# BioCardia, Inc.: Form 10-Q for the period ended Sep 30, 2019

- Company: [BioCardia, Inc.](/companies/bcda.md) (CIK 925741)
- Form: 10-Q
- Filed: 2019-11-19
- Accepted by EDGAR: Nov 19, 2019, 16:02 ET
- Period: 2019-09-30
- Accession: 0001437749-19-023200
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/925741/000143774919023200/bcda20190930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/925741/000143774919023200/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-07-01 to 2019-09-30 | $194.0k | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2019-01-01 to 2019-09-30 | $495.0k | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2019-07-01 to 2019-09-30 | $24.0k | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2019-01-01 to 2019-09-30 | $321.0k | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2019-07-01 to 2019-09-30 | $2.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2019-01-01 to 2019-09-30 | $6.4m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2019-07-01 to 2019-09-30 | $1.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2019-01-01 to 2019-09-30 | $4.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2019-07-01 to 2019-09-30 | −$3.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2019-01-01 to 2019-09-30 | −$10.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-07-01 to 2019-09-30 | $112.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2019-01-01 to 2019-09-30 | $112.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2019-07-01 to 2019-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2019-01-01 to 2019-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-07-01 to 2019-09-30 | −$3.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2019-01-01 to 2019-09-30 | −$11.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-07-01 to 2019-09-30 | −$0.63 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 9 months, 2019-01-01 to 2019-09-30 | −$2.13 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 9 months, 2019-01-01 to 2019-09-30 | −$6.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2019-01-01 to 2019-09-30 | $144.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2019-09-30 | $8.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-09-30 | $9.2m | us-gaap:AssetsCurrent |
| Total assets | at 2019-09-30 | $10.7m | us-gaap:Assets |
| Current liabilities | at 2019-09-30 | $4.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-09-30 | $5.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2019-09-30 | $5.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,592 characters.

*The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains certain 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. Any and all statements contained in this Annual Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Quarterly Report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating to the development of our cell therapy systems and our clinical trials, (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our ability to raise additional capital, (iv) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the SEC and (vi) the assumptions underlying or relating to any statement described in points (i) – (iv) above. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and elsewhere in this Quarterly Report on Form 10-Q and those listed in our Annual Report on Form 10-K. Historical results are not necessarily indicative of future results. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.*

### Overview

We are a clinical-stage regenerative medicine company developing novel therapeutics for cardiovascular diseases with large unmet medical needs. Our lead therapeutic candidate is the investigational CardiAMP Cell Therapy System, which provides an autologous bone marrow derived cell therapy (using a patient’s own cells) for the treatment of two clinical indications: heart failure that develops after a heart attack and chronic myocardial ischemia.

To date, we have devoted substantially all our resources to research and development efforts relating to our therapeutic candidates and biotherapeutic delivery systems, including conducting clinical trials, developing manufacturing and sales capabilities, in-licensing related intellectual property, providing general and administrative support for these operations and protecting our intellectual property. We have also generated modest revenues from sales of our approved products. We have funded our operations primarily through the sales of equity and convertible debt securities, and certain government and private grants.

We have incurred net losses in each year since our inception. Our net losses were approximately $3.8 million and $3.5 million for the three months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, we had an accumulated deficit of approximately $97.6 million. Substantially all our net losses have resulted from costs incurred in connection with our research and development programs, clinical trials, intellectual property matters, building our manufacturing and sales capabilities, and from general and administrative costs associated with our operations. As discussed in more detail under “Liquidity and Capital Resources”, there is substantial doubt about our ability to continue as a going concern within one year after the date this Quarterly Report on Form 10-Q is filed with the SEC, and we plan to raise additional capital, potentially including debt and equity arrangements, to finance our future operations. There can be no assurances as to the availability of capital or the terms on which capital will be available, if at all.

### CardiAMP Cell Therapy System

The CardiAMP Heart Failure Trial is a Phase III, multi-center, randomized, double-blinded, sham-controlled study of up to 260 patients at 40 centers nationwide, which includes a 10-patient roll-in cohort. The Phase III pivotal trial is designed to provide the primary support for the safety and efficacy of the CardiAMP Cell Therapy System. The trial’s primary endpoint is a clinical composite of six minute walk distance and major adverse cardiac and cerebrovascular events. Based on the results achieved in the Phase II trial, our Phase III pivotal trial is designed to have more than 95% probability of achieving a positive result with statistical significance.

The ongoing CardiAMP Heart Failure Trial is enrolling today at 24 clinical sites. The independent Data Safety Monitoring Board (DSMB) completed a prespecified data review in September 2019, which included the safety follow-up results on 35 patients at and all additional data available on the 50 patients randomized in the trial as of August 31, 2019. The DSMB indicated there were no safety concerns with the study results and recommended that the trial continue as planned.

Because there have been no safety concerns in the CardiAMP Heart Failure Trial, enrollment remains our primary focus and challenge. The trial investigators have enrolled 58 patients to date. We anticipate a DSMB interim readout from the trial in the fourth quarter of 2020 on 60 patients at one year follow-up that will include all patients enrolled at that time point. This fourth quarter of 2020 event is anticipated to be the first randomized efficacy data set including the primary endpoint reviewed by the DSMB.

We have recently addressed two barriers for patients to participate in the trial. The first of these is that the patients in the trial are all interested in receiving therapy and less interested in being in the control arm that does not have a path to receive therapy. Secondly, the requirement for patient out of pocket copays in our Medicare reimbursed trial appears to be a barrier to patient enrollment. To address these barriers to patient participation, we submitted an Investigational Device Exemption (IDE) supplement to the FDA with changes to enable patients in the control arm to “Cross Over” to therapy after certain follow-up visits in the trial have been completed, which assures the trial control arm patients early access to therapy if the trial meets its primary endpoint and is deemed appropriate for the patients by their physicians, and to enable BioCardia to cover the costs of all patient co-pays so that participation in the investigational trial is free for insured patients. The FDA has recently approved this IDE supplement. These changes, coupled with site specific plans intended to further accelerate enrollment, are being actively rolled out. We need a significant uptick in the rate of enrollment to complete this phase of the trial in 2020. We expect to have more clarity on target trial completion once these initiatives are in place.

The FDA has approved a second IDE for the randomized controlled pivotal trial of the CardiAMP Cell Therapy System in patients with refractory chronic myocardial ischemia for up to 343 patients at up to 40 clinical sites in the United States. This therapeutic approach uses many of the same novel aspects as the CardiAMP Heart Failure Trial and is expected to leverage our experience and investment in the heart failure trial. We anticipate that many of the investigators and sites will be the same for both the heart failure and chronic myocardial ischemia indications. This trial has not yet been initiated as we are sensitive to efforts that could impact the ongoing heart failure program, although it is expected this second pivotal trial will benefit significantly from all of the experience we have gained from the heart failure program.

The Department of Health & Human Services Centers for Medicare & Medicaid Services, or CMS, has designated that both the CardiAMP Heart Failure Trial and the CardiAMP Chronic Myocardial Ischemia Trial qualify for Medicare national coverage. Covered costs include patient screening, the CardiAMP Cell Therapy System and procedure, and clinical follow-up at one and two years after the procedure. Private insurance plans covering 50 million insured Americans follow this CMS reimbursement policy and are similarly anticipated to cover these costs. This coverage significantly reduces the Company’s cost of conducting these pivotal trials.

### CardiALLO Cell Therapy System

Our second therapeutic candidate is the CardiALLO Cell Therapy System, an investigational culture expanded bone marrow derived “off the shelf” mesenchymal stem cell therapy. CardiALLO cell therapy cells are expanded from Neurokinin-1 receptor positive bone marrow cells. While these cells are being advanced to treat heart failure, they have potential for numerous therapeutic applications as these are anticipated to be the cells that respond to the release of Substance P. Substance P (“SP”) is a neuropeptide released from sensory nerves and is associated with the inflammatory processes and pain. SP is believed to be a key first responder to most noxious/extreme stimuli (stressors), i.e., those with a potential to compromise biological integrity. SP is thus regarded as an immediate defense, stress, repair survival system. The endogenous receptor for SP is the Neurokinin-1 receptor, which is distributed over cytoplasmic membranes of many cell types (for example neurons, glia, endothelia of capillaries and lymphatics, fibroblasts, stem cells, and white blood cells) in many tissues and organs. SP amplifies or excites most cellular processes. Elevation of serum, plasma, or tissue SP and/or its receptor Neurokinin-1 has been associated with many diseases: sickle cell crisis, inflammatory bowel disease, major depression and related disorders, fibromyalgia rheumatological, and infections such as HIV/AIDS and respiratory syncytial virus, as well as in cancer.

Our CardiALLO Neurokinin-1 positive derived cells are believed to be an important subset of the cells that we have delivered in our previous preclinical and clinical mesenchymal stem cell studies. We believe this therapy presents the advantages of an "off the shelf" therapy that does not require tissue harvesting or cell processing. We have completed manufacturing validation runs of these cells at BioCardia to support future clinical studies. We are working to obtain FDA acceptance of an Investigational New Drug (“IND”) application for the Phase I/II trial for CardiALLO Cell Therapy System for the treatment of ischemic systolic heart failure in the second quarter of 2020.

The subset of patients we are targeting initially for the CardiALLO Heart Failure Trial are those that have been excluded from our ongoing CardiAMP Heart Failure Trial due to their lower cell potency assay scores. If the CardiAMP trial is successful there is the potential for the CardiALLO therapy indication to be designated as an orphan indication.

### Helix™ Biotherapeutic Delivery System

BioCardia’s Helix Biotherapeutic Delivery System or “Helix” is believed to be the leading percutaneous catheter delivery system for cardiovascular regenerative medicine. It enables investigational studies of local delivery of cell and gene-based therapies, including CardiAMP and CardiALLO cell therapies to treat cardiovascular indications. Helix is in use or has potential to be used to treat many cardiac diseases including heart failure with reduced ejection fraction, heart failure with preserved ejection fraction, obstructive hypertrophic cardiomyopathy, myocardial infarction, chronic myocardial ischemia, and cardiac conduction disorders. The Helix’s small hollow, distal helical needle is advanced, similar to an angioplasty catheter, and is passed over the aortic arch and across the aortic valve through the Company’s Morph guide catheter or “Morph”. The Helix is then advanced from within the Morph, and its helical needle is rotated into the heart tissue to provide active fixation during therapeutic delivery, similar to the active fixation electrodes used in cardiac pacing. This fixation to the beating heart wall provides for stability and control during the delivery procedure. It uses simplified fluoroscopic imaging, crosses the aortic arch and valve over a guide wire, and provides the operator with three degrees of freedom to maximize operator control. The Helix is approved in Europe with CE Mark and is under investigational use in the United States and is being used in pre-clinical and clinical investigations of cell, gene, and protein therapies.

### Morph Deflectable Guide and Sheaths Product

BioCardia’s Morph catheter is designed to enable physicians to navigate through tortuous anatomy, customize the shape of the catheter to the patient's anatomy and their clinical needs during the procedure, and to have stellar back up support once positioned. Morph catheters enable all Helix procedures and have been commercially available to treat more than ten thousand patients. A number of Morph guides and sheaths are approved for commercial sale in the United States, including the Morph AVANCE™ which received FDA clearance in May 2019 and was first used commercially in September 2019. Certain Morph catheter systems are approved in Europe with CE Mark.

### Financial Overview

### Revenue

We currently have a portfolio of enabling and delivery products, from which we have generated modest revenue.

### Cost of Goods Sold

Cost of goods sold includes the costs of raw materials and components, manufacturing personnel and facility costs and other indirect and overhead costs associated with manufacturing our enabling and delivery products.

### Research and Development Expenses

Our research and development expenses consist primarily of:

- salaries and related overhead expenses, which include share-based compensation and benefits for personnel in research and development functions;
- fees paid to consultants and contract research organizations, or CROs, including in connection with our preclinical studies and clinical trials and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial management and statistical compilation and analysis;
- costs related to acquiring and manufacturing clinical trial materials;
- costs related to compliance with regulatory requirements; and
- payments related to licensed products and technologies.

We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress of completion of specific tasks using information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and the services are received.

We plan to increase our research and development expenses for the foreseeable future as we continue the pivotal CardiAMP Heart Failure Trial, advance the pivotal CardiAMP Chronic Myocardial Ischemia Trial, further develop the CardiAMP and CardiALLO Cell Therapy Systems, and subject to the availability of additional funding, develop other therapeutic candidates for additional indications. We typically use our employee and infrastructure resources across multiple research and development programs, and accordingly, we have not historically allocated resources specifically to our individual programs.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration, sales, corporate development and administrative support functions, including share-based compensation expenses and benefits. Other selling, general and administrative expenses include sales commissions, rent, accounting and legal services, obtaining and maintaining patents, the cost of consultants, occupancy costs, insurance premiums and information systems costs.

### Other Income (Expense)

Other income and expense consist primarily of interest income we earn on our cash, cash equivalents and investments as well as net expenses incurred accounting for the derivative liabilities. We recorded a gain on the change in fair value of the derivative liabilities of approximately $52,000, a loss on extinguishment of convertible notes for approximately $521,000 as well as recognized interest expense of approximately $112,000, which included accretion of the debt discount of approximately $104,000.

### Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various judgements that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not clear from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Apart from the adoption of ASU No. 2018-07, Compensation–Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting on January 1, 2019, which led to an amended stock-based compensation policy (see Note 2 of our Condensed Consolidated Financial Statements), there have been no changes in our critical accounting estimates or accounting policies described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K.

### Results of Operations

#### Comparison of Three and Nine Months Ended September 30, 2019 and 2018

The following table summarizes our results of operations for the three and nine months ended September 30, 2019 and 2018 (in thousands):

| Revenue: | Three months ended September 30, 2019 | 2018 | Nine months ended September 30, 2019 | 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net product revenue | $1 | $52 | $139 | $223 |
| Collaboration agreement revenue | 193 | 32 | 356 | 299 |
| Total revenue | 194 | 84 | 495 | 522 |
| Costs and expenses: |  |  |  |  |
| Cost of goods sold | 24 | 109 | 321 | 401 |
| Research and development | 2,007 | 2,262 | 6,392 | 6,248 |
| Selling, general and administrative | 1,390 | 1,283 | 4,460 | 4,315 |
| Total costs and expenses | 3,421 | 3,654 | 11,173 | 10,964 |
| Operating loss | (3,227) | (3,570) | (10,678) | (10,442) |
| Other income (expense): |  |  |  |  |
| Interest income | 17 | 29 | 53 | 100 |
| Gain on change in fair value of redemption feature embedded in convertible notes | 52 | - | 52 | - |
| Interest expense | (112) | - | (112) | - |
| Loss on extinguishment of convertible notes | (521) | - | (521) | - |
| Other expense | (1) | (3) | (2) | (3) |
| Total other income (expense) | (565) | 26 | (530) | 97 |
| Net loss | $(3,792) | $(3,544) | $(11,208) | $(10,345) |

21

*Revenue.* Revenue increased to $194,000 in the third quarter of 2019 as compared to $84,000 in the third quarter of 2018. These changes are primarily due to growing partnering activities under programs with our collaborative partners. Revenues decreased to $495,000 in the nine months ended September 30, 2019 as compared to $522,000 in the nine months ended September 30, 2018. This decrease was caused by reduced volumes of commercial catheter sales, partially offset by growth in in partnering activities under programs with our collaborative partners. We expect revenues to continue to increase in the fourth quarter of 2019 and modestly year over year.

*Cost of Goods Sold.* Cost of goods sold decreased by approximately $85,000 and $80,000, respectively, during the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018, primarily due to the decrease in net product sales volumes partially offset by an increase in inventory reserves in 2019 for raw materials related to the planned transition to the new Morph AVANCE™ product family. We expect cost of goods sold to continue to decrease in the fourth quarter of 2019 as compared to the fourth quarter of 2018 and decrease moderately year over year.

*Research and Development Expenses.* Research and development expenses decreased by approximately $255,000 and increased by $144,000, respectively, during the three months and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018. Discretionary research and development expenses in the three months ended September 30, 2019 were reduced, where this could be done without adversely impacting the projects, until the successful financing event occurred in the quarter. Clinical trial activities for the nine months ended September 30, 2019 were overall higher than those in the same period of 2018 because the number of sites and patients treated increased year over year. We expect research and development expenses to increase modestly as we advance the CardiAMP Heart Failure Trial and we further develop the CardiAMP and CardiALLO platforms.

*Selling, General and Administrative Expenses.* Selling, general and administrative expenses for the three and nine months ended September 30, 2019 increased by approximately $107,000 and $145,000, respectively, compared to the three and nine months ended September 30, 2018, primarily due to expenses associated with the reverse stock split, the up listing to the Nasdaq Capital Market and additional staffing and consultants for finance and administrative operations. We expect selling, general and administrative expenses to be relatively consistent in the fourth quarter of 2019 with the fourth quarter of 2018 and increase modestly year over year.

*Other income and expense.* Other income and expense consists primarily of interest income we earn on our cash, cash equivalents and investments as well as net expenses incurred accounting for the derivative liabilities. We recorded a gain on the change in fair value of the derivative liabilities of approximately $52,000, a loss on extinguishment of convertible notes for approximately $521,000 and recognized interest expense of approximately $112,000 on the convertible notes, which included accretion of the debt discount of approximately $104,000 for the three and nine months ended September 30, 2019.

### Liquidity and Capital Resources

We have incurred net losses each year since our inception and as of September 30, 2019, we had an accumulated deficit of approximately $97.6 million. We anticipate that we will continue to incur net losses for the next several years.

We have funded our operations principally through the sales of equity and convertible debt securities as well as the cash acquired through our reverse merger transaction that was completed on October 24, 2016, $3.8 million raised from the sale of unregistered securities on December 24, 2018, the $625,000 raised from convertible notes that converted in July 2019 and the $9.27 million in net proceeds raised from the sale of common stock and warrants in August and September 2019. As of September 30, 2019, we had cash and cash equivalents of approximately $8.9 million.

The following table shows a summary of our cash flows for the periods indicated (in thousands):

| Net cash provided by (used in): | Nine Months Ending September 30, 2019 2019 | 2018 |
| --- | ---: | ---: |
| Operating activities | $(6,189) | (7,823) |
| Investing activities | (144) | (51) |
| Financing activities | 9,885 | 5 |
| Net decrease in cash and cash equivalents | $(3,552) | $(7,869) |

*Cash Flows from Operating Activities*. The decrease in overall spending for operating activities of $1.6 million in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 related primarily to increases in noncurrent customer deposits and deferred revenue, and board cash compensation that was deferred during the nine months ended September 30, 2019 coupled with 2018 management bonuses settled in equity in 2019 instead of cash. We expect spending to increase modestly as we advance the CardiAMP Heart Failure Trial, further develop the CardiAMP and CardiALLO cell therapy systems and continue to strengthen and enhance the supporting organization.

*Cash Flows from Investing Activities*. Net cash used in investing activities of $144,000 during the nine months ended September 30, 2019 consisted primarily of purchases of lab equipment and clean room environmental systems. Net cash used in investing activities of $51,000 during the nine months ended September 30, 2018 consisted primarily of purchases of lab equipment.

*Cash Flows from Financing Activities*. Net cash provided by financing activities during the nine months ended September 30, 2019 consisted of proceeds from the sales of stock and warrants in August and September 2019 and proceeds from convertible notes received in July 2019 that converted in August 2019. Net cash provided by financing activities of $5,000 during the nine months ended September 30, 2018 consisted of the proceeds from the exercise of stock options.

### Future Funding Requirements

To date, we have generated modest revenue from sales of our approved products. We do not know when, or if, we will generate any revenue from our development stage biotherapeutic programs. We do not expect to generate any revenue from sales of our CardiAMP or CardiALLO therapeutic candidates unless and until we obtain regulatory approval. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our therapeutic candidates. In addition, subject to obtaining regulatory approval for any of our therapeutic candidates and companion diagnostic, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need additional funding in connection with our continuing operations.

Based upon our current operating plan, we believe that the cash and cash equivalents of $8.9 million as of September 30, 2019 is not sufficient to fund our operations for one year from the date these financial statements are issued. In order to continue to further the development of our lead therapeutic candidates, the CardiAMP Cell Therapy System, and our second therapeutic candidate, the CardiALLO Cell Therapy System, beyond one year from the date these financial statements are issued, we will need to raise additional capital. We plan to raise additional capital, potentially including debt and equity arrangements as well as selling off rights to certain non-core assets, to finance our future operations, but there can be no assurances as to the availability of capital or the terms on which capital will be available, if at all. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our therapeutic candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our therapeutic candidates.

