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Item 2. Management’s Discussion and Analysis

2022-08-12 compared with 2022-05-26 · 90 added, 69 removed, 86 unchanged (65% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial

statements and the related notes appearing elsewhere in this report, and together with our audited consolidated financial statements, related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as of and

for the year ended December 31, 2021 included in our Annual Report on Form 10-K, filed with the SEC on May 13, 2022 (the “2021 Annual Report”).

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements

and the related notes appearing elsewhere in this report, and together with our audited consolidated financial statements, related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as of and for the

year ended December 31, 2021 included in our Annual Report on Form 10-K, filed with the SEC on May 13, 2022 (the “2021 Annual Report”).

We are a shock wave technology company using a patented system of noninvasive, high-energy, acoustic shock waves for regenerative medicine and other applications.

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As a result of this

decision, the Company was able to immediately market the product for the treatment of DFU as described in the de novo request, subject to the general control provisions of the Food, Drug and Cosmetic Act and

the special controls identified in this order.

and the special controls identified in this order.

On August 6, 2020, we entered into an asset purchase agreement (the “Asset Purchase Agreement” or “Acquisition”) with Celularity Inc.

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technology has been cleared by the FDA for the promotion of wound healing through wound cleansing and maintenance debridement combined with ultrasound energy deposited inside the wound that stimulated tissue regeneration.

In connection with the Asset Purchase Agreement, on August 6, 2020, we entered into a license and marketing agreement with Celularity pursuant to which Celularity granted to the Company a license

to the Celularity wound care biologic products, Biovance® and Interfyl® (the “License Agreement”).

In connection with the Asset Purchase Agreement, on August 6, 2020, we entered into a license and marketing agreement with Celularity pursuant to which Celularity granted to the Company a license to

the Celularity wound care biologic products, Biovance® and Interfyl® (the “License Agreement”).

The License Agreement provides the Company with an exclusive license to use, market, distribute and sell Biovance® in the “Field” and “Territory” (each

as defined in the License Agreement), and a non-exclusive license to use, market, distribute and sell Interfyl® in the Field and in the Territory.

The License Agreement has an initial five-year term, after which it automatically renews for additional

one-year periods, unless either party gives written notice at least 180 days prior to the expiration of the current term.

In May 2021, the Company received notification alleging that it is not in compliance the License Agreement with Celularity.

further discussion in Note 14 - Contingencies in the accompanying condensed consolidated financial statements.

The License Agreement has an initial five-year term, after which it automatically renews for

additional one-year periods, unless either party gives written notice at least 180 days prior to the expiration of the current term.

In May 2021, the Company received notification alleging that it is not in compliance the License Agreement with

See further discussion in Note 11 - Contingencies in the accompanying condensed consolidated financial statements.

Critical Accounting Policies and Estimates

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Our actual results may differ from these estimates under different assumptions or conditions.

The results of our operations for any historical period are not necessarily indicative of

the results of our operations for any future period.

The results of our operations for any historical period are not necessarily indicative

of the results of our operations for any future period.

In addition, there are other items within our financial statements that require estimation but are not deemed critical as defined above.

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additional working capital as sales of our UltraMIST® product continue to grow.

We incurred net losses of $27.3 million and $30.9 million for the years ended December 31, 2021 and 2020, respectively, and additional losses of approximately $4.4 million in the first three months

These factors and the events of default on the promissory notes discussed above create substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the financial statement issuance

The Company had an accumulated deficit of $183.9 million through December 31, 2021 and has a current year to date net loss of $1.7 million.

These factors and the events of default on the promissory

notes discussed above create substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the financial statement issuance date.

Our operating losses create substantial doubt about our ability to continue as a going concern.

Although no assurances can be given, we believe that potential additional issuances of equity, debt

or other potential financing may provide the necessary funding for us to continue as a going concern for the 12 months.

Although no assurances can be given, we believe that potential additional issuances of equity, debt or

other potential financing may provide the necessary funding for us to continue as a going concern for the 12 months.

The continuation of our business is dependent upon raising additional capital to fund operations.

Management’s plans are to obtain additional capital in 2022 through investments by strategic

partners for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital through the conversion of outstanding warrants, the issuance of common or preferred stock, securities convertible into common

stock, or secured or unsecured debt.

Management’s plans are to obtain additional capital in 2022 through investments by strategic partners

for market opportunities, which may include strategic partnerships or licensing arrangements, or raise capital through the conversion of outstanding warrants, the issuance of common or preferred stock, securities convertible into common stock, or

secured or unsecured debt.

These possibilities, to the extent available, may be on terms that result in significant dilution to our existing shareholders.

In addition, there can be no assurances that our plans to obtain additional capital

will be successful on the terms or timeline we expect, or at all.

