Business Context and Reporting Period
The filing is a Form 10-K for the fiscal year ended December 31, 2021. The source identifies the registrant as Tivic Health Systems, Inc., although the request metadata identifies Valion Bio, Inc.; this company-name discrepancy should be verified.
Tivic Health develops non-invasive bioelectronic medicine devices. Its primary commercial product is ClearUP Sinus Relief, an FDA-cleared Class II handheld device sold directly to consumers and through online retailers. The company became publicly traded on Nasdaq under ticker TIVC in November 2021 following its initial public offering.
Financial Performance and Position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $1.166 million | $0.860 million | +36% |
| Cost of sales | $1.295 million | $1.085 million | +19% |
| Gross loss | $(0.129) million | $(0.225) million | Improved by $0.096 million |
| Operating expenses | $5.503 million | $2.979 million | +85% |
| Loss from operations | $(5.632) million | $(3.204) million | Worsened by $2.428 million |
| Net loss | $(8.494) million | $(3.639) million | Worsened by $4.855 million |
| Cash used in operations | $(5.612) million | $(3.027) million | Use increased by $2.585 million |
- Gross margin improved to approximately (11.1%) from (26.2%), but remained negative.
- Net margin was approximately (728%) in 2021 versus (423%) in 2020.
- Revenue growth reflected approximately 12,600 units sold in 2021 versus 10,400 in 2020. Direct-to-consumer revenue increased 25% and retail revenue increased 44%.
- Variable cost of goods sold increased to $82.46 per unit from $70.87, primarily because of global supply-chain pressures.
- Cash and cash equivalents were $12.975 million at December 31, 2021, compared with $1.044 million at year-end 2020. Working capital was $13.070 million and accumulated deficit was $19.546 million.
- Financing activities generated $17.543 million, principally from approximately $14.887 million of net IPO proceeds and $2.613 million of convertible-note borrowings.
- All $4.384 million of convertible notes outstanding at the IPO converted into common stock. No notes payable or conversion-feature derivative liability remained on the December 31, 2021 balance sheet.
- The company had an undrawn $250,000 revolving credit facility bearing 6% annual interest and available through December 3, 2022.
- No investing cash flows were reported. The company had no off-balance-sheet arrangements.
Material Changes Versus the Prior Comparable Period
- Revenue increased $306,000, but operating expenses increased $2.524 million, led by higher general and administrative costs, sales and marketing spending, and research and development expenses.
- General and administrative expense rose to $2.929 million from $1.014 million, principally because of increased salaries, consulting, audit and other professional fees associated with scaling the organization and becoming public.
- Sales and marketing expense increased to $1.696 million from $1.306 million, including higher fourth-quarter spending following the IPO.
- Research and development expense increased to $878,000 from $659,000, mainly for ClearUP Gen 2 and preparation for an additional indication.
- Interest expense increased to $1.823 million from $423,000, and the company recorded a $1.636 million loss on extinguishment of debt when convertible notes converted into common stock.
- The company completed a 1-for-4 reverse stock split, reincorporated in Delaware, and completed an IPO of 3.45 million shares at $5.00 per share for $17.25 million of gross proceeds.
- Shares outstanding increased to 9.715 million at December 31, 2021 from 2.324 million at December 31, 2020, reflecting the IPO, debt conversions and preferred-stock conversion.
- The company entered into a new Hayward, California facility lease expiring in October 2025. Operating lease liabilities totaled $708,000 at year-end.
Guidance, Outlook, Risks and Unusual Items
- Management expects substantial additional operating losses for at least the next two years as it expands marketing, develops new products, pursues regulatory clearances and increases research and development.
- Management states that available cash and financial resources should fund operations for at least the next twelve months, but acknowledges that this assessment depends on assumptions that may prove incorrect. The filing also identifies substantial doubt regarding the company’s ability to continue as a going concern and the potential need for additional financing.
- ClearUP Gen 2 is under development and is expected to reduce manufacturing, fulfillment and shipping costs. The company expects gross margin to improve with Gen 2 and greater sales volume, but regulatory coverage under existing clearances remains subject to regulatory interpretation.
- The company is developing npdPP for postoperative sinus-surgery pain and npdMI for migraine headaches. These candidates remain early-stage and require additional clinical work and regulatory clearances. Enrollment in the Mount Sinai npdPP trial began in the first quarter of 2022.
- Key risks include dependence on a single principal product, limited operating history, continued losses, uncertain consumer adoption, the need for additional potentially dilutive capital, supply-chain shortages, reliance on Chinese suppliers and third-party manufacturers, inflation, tariffs, COVID-19 disruptions, regulatory changes, intellectual-property protection and competition.
- The filing reports a material weakness in internal control over financial reporting related to insufficient accounting personnel, inadequate segregation of duties and inventory-cost accounting procedures. Separately, the controls section states that management concluded controls were effective as of the stated assessment date; this apparent inconsistency should be reviewed.
- Product returns are permitted within 60 days and products carry a one-year warranty. The company reported a $16,000 return and warranty reserve at December 31, 2021 and disclosed historical return and warranty reserves of approximately 10.3% of revenue before reserves.
- The company received $157,000 of PPP loan forgiveness in 2021. The financial statements also include material non-cash charges, including $1.747 million of debt-discount amortization and $1.636 million related to debt extinguishment.
- The company does not pay dividends and does not expect to pay cash dividends for the foreseeable future.
Important Facts for Investors to Verify
- Confirm that the filing belongs to Tivic Health Systems, Inc. rather than Valion Bio, Inc.
- Assess the sustainability of revenue growth and whether ClearUP can achieve positive gross margins after supply-chain, fulfillment and warranty costs.
- Reconcile the reported material weakness with management’s separate assertion that internal controls were effective.
- Evaluate cash runway against projected operating losses, planned marketing expansion, research programs and the likelihood of additional equity or debt financing.
- Review supply concentration, component availability, China-related sourcing and the expected timing and regulatory treatment of ClearUP Gen 2.
- Verify the clinical, regulatory and commercialization status of npdPP, npdMI and any future indications.
- Consider dilution from outstanding options and warrants, including 607,219 options and 272,680 warrants outstanding at year-end, as well as potential future capital raises.
- Review customer and channel concentration: two customers represented 34% of 2021 revenue in aggregate, and two customers represented 93% of accounts receivable at year-end.