Our future capital requirements will depend on many factors, including:

- the progress, costs, results and timing of our CardiAMP and CardiALLO clinical trials and related development programs;
- FDA acceptance of our CardiAMP and CardiALLO therapies for heart failure and for other potential indications;
- the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals;
- the costs associated with securing, establishing and maintaining commercialization and manufacturing capabilities;
- the number and characteristics of product candidates that we pursue, including our product candidates in preclinical development;
- the ability of our product candidates to progress through clinical development successfully;
- our need to expand our research and development activities;
- the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;
- our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
- the general and administrative expenses related to being a public company;
- our need and ability to hire additional management and scientific, medical and sales personnel;
- the effect of competing technological and market developments; and
- our need to implement additional internal systems and infrastructure, including financial and reporting systems.

Until such time that we can generate meaningful revenue from the sales of approved therapies and products, if ever, we expect to finance our operating activities through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements, and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stock holders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stock holders. Debt financing, if available, may involve agreements that include conversion discounts or covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, or strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, products or therapeutic candidates or to grant licenses on terms that may not be favorable to us.

Our condensed consolidated financial statements as of and for the nine months ended September 30, 2019 have been prepared on the basis that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. Due to the factors described above, there is substantial doubt about our ability to continue as a going concern within one year after the date these financial statements are issued. Our ability to continue as a going concern will depend in a large part, on our ability to raise additional capital. If adequate funds are not available, we may be required to reduce operating expenses, delay or reduce the scope of our product development programs, obtain funds through arrangements with others that may require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves, or cease operations. While we believe we have a viable strategy to raise additional funds, there can be no assurances that we will be able to obtain additional capital on acceptable terms and in the amounts necessary to fully fund our operating needs.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we are unable to continue as a going concern, we may be forced to liquidate assets. In such a scenario, the values received for assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

### Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules of the Securities and Exchange Commission.

### Recent Accounting Pronouncements

See Note 2 of our notes to condensed consolidated financial statements for information regarding recent accounting pronouncements that are of significance or potential significance to us.

## Market risk

As filed, 1,612 characters.

There have been no material changes in our market risks during the quarter ended September 30, 2019.

Our exposure to market risk is currently limited to our cash and cash equivalents, all of which have maturities of less than three months. The goals of our investment policy are preservation of capital, maintenance of liquidity needs, and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk or departing from our investment policy. We currently do not hedge interest rate exposure. Because of the short-term nature of our cash equivalents, we do not believe that an increase in market rates would have a material negative impact on the value of our portfolio.

### Interest Rate Risk

As of September 30, 2019, based on current interest rates and total borrowings outstanding, a hypothetical 100 basis point increase or decrease in interest rates would have an immaterial pre-tax impact on our results of operations.

### Foreign Currency Exchange Risks

We are a U.S. entity and our functional currency is the U.S. dollar. The vast majority of our revenues were derived from sales in the United States. We have business transactions in foreign currencies; however, we believe we do not have significant exposure to risk from changes in foreign currency exchange rates at this time. We do not currently engage in hedging or similar transactions to reduce our foreign currency risks. We will continue to monitor and evaluate our internal processes relating to foreign currency exchange, including the potential use of hedging strategies.

## Controls and procedures

As filed, 2,477 characters.

### Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, as of September 30, 2019, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of September 30, 2019, our disclosure controls and procedures were, in design and operation, not effective at a reasonable assurance level as a result of the material weakness described below.

### Material Weakness

We identified the following material weakness in our internal control over financial reporting as of September 30, 2019:

We lacked consistent processes to appropriately perform effective and timely review of the accounting for and disclosure of non-routine transactions. Therefore, there was a risk that a potential material misstatement of the financial statements would occur without being prevented or detected on a timely basis.

We have taken certain steps to remediate this material weakness, including increasing the utilization of external technical accounting resources and designing and implementing improved processes and internal controls. However, our efforts to remediate this material weakness may not be effective or prevent any future material weakness or significant deficiency in our internal control over financial reporting. If our efforts are not successful, or other material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately on a timely basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence and cause the market price of our common stock to decline.

### Changes in Internal Control over Financial Reporting

Other than the material weakness described in this Item 4, there were no changes to our internal control over financial reporting identified in connection with the evaluation required by rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 653 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, which could materially affect our business, financial condition, or future results. The risks described in this report and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Filed Nov 19, 2019.
Source: SEC EDGAR, the filing index for accession 0001437749-19-023200. Last ingested by Listed: Nov 10, 2026, 21:12 ET. No prices; not investment advice.