In addition, there can be no assurances that our plans to obtain additional capital will be

successful on the terms or timeline we expect, or at all.

Although no assurances can be given, management believes that potential additional issuances of equity or other potential financing transactions as discussed above should provide the

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Since our inception, we have incurred losses from operations each year.

As of December 31, 2021, we had an accumulated deficit of $183.9 million.

Although the size and timing of our future

operating losses are subject to significant uncertainty, we anticipate that our operating losses will continue over the next few years as we continue to incur expenses related to commercialization of our dermaPACE® system for the treatment of DFU in

the United States.

If we are able to successfully commercialize, market and distribute the dermaPACE® system, then we believe we may be able to partially or completely offset these losses in the future with revenues from sales of our UltraMist®

systems and applicators.

Although no assurances can be given, we believe that potential additional issuances of equity, debt or other potential financing, as discussed above, may provide the necessary funding for us to continue as a going concern for

the next 12 months.

We cannot reasonably estimate the nature, timing and costs of the efforts necessary to complete the development and approval of, or the period in which material net cash flows are expected to be generated from, any of our

products, due to the numerous risks and uncertainties associated with developing and marketing products, including the uncertainty of:

As of June 30, 2022, we have an accumulated deficit of $185.7 million.

Although the size and timing of our future operating

losses are subject to significant uncertainty, we anticipate that our operating losses will continue over the next few years as we continue to incur expenses related to commercialization of our dermaPACE® system for the treatment of DFU in the

United States.

and applicators.

next 12 months.

due to the numerous risks and uncertainties associated with developing and marketing products, including the uncertainty of:

the scope, rate of progress and cost of our clinical trials;

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supplier and customer disputes;

• the establishment of successful marketing, sales and distribution channels and partnerships, including our efforts to expand our marketing, sales and distribution reach through joint ventures and other contractual

arrangements;

the establishment of successful marketing, sales and distribution channels and partnerships, including our efforts to expand our marketing, sales and distribution reach through joint ventures and other

contractual arrangements;

the cost and timing associated with establishing reimbursement for our products;

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A discussion of the risks and uncertainties associated with us and our business are set forth under the section entitled “Risk Factors – Risks Related to Our Business” in our 2021 Annual

The worldwide spread of the COVID-19 virus is expected to result in a global slowdown of economic activity which is likely to decrease demand for a broad variety of products, including from our

We have experienced a disruption of our supply channels which will continue for an unknown period of time until the global supply chain can return to the pre- disease status.

Also, the pandemic may cause continued or additional actions by

hospitals and clinics such as limiting elective procedures and treatments and limiting clinical trial activities and data monitoring.

These factors have had and we expect that they will continue to have a negative impact on our sales and our results

of operations, the size and duration of which we are currently unable to predict.

The worldwide spread of the COVID-19 virus has resulted in a global slowdown of economic activity which has decreased demand for a broad variety of products, including from our customers.

experienced a disruption of our supply channels which will continue for an unknown period of time until the global supply chain can return to the pre- disease status.

Also, the pandemic may cause continued or additional actions by hospitals and

clinics such as limiting elective procedures and treatments and limiting clinical trial activities and data monitoring.

These factors have had and we expect that they will continue to have a negative impact on our sales and our results of

operations, the size and duration of which we are currently unable to predict.

Results of Operations

For the Three Months Ended

For the Six Months Ended

Total Revenue

Cost of Revenues

Operating Expenses:

General and administrative

Selling and marketing

Research and development

Gain on disposal of assets

Depreciation and amortization

Operating Loss

Other Income (Expense), net

Income tax expense

Net Income (Loss)

Revenues and Gross Margin

Revenues for the three months ended March 31, 2022 were $3.2 million compared to $2.1 million for the same period in 2021, an increase of $1.1 million.

The increase was driven by sales of

UltraMIST® devices and single-use accessories.

Gross margin as a percentage of revenue increased to 72.2% from 50.1% during the first quarter of 2022 as compared with the first quarter of the prior year.

The increase in gross margin percentages

for the quarter was driven by higher sales of single-use accessories, which have a higher gross margin percentage, offset by the discontinuation of Biologics sales, which had a lower gross margin percentage.

Revenues for the three month-period ended June 30, 2022 were $3.9 million compared to $2.9 million for the same period of 2021, an increase of $1.0 million.

Revenues for the six months ended June 30,

2022 were $7.1 million compared to $5.0 million for the same period in 2021, an increase of $2.1 million.

The increase for both periods was driven by the continued increased sales of UltraMIST® devices and single-use accessories.

Gross margin as a percentage of revenue increased to 71.8% from 64.0% during three-month period ended June 30, 2022 as compared with the same period of 2021, and to 71.9% from 58.1% during the

six-month period ended June 30, 2022 as compared with the same period of 2021.

