s board of directors, who is responsible for administering the 2021 Plan. Stock Purchase Rights may also be granted under the 2021 Plan. The term shall be no more than ten years from the date of grant thereof. In the case of an Incentive Stock Option granted to an optionee who, at the time the option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the option shall be five years from the date of grant or such shorter term as may be provided in the option Agreement. To the extent outstanding awards under the 2021 Plan are forfeited or lapse unexercised, the shares of common stock subject to such awards will be available for future issuance under the 2021 Plan. The 2021 Plan provides that additional shares will automatically be added to the shares authorized for issuance under the 2021 Plan on January 1 of each year. The number of shares added each year will be equal to the lesser of: (i) 5.0% of the outstanding shares of the Company’s common stock on December 31st of the preceding calendar year or (ii) such number of shares determined by the board of directors, in its discretion. On January 1, 2023, 4,839 shares were automatically added to the number of shares authorized for issuance under 2021 Plan (an increase equal to 5% of the number of the outstanding shares of Company common stock as of December 31, 2022. On January 1, 2024, 73,304 shares were automatically added to the number of shares authorized for issuance under 2021 Plan (an increase equal to 5% of the number of the outstanding shares of Company common stock as of December 31, 2023.

 

In the case of an incentive stock option (i) granted to an employee who, at the time of grant of such option, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent or subsidiary of the Company, the exercise price shall be no less than 110% of the fair market value per share on the date of grant; (ii) granted to any other employee, the per share exercise price shall be no less than 100% of the fair market value per share on the date of grant. In the case of a non-statutory stock option (i) granted to an employee who, at the time of grant of such option, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent or subsidiary of the Company, the exercise price shall be no less than 110% of the fair market value per share on the date of grant; (ii) granted to any other service provider, the per share exercise price shall be no less than 100% of the fair market value per share on the date of grant. Notwithstanding the foregoing, options may be granted with a per share exercise price other than as required above pursuant to a merger or other corporate transaction.
 

The options may include provisions permitting exercise of the option prior to full vesting. Any unvested shares upon termination shall be subject to repurchase by the Company at the original exercise price of the option.

As of March 31, 2024, there were 32,786 shares of common stock available for issuance under the 2021 Plan.

Stock options granted under the Company’s equity incentive plans generally vest over four years from the date of grant.

The following table summarizes the stock option award activity for the three months ended March 31, 2024:

 

 

 

Outstanding

 

 

Exercisable

 

January 1, 2024

 

 

14,661

 

 

 

6,110

 

Granted

 

 

42,000

 

 

 

 

Vested

 

 

 

 

 

347

 

Canceled or expired

 

 

(2,292

)

 

 

(781

)

Exercised

 

 

 

 

 

 

March 31, 2024

 

 

54,369

 

 

 

5,676

 

 

The weighted-average exercise price as of March 31, 2024 for stock options outstanding and stock options exercisable was $34.52 and $200.07, respectively. The weighted average remaining contractual life as of March 31, 2024 for stock options outstanding and stock options exercisable was 9.28 and 5.88 years, respectively.

The following table sets forth the status of the Company's non-vested restricted common stock awards:

16


 

 

 

 

Weighted-Average

 

 

 

Number of

 

Grant Date

 

 

 

Shares

 

Fair Value Per Share

 

January 1, 2024

 

 

 

$

-

 

Issuance of restricted common stock

 

 

7,500

 

$

1.34

 

Vested

 

 

 

$

-

 

Cancelled

 

 

 

$

-

 

March 31, 2024

 

 

7,500

 

$

1.34

 

 

There were no restricted stock awards outstanding during the year ended December 31, 2023.

 

Stock-Based Compensation

Total stock-based compensation recorded in the condensed statements of operations is allocated as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Research and development

 

$

22

 

 

$

31

 

Sales and marketing

 

 

 

 

 

2

 

General and administrative

 

 

32

 

 

 

51

 

Total stock-based compensation

 

$

54

 

 

$

84

 

 

 

 

12. Net Loss per Share

The following outstanding potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share for the periods presented due to their antidilutive effect:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Warrants to purchase common stock

 

 

59,497

 

 

 

12,727

 

Common stock options issued and outstanding

 

 

54,369

 

 

 

12,239

 

Total

 

 

113,866

 

 

 

24,966

 

 

 

17


13. Subsequent Events

On May 9, 2024, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement”) with certain investors, pursuant to which the Company agreed to sell, issue and deliver, in a registered public offering (the “Offering”) (i) 4,710,000 shares (“Shares”) of common stock, (ii) 4,710,000 Series A warrants (the “Series A Warrants”) to purchase up to 4,710,000 shares of common stock and (iii) 7,065,000 Series B warrants (the “Series B Warrants” and collectively with the Series A Warrants, the “Common Warrants”) to purchase up to 7,065,000 shares of common stock, to the investors. Under the terms of the Purchase Agreement, the Company agreed to sell one share of common stock together with one Series A Warrant and one and a half Series B Warrants at a combined public offering price of $0.85 per share and Common Warrants. The Common Warrants are exercisable immediately upon issuance and have an exercise price of $0.85 per share, subject to adjustment. The Series A Warrants will expire one year from the date of issuance and the Series B Warrants will expire five years from the date of issuance.

The Offering closed on May 13, 2024. The securities were registered pursuant to the registration statement on Form S-1 (File No. 333-278383), which was initially filed with the SEC on March 29, 2024, and amended on April 29, 2024 and May 8, 2024, and declared effective on May 9, 2024.

Maxim acted as placement agent, on a “reasonable best efforts” basis, in connection with the Offering. On May 9, 2024, the Company and Maxim entered into a Placement Agency Agreement (the “Placement Agency Agreement”), pursuant to which, as
compensation for services rendered by Maxim in connection with the Offering, the Company agreed to pay Maxim an
aggregate cash fee of
7.0% of the gross proceeds of the Offering (amounting to $280 thousand) at closing, as well as $100 thousand for the reimbursement of certain of Maxim’s expenses. Additionally, the Company issued to Maxim, as part of Maxim's compensation, 188,400 warrants to purchase up to an aggregate of 188,400 shares of common stock (the “Placement Agent Warrants”), equal to 4.0% of the aggregate number of Shares placed in the Offering. The Placement Agent Warrants have a term of five years from the commencement of sales under the Offering, are exercisable commencing six months from the closing date, and have an exercise price of $0.935 per share (equal to 110% of the combined public offering price per share and Common Warrants).

The Company received gross proceeds from the Offering of approximately $4.0 million, before deducting placement agent fees and other estimated offering expenses payable by the Company. The net proceeds to the Company from the Offering, after deducting the placement agent fees and expenses and estimated Offering expenses (excluding proceeds to the Company, if any, from the future exercise of the Common Warrants and Placement Agent Warrants), were approximately $3.5 million. The Company intends to use the net proceeds from the Offering as working capital for general corporate purposes.

In conjunction with the closing of the Offering, the Company entered into a Warrant Agency Agreement with Equiniti Trust Company, LLC (“Equiniti”), pursuant to which Equiniti agreed to act as warrant agent with respect to the Common Warrants issued by the Company in the Offering.

In addition, the Company (i) has agreed not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of the Company’s (or its subsidiary’s) securities for a period of ninety days from the closing of the Offering, subject to certain exceptions and (ii) shall not effect or enter into an agreement to effect any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents (or a combination of units thereof) involving a variable rate transaction. Additionally, in connection with the Offering, each of the officers and directors of the Company entered into lock-up agreements, pursuant to which they agreed not to sell or transfer any of the Company securities they hold, subject to certain exceptions, during the 90-day period following the closing of the Offering.

18


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with the interim condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10‑Q, as well as our audited financial statements and related notes as disclosed in our Annual Report on Form 10‑K for the fiscal year ended December 31, 2023. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part II, Item 1A “Risk Factors” or in other parts of this Quarterly Report on Form 10‑Q, as well as those identified in the “Risk Factors” section of our Annual Report on Form 10‑K for the fiscal year ended December 31, 2023, each of which Risk Factors are incorporated in this Quarterly Report on Form 10-Q by reference. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. See “Forward-Looking Statements.”

Business Overview

Tivic Health is a health tech company focused on bioelectronic medicine. Bioelectronic medicine is a branch of the global neuromodulation market that treats disease and conditions by modulating the electrical signals carried along various nerve pathways. The field grew out of the neuromodulation industry and relied, historically, on implantable devices (e.g., pacemakers, spinal implants, deep brainstimulators). IDTechEx has identified several fast-growing areas in the bioelectronic medicine field, including peripheral nerve stimulation, which it has indicated is forecasted to grow at a 35% CAGR from 2019 through 2029. Tivic currently has two non-invasive bioelectronic platforms designed to deliver therapeutic benefits via manipulation of such signals without the use of traditional implanted technology.

Commercial Platforms

Tivic has developed two complementary platforms. Tivic’s first commercial platform is a handheld design that interfaces non-invasively with the trigeminal, sympathetic, and other facial and cranial nerve structures. This platform is the basis for Tivic’s existing product, currently marketed with FDA approval as ClearUP Sinus Pain Relief for the treatment of sinus pain and congestion.

The second platform is a research-stage platform directed to vagus nerve stimulation, which is currently undergoing clinical evaluation.

First Commercial Product

Tivic Health currently markets one commercial product under the brand name “ClearUP Sinus Pain Relief.” ClearUP is built on our patented, handheld neuromodulation design and was developed by Tivic Health for the treatment of sinus and allergy-related conditions. It uses ultra-low current electrical waves to relieve sinus pain and congestion symptoms that are prevalent in nasal allergies, sinus infections, chronicsinusitus, cold and flu and other disease conditions. ClearUP had U.S. FDA approval for the treatment of sinus pain and congestion, and is the first FDA-approved bioelectronic treatment of the foregoing indications. Additionally, ClearUP has E.U. CE Mark approval for the treatment of sinus pain, pressure and congestion.

The FDA initially provided clearance to our ClearUP product under a 510(k) as an allergy treatment in January 2019. The FDA granted ClearUP a subsequent De Novo clearance in March 2021, which expanded ClearUP’s label, enabling marketing of ClearUP for allergies, sinusitis, cold, flu, and any inflammatory condition involving congestion.

A 2023 study with over 2,000 representative consumers conducted by Intellego Insights (commissioned by Tivic Health) identified that approximately 85 million U.S. adults experience inflammation-related symptoms related to allergies, congestion, head pain, and sinus issues. Of the consumers that participated in the study, 58% of sufferers try to avoid medication, if at all possible.

Customers can purchase ClearUP products directly from Tivic via our own website and through major online stores, including Amazon, Walmart, BestBuy, FSAStore and HSA Store. The Company has also entered distribution agreements with McKesson, Cardinal Health and Amerisource Bergen (now Cencora).

A sham-controlled clinical trial is in progress with the Icahn School of Medicine at Mount Sinai, to extend the use of Tivic’s handheld monopolar platform to the management of pain resulting from functional endoscopic sinus surgery and other facial surgeries. If successful, the Company may develop additional products addressing this clinical use case, which would require new regulatory clearances for a novel indication.

19


We have also previously evaluated the market opportunity for use of ClearUP as part of a migraine treatment toolkit. While we believe that both clinical and market rationale are positive for such use, we have, for the time being, determined to down-prioritize any clinical studies of migraine-related indications based on the aggressive competition among entrenched incumbents and limited uptake, to date, of existing devices for the treatment and/or prevention of migraine.


Recent Developments

 

May 2024 Public Offering

 

On May 13, 2024, we sold an aggregate of (i) 4,710,000 shares of common stock, (ii) Series A warrants to purchase up to 4,710,000 shares of common stock and (iii) Series B warrants to purchase up to 7,065,000 shares of common stock to certain investors in a registered public offering at a combined public offering price of $0.85 per share and accompanying warrants. We also issued Maxim Group LLC, who served as the placement agent for the offering, warrants to purchase 188,400 shares of common stock as partial compensation for services rendered in connection with the offering. The securities were registered pursuant to the registration statement on Form S-1 (File No. 333-278383), which was initially filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2024, and amended on April 29, 2024 and May 8, 2024, and declared effective on May 9, 2024.

 

We received gross proceeds from the offering of approximately $4.0 million, before deducting placement agent fees and other estimated offering expenses payable by the Company. Net proceeds to the Company from the Offering, after deducting the placement agent fees and expenses and estimated offering expenses (excluding proceeds to the Company, if any, from the future exercise of the warrant issued in connection with the offering), were approximately $3.5 million. See Note 13 to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q for additional information regarding this offering.

 

VNS Clinical Research

On May 8, 2024, we announced the final results of our pilot research study with The Feinstein Institutes for Medical Research at Northwell Health. Through this collaboration, we have confirmed the effectiveness of our patent-pending non-invasive cervical vagus nerve stimulation (“ncVNS”) approach, which induces responses in the autonomic, cardiac, and central nervous systems and can be expected to have clinical utility in several major disease areas.

 

Compared to baseline measurement, our ncVNS intervention resulted in a 97% increase in the root mean square of successive differences (“RMSSD”) measure of heart rate variability, which is a widely accepted proxy for vagus nerve activity.
Measurements of brain activity using EEG demonstrated that our ncVNS intervention increased frontal theta power by 24% and reduced gamma power in several brain regions, including a 66% reduction in frontal gamma power. These changes in brain activity are consistent with reduced arousal and anxiety.
During ncVNS stimulation, subjects had sustained pupil constriction, a 9.5% reduction in pupil diameter, an outcome associated with activation of the parasympathetic nervous system.

 

Previous studies of non-invasive VNS devices have reported mixed results regarding autonomic nervous system changes. The magnitude of our ncVNS data imply potential for greater clinical effects and enhanced reproducibility. While these results were in healthy subjects, the data suggest our ncVNS approach may have clinical utility in several patient populations including those with epilepsy, post-traumatic stress disorder, and ischemic stroke, among others.

 

Operational Updates

 

In Q1 2024, we invested in our product, innovation and development as follows:

We launched ClearUP 2.0 and began decommissioning older models. The new version included new power management circuitry and improved power management for faster charging and longer battery life.
We entered a limited exclusive distribution agreement with McKesson Medical, one of the Top 10 Medical Equipment Distributors and Suppliers in the nation. Under the terms of the agreement, McKesson affiliate Simply Medical will have certain exclusive distribution rights for Tivic Health’s ClearUP product for Walmart, Target, eBay and Kroger, as well as non-exclusive distribution rights in other specified on-line channels.

20


We announced completion of enrollment in its clinical study with The Feinstein Institute for Medical Research, Northwell Health, testing a proprietary approach to non-invasive vagus nerve stimulation, for which we publicly announced the final data analysis results on May 8, 2024.
We continued to invest in our intellectual property portfolio, filing our first vagus nerve stimulation patent and prosecuting existing filings.

 

We have continued to intentionally maintain a small core team at this stage of the Company, including decreasing our headcount to reduce operating expenses. We have relied, and continue to rely, heavily on third-party service providers, including marketing agencies, contract manufacturing organizations, software-as-a-service platforms, clinical research organizations, academic research partnerships, finance and accounting support, and legal support to carry out our operations.

 

Results of Operations