The increase in gross margin percentages for the quarter was driven by higher sales of single-use accessories, which have a higher gross margin percentage, offset by the

discontinuation of Biologics sales in the first quarter of 2022, which had a lower gross margin percentage.

Research and Development Expenses

Research and development expenses decreased 63.0% to $166 thousand from $354 thousand during the first quarter of 2022 compared with the first quarter of 2021.

The decrease was primarily due to

lower employee compensation in the first quarter of 2022.

Research and development expenses decreased 37.1% to $171 thousand from $272 thousand during the three-months period ended June 30, 2022, as compared with the same period of 2021 and decreased 46.2%

to $337 thousand from $626 thousand during the six-month period ended June 30, 2022 as compared with the same period of 2021.

The decrease was primarily due to lower employee compensation in 2022.

Selling and Marketing Expenses

Selling and marketing expenses were essentially flat, with a small decrease of $65 thousand or 3.7% for the three-month period ended March 31, 2022 versus the same period of 2021.

Selling and marketing expenses decreased by $850 thousand or 33.7% for the three-month period ended June 30, 2022, as compared with the same period of 2021.

Selling and marketing expenses decreased by

$913 thousand or 21.2% for the six-month period ended June 30, 2022, as compared with the same period of 2021.

The decrease was primarily due to a reduction in sales and marketing headcount during 2022.

General and Administrative Expenses

General and administrative expenses decreased $1.0 million or 31.7% for the three-month period ended March 31, 2022, compared with the same period of 2021.

This decrease was primarily due to

registration penalties incurred in 2021 as well as a reduction in legal fees.

General and administrative expenses were essentially flat for the three-month periods ended June 30, 2022 and 2021.

General and administrative expenses decreased $1.0 million or 16.0% for the

six-month period ended June 30, 2022, compared with the same period of 2021.

The decrease for both the three- and six-month periods ended June 30, 2022 were primarily due to a reduction in the registration penalties and legal fees that were

incurred during the same period in 2021.

Liquidity and Capital Resources

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non-medical uses of the PACE technology, both of which will require additional capital resources.

We incurred a net loss of $27.3 million and $30.9 million for the years ended December 31, 2021 and 2020, respectively, and incurred additional net

losses in the three months of 2022 of approximately $4.4 million.

These factors and the events of default on the notes payable create substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months

from the financial issuance date.

Historically, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities.

The continuation of our business is dependent upon raising additional capital to

fund operations;

we may not be able to do so, and/or the terms of any financings may not be advantageous to us.

During the three months ended March 31, 2022, cash used by operating activities totaled approximately $3.1 million, which was driven largely by the net loss for the period.

Cash provided by

investing activities during the first three months of 2021 consisted of purchases of property and equipment of approximately $194 thousand offset by the gain of the disposal of assets of approximately $554 thousand.

Cash provided by financing

activities for the period consisted primarily of $2.5 million received from the NH Note Expansion in February 2022.

The Company had an accumulated deficit of $183.9 million through December 31, 2021, and has a current year to date net loss of $1.7 million.

factors and the events of default on the notes payable create substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the financial issuance date.

Historically, our operations have

primarily been funded from the sale of capital stock, notes payable, and convertible debt securities.

The continuation of our business is dependent upon raising additional capital to fund operations;

we may not be able to do so, and/or the terms of

any financings may not be advantageous to us.

During the six months ended June 30, 2022, cash used by operating activities totaled approximately $5.4 million, which was driven in part by the net loss for the period along with losses on

extinguishment and issuance of debt offset largely by the change in the fair value of the derivative liabilities.

Cash provided by investing activities during the first six months of 2022 consisted primarily of the proceeds received in the sale of assets of $948 thousand.

Cash provided by financing activities for the period consisted primarily of $2.9 million received from the NH Note Expansion in February 2022 and proceeds from short-term notes of $545 thousand in May

from the C6 note refinancing and the short-term loan in June of $1.6 million.

Segment and Geographic Information

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Our revenues are generated from sales in United States, Europe, Canada, Middle East, Central America, South America, Asia and Asia/Pacific.

All significant expenses are generated in the United States and all significant assets are located in the United States.

significant expenses are generated in the United States and all significant assets are located in the United States.

Contractual Obligations

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Due to the fact that our assets are, to an extent, liquid in nature, they are not significantly affected by inflation.

However, the rate of inflation, which has been increasing, affects expenses

such as employee compensation, office space leasing costs and research and development charges, which may not be readily recoverable during the period of time that we are bringing the product candidates to market.

However, the rate of inflation, which has been increasing, affects expenses such

as employee compensation, office space leasing costs and research and development charges, which may not be readily recoverable during the period of time that we are bringing the product candidates to market.

To the extent inflation results in

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis