20190630- Q2





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

Form 10-Q

___________________________________

(Mark One)



 

  

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended June 30, 2019

Or



 

  

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from             to

Commission File Number 001-34899

___________________________________

Pulse Biosciences, Inc.

(Exact name of registrant as specified in its charter)





 

Delaware

46-5696597

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

3957 Point Eden Way

Hayward, CA

94545

(Address of principal executive offices)

(Zip Code)

(510) 906-4600

(Registrant’s telephone number, including area code)

___________________________________

Securities registered pursuant to Section 12(b) of the Act:





 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

PLSE

The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has 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, a 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. 



 

 

 

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 



Number of shares outstanding of the issuer’s common stock as of August 5, 2019: 20,768,444

 


 

Table of Contents

 

TABLE OF CONTENTS





 



PAGE
 No.

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (unaudited):

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

Condensed Consolidated Statements of Operations and Comprehensive Loss
for the Three- and Six-Month Periods Ended June 30, 2019 and 2018

Condensed Consolidated Statements of Cash Flows
for the Six-Month Periods Ended June 30, 2019 and 2018

Condensed Consolidated Statements of Stockholders’ Equity

for the Three- and Six-Month Periods Ended June 30, 2019 and 2018

Notes to Condensed Consolidated Financial Statements   

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

17 

Item 3. Quantitative and Qualitative Disclosures About Market Risk   

23 

Item 4. Controls and Procedures   

24 



 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings   

25 

Item 1A. Risk Factors   

25 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   

53 

Item 3. Default Upon Senior Securities   

53 

Item 4. Mine Safety Disclosures   

53 

Item 5. Other Information   

53 

Item 6. Exhibits   

54 

Signatures

55 

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PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



PULSE BIOSCIENCES, INC.



Condensed Consolidated Balance Sheets

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,

(in thousands except par value amounts)

 

2019

 

2018

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,780 

 

$

51,103 

Investments

 

 

31,862 

 

 

8,480 

Prepaid expenses and other current assets

 

 

1,908 

 

 

779 

Total current assets

 

 

44,550 

 

 

60,362 

Property and equipment, net

 

 

1,985 

 

 

2,173 

Intangible assets, net

 

 

4,880 

 

 

5,213 

Goodwill

 

 

2,791 

 

 

2,791 

Right-of-use assets

 

 

1,182 

 

 

 —

Other asset

 

 

1,645 

 

 

101 

Total assets

 

$

57,033 

 

$

70,640 



 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,577 

 

$

1,272 

Accrued expenses

 

 

1,703 

 

 

1,421 

Deferred rent, current

 

 

 —

 

 

415 

Lease liability, current

 

 

168 

 

 

 —

Total current liabilities

 

 

3,448 

 

 

3,108 



 

 

 

 

 

 

Deferred rent, less current

 

 

 —

 

 

1,198 

Lease liability, less current

 

 

3,724 

 

 

 —

Total liabilities

 

 

7,172 

 

 

4,306 



 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 



 

 

   

 

 

   

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value;
authorized – 50,000 shares; no shares issued and outstanding

 

 

 —

 

 

 —

Common stock, $0.001 par value:
authorized – 500,000 shares; issued and outstanding20,768 shares and 20,593 shares at June 30, 2019 and December 31, 2018, respectively  

 

 

21 

 

 

21 

Additional paid-in capital

 

 

146,973 

 

 

142,032 

Accumulated other comprehensive income (loss)

 

 

22 

 

 

(1)

Accumulated deficit

 

 

(97,155)

 

 

(75,718)

Total stockholders’ equity

 

 

49,861 

 

 

66,334 

Total liabilities and stockholders’ equity

 

$

57,033 

 

$

70,640 



See accompanying notes to the condensed consolidated financial statements.

 

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PULSE BIOSCIENCES, INC.



Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three-Month Periods Ended

 

Six-Month Periods Ended



 

June 30,

 

June 30,

(in thousands, except per share amounts)

 

2019

 

2018

 

2019

 

2018

Revenue

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

5,146 

 

 

5,173 

 

 

9,547 

 

 

10,555 

Research and development

 

 

6,337 

 

 

3,960 

 

 

12,179 

 

 

7,136 

Amortization of intangible assets

 

 

166 

 

 

167 

 

 

333 

 

 

333 

Total operating expenses

 

 

11,649 

 

 

9,300 

 

 

22,059 

 

 

18,024 

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

290 

 

 

137 

 

 

622 

 

 

193 

Total other income

 

 

290 

 

 

137 

 

 

622 

 

 

193 

Net loss

 

 

(11,359)

 

 

(9,163)

 

 

(21,437)

 

 

(17,831)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

 

20 

 

 

 

 

23 

 

 

51 

Comprehensive loss

 

$

(11,339)

 

$

(9,160)

 

$

(21,414)

 

$

(17,780)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.55)

 

$

(0.54)

 

$

(1.04)

 

$

(1.06)

Weighted average shares used to compute net loss per common share basic and diluted

 

 

20,728 

 

 

16,881 

 

 

20,704 

 

 

16,861 



See accompanying notes to the condensed consolidated financial statements.

 

4


 

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PULSE BIOSCIENCES, INC.



Condensed Consolidated Statements of Cash Flows

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

Six-Month Periods Ended



 

June 30,

(in thousands)

 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(21,437)

 

$

(17,831)

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

 

 

 

 

 

 

Depreciation

 

 

300 

 

 

309 

Amortization of intangible assets

 

 

333 

 

 

333 

Stock-based compensation

 

 

5,060 

 

 

6,595 

Net premium amortization on investments

 

 

(291)

 

 

(51)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,129)

 

 

(749)

Accounts payable

 

 

305 

 

 

720 

Accrued expenses

 

 

282 

 

 

130 

Other asset

 

 

(2,726)

 

 

 —

Other current and long-term liabilities

 

 

2,279 

 

 

(194)

Net cash used in operating activities

 

 

(17,024)

 

 

(10,738)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(112)

 

 

(171)

Purchases of investments

 

 

(55,068)

 

 

(29,110)

Maturities of investments

 

 

32,000 

 

 

18,315 

Sales of investments

 

 

 —

 

 

24,875 

Net cash provided by (used in) investing activities

 

 

(23,180)

 

 

13,909 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock under employee stock purchase plan

 

 

222 

 

 

188 

Tax payments related to shares withheld for vested restricted stock units

 

 

(613)

 

 

(115)

Proceeds from exercises of stock options

 

 

272 

 

 

164 

Net cash provided by (used in) financing activities

 

 

(119)

 

 

237 

Net increase (decrease) in cash and cash equivalents

 

 

(40,323)

 

 

3,408 

Cash and cash equivalents at beginning of period

 

 

51,103 

 

 

3,386 

Cash and cash equivalents at end of period

 

$

10,780 

 

$

6,794 



 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

Change in unrealized gains (losses) on available-for-sale securities

 

$

23 

 

$

51 



 

 

 

 

 

 



 

 

 

 

 

 



See accompanying notes to the condensed consolidated financial statements.

 

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PULSE BIOSCIENCES, INC.



Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

  

Additional

 

Accumulated Other

 

 

 

 

Total



 

Common Stock

 

Paid-in

 

Comprehensive

 

Accumulated

 

Stockholders’

(in thousands, except per share amount)

 

Shares

 

Amount

  

Capital

 

Income (Loss)

 

Deficit

 

Equity

Balance, March 31, 2019

 

20,710 

 

$

21 

 

$

144,887 

 

$

 

$

(85,796)

 

$

59,114 

Issuance of shares upon vesting of restricted stock units

 

58 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation expense

 

 —

 

 

 —

 

 

2,699 

 

 

 —

 

 

 —

 

 

2,699 

Tax payments related to shares withheld for vested restricted stock units

 

 —

 

 

 —

 

 

(613)

 

 

 —

 

 

 —

 

 

(613)

Unrealized gain on available-for-sale securities

 

 —

 

 

 —

 

 

 —

 

 

20 

 

 

 —

 

 

20 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(11,359)

 

 

(11,359)

Balance, June 30, 2019

 

20,768 

 

$

21 

 

$

146,973 

 

$

22 

 

$

(97,155)

 

$

49,861 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

  

Additional

 

Accumulated Other

 

 

 

 

Total



 

Common Stock

 

Paid-in

 

Comprehensive

 

Accumulated

 

Stockholders’

(in thousands, except per share amount)

 

Shares

 

Amount

  

Capital

 

Income (Loss)

 

Deficit

 

Equity

Balance, December 31, 2018

 

20,593 

 

$

21 

 

$

142,032 

 

$

(1)

 

$

(75,718)

 

$

66,334 

Issuance of shares upon exercise of stock options

 

99 

 

 

 —

 

 

272 

 

 

 —

 

 

 —

 

 

272 

Issuance of shares under employee stock purchase plan

 

18 

 

 

 —

 

 

222 

 

 

 —

 

 

 —

 

 

222 

Issuance of shares upon vesting of restricted stock units

 

58 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation expense

 

 —

 

 

 —

 

 

5,060 

 

 

 —

 

 

 —

 

 

5,060 

Tax payments related to shares withheld for vested restricted stock units

 

 —

 

 

 —

 

 

(613)

 

 

 —

 

 

 —

 

 

(613)

Unrealized gain on available-for-sale securities

 

 —

 

 

 —

 

 

 —

 

 

23 

 

 

 —

 

 

23 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(21,437)

 

 

(21,437)

Balance, June 30, 2019

 

20,768 

 

$

21 

 

$

146,973 

 

$

22 

 

$

(97,155)

 

$

49,861 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

  

Additional

 

Accumulated Other

 

 

 

 

Total



 

Common Stock

 

Paid-in

 

Comprehensive

 

Accumulated

 

Stockholders’

(in thousands, except per share amount)

 

Shares

 

Amount

  

Capital

 

Income (Loss)

 

Deficit

 

Equity

Balance, March 31, 2018

 

16,869 

 

$

17 

 

$

87,922 

 

$

(3)

 

$

(46,841)

 

$

41,095 

Issuance of shares upon exercise of stock options

 

17 

 

 

 —

 

 

52 

 

 

 —

 

 

 —

 

 

52 

Stock-based compensation expense

 

 —

 

 

 —

 

 

3,175 

 

 

 —

 

 

 —

 

 

3,175 

Tax payments related to shares withheld for vested restricted stock units

 

 —

 

 

 —

 

 

(115)

 

 

 —

 

 

 —

 

 

(115)

Unrealized gain on available-for-sale securities

 

 —

 

 

 —

 

 

 —

 

 

 

 

 —

 

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(9,163)

 

 

(9,163)

Balance, June 30, 2018

 

16,886 

 

$

17 

 

$

91,034 

 

$

 —

 

$

(56,004)

 

$

35,047 



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Additional

 

Accumulated Other

 

 

 

 

Total



 

Common Stock

 

Paid-in

 

Comprehensive

 

Accumulated

 

Stockholders’

(in thousands, except per share amount)

 

Shares

 

Amount

  

Capital

 

Income (Loss)

 

Deficit

 

Equity

Balance, December 31, 2017

 

16,819 

 

$

17 

 

$

84,202 

 

$

(51)

 

$

(38,173)

 

$

45,995 

Issuance of shares upon exercise of stock options

 

55 

 

 

 —

 

 

164 

 

 

 —

 

 

 —

 

 

164 

Issuance of shares under employee stock purchase plan

 

12 

 

 

 —

 

 

188 

 

 

 —

 

 

 —

 

 

188 

Stock-based compensation expense

 

 —

 

 

 —

 

 

6,595 

 

 

 —

 

 

 —

 

 

6,595 

Tax payments related to shares withheld for vested restricted stock unit

 

 —

 

 

 —

 

 

(115)

 

 

 —

 

 

 —

 

 

(115)

Unrealized gain on available-for-sale securities

 

 —

 

 

 —

 

 

 —

 

 

51 

 

 

 —

 

 

51 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(17,831)

 

 

(17,831)

Balance, June 30, 2018

 

16,886 

 

$

17 

 

$

91,034 

 

$

 —

 

$

(56,004)

 

$

35,047 



7


 

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PULSE BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

In this Quarterly Report on Form 10-Q (“Quarterly Report”), “Pulse,” “Pulse Biosciences,” “we,” “us,” “our” and the “Company” refer to Pulse Biosciences, Inc. and its wholly-owned subsidiaries, unless expressly indicated or the context otherwise requires.



1.  Description of the Business



Pulse Biosciences, Inc. is a novel bioelectric medicine company committed to health innovation that improves and potentially extends the lives of patients. We are pursuing regulatory clearance to market our first product, our proprietary CellFX System. Our CellFX System utilizes its patented Nano-Pulse Stimulation™ (NPS™) technology to treat a variety of applications for which an optimal solution remains unfulfilled. NPS is a proprietary technology that delivers nano-second pulses of high amplitude electrical energy to non-thermally clear targeted cells while sparing adjacent non-cellular tissue. The cell-specific effects of NPS technology have been validated in a series of ongoing clinical trials.

The Company was incorporated in Nevada  on May 19, 2014. On June 18, 2018, the Company reincorporated from the State of Nevada to the State of Delaware. The Company’s headquarters and manufacturing and research facility are located in Hayward, California.

The Company’s activities are subject to significant risks and uncertainties, including the need for additional capital. The Company has not yet commenced any revenue-generating operations, does not have any cash flows from operations, and will need to raise additional capital to finance its operations. However, there can be no assurances that the Company will be able to obtain additional financing on acceptable terms and in the amounts necessary to fully fund its operating requirements.

 

2.  Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (“Financial Statements”) have been prepared on a basis consistent with the Company’s December 31, 2018 audited Consolidated Financial Statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The Financial Statements have been prepared in accordance with the applicable rules and regulations of the Securities and Exchange Commission and, as permitted by such rules and regulations, omit certain information and footnote disclosures necessary to present the financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The condensed consolidated balance sheet as of December 31, 2018 was derived from the audited consolidated financial statements as of that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for the three- and six-month periods ended June 30, 2019 are not necessarily indicative of the results to be expected for the entire year or any future periods.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the Financial Statements and accompanying notes to the Financial Statements. Estimates include, but are not limited to, the valuation of cash equivalents and investments, the valuation and recognition of share-based compensation and the useful lives assigned to long-lived assets.  The Company evaluates its estimates and assumptions based on historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from these estimates. 

Recently Adopted Accounting Pronouncement

During February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“Topic 842”), which amended prior accounting standards for leases. The Company adopted Topic 842 on January 1, 2019, using the transition method per ASU No. 2018-11 issued on July 2018 wherein entities were allowed to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Accordingly, all periods prior to January 1, 2019 were presented in accordance with the previous ASC 840, Leases, and no retrospective adjustments were made to the

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comparative periods presented. The adoption of ASC 842 resulted in an increase to total assets and liabilities due to the recording of operating lease right-of-use assets (“ROU”) presented within other assets and operating lease liabilities of approximately $0.1 million as of January 1, 2019. The adoption did not materially impact the Company’s Consolidated Statement of Stockholders’ Equity or Cash Flows.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the three- and six-month periods ended June 30, 2019, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, except for the adoption of ASU No. 2016-02, Leases, as of January 1, 2019.

Principles of Consolidation

The accompanying consolidated financial statements include the financial statements of Pulse Biosciences and its wholly-owned subsidiaries. Intercompany balances and transactions, if any, have been eliminated in consolidation.

Net Loss per Share

The Company calculates basic net loss per share by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding during the period. For purposes of this calculation, options to purchase common stock and common stock warrants are considered common stock equivalents. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted net loss per share.

Basic and diluted net loss per common share is the same for all periods presented because all warrants, stock options and restricted stock units outstanding are anti-dilutive.

The following outstanding stock options, warrants and restricted stock units were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect:







 

 

 

 

 

 



 

 

 

 

 

 



 

Six-Month Periods Ended



 

June 30,



 

2019

 

2018

Common stock warrants

 

 

213,485 

 

 

249,709 

Common stock options

 

 

3,172,303 

 

 

2,894,103 

Restricted stock units

 

 

111,305 

 

 

222,606 

Total

 

 

3,497,093 

 

 

3,366,418 



 

 

 

 

 

 







Reclassifications

Certain items in prior period financial statements have been reclassified to conform to the presentation in the current period financial statements. Such reclassifications did not impact the Company's previously reported net loss or financial position.

 

3.  Fair Value of Financial Instruments

The authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels, and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below.

Level 1 -  Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include money market funds.

Level 2 - Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include commercial paper, corporate bonds, and asset-backed securities.

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Level 3 - Unobservable inputs for which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. The Company did not classify any of its investments within Level 3 of the fair value hierarchy.

The following table sets forth the fair value of the Company’s financial assets measured on a recurring basis as of June 30, 2019 and December 31, 2018, respectively (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

June 30, 2019

 

December 31, 2018

Assets

 

Classification

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

Money market funds

 

Cash and cash equivalents

 

$

9,340 

 

$

 

$

 

$

9,340 

 

$

50,703 

 

$

 

$

 

$

50,703 

U.S. Treasury Securities

 

Investments

 

 

 

 

31,862 

 

 

 

 

31,862 

 

 

 

 

8,480 

 

 

 

 

8,480 

Total assets measured at fair value

 

 

 

$

9,340 

 

$

31,862 

 

$

 

$

41,202 

 

$

50,703 

 

$

8,480 

 

$

 

$

59,183 



The Company did not have any financial liabilities measured on a recurring basis as of June 30, 2019 or December 31, 2018.

During the six-month period ended June 30, 2019, there were no transfers between Level 1, Level 2 or Level 3 assets or liabilities reported at fair value on a recurring basis and the valuation techniques used did not change compared to the Company’s established practice.

 

4.  Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 





 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018

Leasehold improvements

 

$

2,248 

 

$

2,248 

Laboratory equipment

 

 

589 

 

 

518 

Furniture, fixtures, and equipment

 

 

256 

 

 

248 

Software

 

 

118 

 

 

118 

Construction in progress

 

 

66 

 

 

33 



 

 

3,277 

 

 

3,165 

Less: Accumulated depreciation

 

 

(1,292)

 

 

(992)



 

$

1,985 

 

$

2,173 



Depreciation expense was $0.1  million and $0.2 million for the three-month periods ended June 30, 2019 and 2018, respectively. Depreciation expense was $0.3 million for each of the six-month periods ended June 30, 2019 and 2018, respectively. 



5.  Intangible Assets, Net

Intangible assets primarily consist of acquired licenses to utilize certain patents, know-how and technology relating to the Company’s NPS for biomedical applications acquired from Old Dominion University Research Foundation (“ODURF”), Eastern Virginia Medical School, and the University of Southern California. In addition, the Company entered into a Sponsored Research Agreement with Old Dominion University’s Frank Reidy Research Center for Bioelectrics, which includes certain intellectual property rights arising from the research. The Company is amortizing the intangible assets over an estimated useful life of 12 years.

Intangible assets, net consisted of the following (in thousands):







 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018

Acquired patents and licenses

 

$

7,985 

 

$

7,985 

Less: Accumulated amortization

 

 

(3,105)

 

 

(2,772)



 

$

4,880 

 

$

5,213 

 

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A schedule of the amortization of intangible assets for the remainder of 2019 and the succeeding five fiscal years and thereafter is as follows (in thousands):







 

 

Year Ending December 31:

 

 

2019 (remaining 6 months)

$

333 

2020

 

665 

2021

 

665 

2022

 

665 

2023

 

665 

2024

 

665 

Thereafter

 

1,222 



$

4,880 

 

6.  Goodwill

In 2014, the Company acquired three companies (the “acquisitions”) for aggregate consideration of $5.5 million. In accordance with ASC Topic 805, Business Combinations, the Company recorded goodwill of $2.8 million in connection with the acquisitions as the consideration paid exceeded the fair value of the net tangible assets and the intangible assets acquired.

The Company reviews goodwill for impairment at least annually or whenever changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. Based on the Company’s annual impairment test as of December 31, 2018 the Company determined that no impairment of goodwill existed and was not aware of any indicators of impairment at such date. In addition, there were no indicators of impairment at June 30, 2019.

 

7.  Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 





 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018

Compensation expense

  

$

1,011 

 

$

938 

Accrued clinical

 

 

389 

 

 

156 

Professional fees

  

 

211 

 

 

274 

Supplies

 

 

92 

 

 

53 



  

$

1,703 

 

$

1,421 

 

8.  Stockholders’ Equity and Stock-Based Compensation

Rights Offering

On October 25, 2018, the Company commenced a rights offering pursuant to which stockholders of record as of November 19, 2018, were issued, at no charge, one subscription right for each share of common stock then outstanding. Each right entitled the holder to purchase 0.19860755 share of the Company’s common stock for $12.57 per share (the “Rights Offering”).

Stockholders who exercised their rights in full were also permitted an over-subscription right to purchase additional shares of common stock that remained unsubscribed at the expiration of the Rights Offering, subject to the availability of shares and a pro rata allocation of shares among persons exercising the oversubscription right.

Upon the closing of the Rights Offering on December 6, 2018, the Rights Offering was oversubscribed. A total of 3,581,148 shares of the Company’s common stock were issued and sold in the Rights Offering for net proceeds of approximately $44.8 million. Robert W. Duggan, the Company’s Chairman of the Board of Directors and the beneficial owner of approximately 35% of the Company’s outstanding common stock prior to the Rights Offering, participated in the Rights Offering and purchased an aggregate of 3,146,226 shares for an additional investment of approximately $39.5 million.

Common Stock Warrants

In connection with a private placement offering of the Company’s common stock, par value $0.001 per share in 2014, the Company issued warrants as compensation to the placement agent to purchase a total of 299,625 shares of its common

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stock at a price of $2.67 per share (the “Private Placement Warrants”).  The Private Placement Warrants are exercisable for period of seven years. As of June 30, 2019, there were a total of 91,876 of Private Placement Warrants outstanding.  In connection with the closing of the Company’s initial public offering in 2016, the Company issued warrants as compensation to its underwriters, as representatives of the underwriters of its initial public offering to purchase a total of 574,985 shares of its common stock at a price of $5.00 per share (“the IPO Warrants”). The IPO Warrants are exercisable for a period of five years. As of June 30, 2019, there were a total of 121,609 of the IPO Warrants outstanding.

Equity Plans

2017 Equity Incentive Plan and 2017 Inducement Equity Incentive Plan

The Board of Directors of the Company (the “Board”) previously adopted, and the Company’s stockholders approved, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”). 

The 2017 Plan has a 10-year term, and provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and performance shares to employees, directors and consultants of the Company and any parent or subsidiary of the Company, as the Compensation Committee of the Board may determine. Subject to an annual evergreen increase and adjustment in the case of certain capitalization events, the Company initially reserved 1,500,000 shares of the Company’s common stock for issuance pursuant to awards under the 2017 Plan. In addition, shares remaining available under the Company’s 2015 Equity Incentive Plan, as amended (the “2015 Plan”), and shares reserved but not issued pursuant to outstanding equity awards that expire or terminate without being exercised or that are forfeited or repurchased by the Company will be added to the shares of common stock available for issuance under the 2017 Plan. The 2017 Plan is administered by the Board’s Compensation Committee. Effective January 1, 2019, the Company’s Board authorized an increase in the number of shares of common stock available under the 2017 Plan increased by 823,716 shares pursuant to the evergreen provision of the 2017 Plan. Pursuant to the 2017 Plan, the 2019 share increase is determined based on the least of (i) 1,200,000 shares, (ii) 4% of the Company’s common stock outstanding at December 31 of the immediately preceding year, or (iii) such number of shares as determined by the Board. As of June 30, 2019, 1,289,371 shares of common stock remained available for issuance under the 2017 Plan.

During November 2017, the Board adopted the 2017 Inducement Equity Incentive Plan (the “Inducement Plan”) and reserved 1,000,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan was adopted without stockholder approval.

The Inducement Plan has a 10-year term, and provides for the grant of equity-based awards, including nonstatutory stock options, restricted stock units, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the 2017 Plan, including with respect to treatment of equity awards in the event of a “merger” or “change in control” as defined under the Inducement Plan. Options issued under the Inducement Plan may have a term up to ten years and have variable vesting provisions. New hire grants generally vest 25% annual starting upon the first anniversary of the grant. Equity-based awards issued under the Inducement Plan are only issuable to individuals not previously engaged as employees or non-employee directors of the Company prior to the Inducement Plan’s adoption date. As of June 30, 2019, 364,750 shares of common stock remained available for issuance under the Inducement Plan.

2017 Employee Stock Purchase Plan 

The Board previously adopted and the stockholders approved the Company’s 2017 Employee Stock Purchase Plan (the “2017 ESPP”).

The 2017 ESPP is a broad-based plan that provides employees of the Company and its designated affiliates with the opportunity to become stockholders through periodic payroll deductions that are applied towards the purchase of Company common shares at a discount from the then-current market price. Subject to adjustment in the case of certain capitalization events, a total of 250,000 common shares of the Company were available for purchase at adoption of the 2017 ESPP. Pursuant to the 2017 ESPP, the annual share increase pursuant to the evergreen provision is determined based on the least of (i) 450,000 shares, (ii) 1.5% of the Company’s common stock outstanding at December 31 of the immediately preceding year, or (iii) such number of shares as determined by the Board. During January 2019, the Board determined not to increase the number of shares of common stock available under the 2017 ESPP pursuant to the evergreen provision of the 2017 ESPP During the six-month period ended June 30, 2019, the Company issued 18,574 shares of common stock under the 2017 ESPP.  As of June 30, 2019, 459,900 shares of common stock remained available for issuance under the 2017 ESPP.

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A  summary of stock option activity under the 2015 Plan, 2017 Plan and Inducement Plan for the six-months ended

June 30, 2019 is presented below:







 

 

 

 

 

 

 



 

Stock Options Outstanding



 

 

 

 

Weighted

 

 



 

Number

 

 

average

 

 



 

of shares

 

 

exercise price

 

 

Balances — December 31, 2018

 

2,956,687 

 

$

17.04 

 

 

Options granted

 

487,932 

 

 

 

 

 

Options exercised

 

(98,928)

 

 

 

 

 

Options canceled

 

(19,430)

 

 

 

 

 

Options expired

 

(153,958)

 

 

 

 

 

Balances — June 30, 2019

 

3,172,303 

 

$

16.83 

 

 

Exercisable —June 30, 2019

 

1,670,830 

 

$

16.11 

 

 

The table above excludes 31,875 performance stock options granted during the six-month period ended June 30, 2018 for which the performance criteria had not been established as of June 30, 2019.



Stock-based Compensation

Total stock-based compensation expense consisted of the following (in thousands):







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three-Month Periods Ended

 

Six-Month Periods Ended



 

June 30,

 

June 30,



 

2019

 

2018

 

2019

 

2018

General and administrative

 

$

1,660 

 

$

2,351 

 

$

3,145 

 

 

5,050 

Research and development

 

 

1,039 

 

 

824 

 

 

1,915 

 

 

1,545 

Total stock-based compensation expense

 

$

2,699 

 

$

3,175 

 

$

5,060 

 

$

6,595 



The Company estimated the fair value of employee stock options on the grant date using the Black-Scholes option pricing model. The estimated fair value of employee stock options is amortized on a straight-line basis over the requisite service period of the awards. The Company reviews, and when deemed appropriate, updates the assumptions used on a periodic basis. Due to the limited trading history of the Company’s common stock, the Company utilizes a portfolio of comparable companies to estimate volatility. The fair value of employee stock options was estimated using the following weighted-average assumptions:









 

 

 

 

 

 

 

 

 

 

 



 

Three-Month Periods Ended June 30,

 

 

Six-Month Periods Ended June 30,



 

2019

 

 

2018

 

 

2019

 

 

2018

Expected term in years

 

5.3 - 6.1

 

 

5.3 - 6.1

 

 

0.4 - 6.1

 

 

5.3 - 6.1

Expected volatility

 

70%

 

 

70%

 

 

70%

 

 

70%

Risk-free interest rate

 

1.9 - 2.4%

 

 

2.7 - 3.0%

 

 

1.9 - 2.6%

 

 

2.7 - 3.0%

Dividend yield

 

 

 

 

 

 

 







The Company estimated the fair value of ESPP on the grant date using the Black-Scholes option pricing model. The estimated fair value of ESPP is amortized on a straight-line basis over the requisite service period of the awards. The Company reviews, and when deemed appropriate, updates the assumptions used on a periodic basis. The Company utilizes its estimated volatility in the Black-Scholes option pricing model to determine the fair value of ESPP. The fair value of ESPP was estimated using the following weighted-average assumptions:







 

 

 

 

 

 

 

 

 

 

 



 

Three-Month Periods Ended June 30,

 

 

Six-Month Periods Ended June 30,



 

2019

 

 

2018

 

 

2019

 

 

2018

Expected term in years

 

0.5 - 1.0

 

 

0.5 - 1.0

 

 

0.5 - 1.0

 

 

0.5 - 1.0

Expected volatility

 

70%

 

 

70%

 

 

70%

 

 

70%

Risk-free interest rate

 

2.5 - 2.6%

 

 

1.9%

 

 

2.5 - 2.6%

 

 

1.9%

Dividend yield

 

 

 

 

 

 

 









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The fair value of restricted stock unit (“RSUs”) awards is determined based on the number of units granted and the closing price of the Company’s common stock as of the grant date. The estimated fair value of RSUs is recognized on a straight-line basis over the requisite service period. During the three-month period ended June 30, 2017, the Company granted 160,974 RSUs, all of which vested, pursuant to which no shares were issued, during June 2018. Additional paid in capital was reduced by $0.1 million for tax payments related to shares withheld in connection with the vesting of the RSUs. During the three-month period ended June 30, 2019, the Company issued 40,582 shares. Additional paid in capital was reduced by $0.4 million for tax payments related to shares withheld in connection with the issuance of the RSUs. The stock-based compensation expense related to these RSUs was approximately $0.9 million and $2.1 million and for the three- and six-month periods ended June 30, 2018, respectively. For the three- and six-month periods ended June 30, 2019, there was no stock based compensation expense recognized related to these RSUs.



During the three-month period ended September 30, 2017, the Company granted 68,800 RSUs to certain employees which vest 50% on June 1, 2019 with the remaining 50% vesting on June 1, 2021. In the event of a change in control, these RSUs vest 100%. During the three-month period ended June 30, 2019, the Company issued 17,456 shares in connection of the vesting of these RSUs. Additional paid in capital was reduced by $0.2 million for tax payments related to shares withheld in connection with the vesting of the RSUs. The stock-based compensation expense related to these RSUs was approximately $0.1 million and $0.2 million for the three-month and six-month periods ended June 30, 2019, respectively. The stock-based compensation expense related to these RSUs was approximately $0.1 million and $0.2 million for the three- and six-month periods ended June 30, 2018, respectively. 

 

9.  Research Grants and Agreements

Sponsored Research Agreement

The Company may annually sponsor research activities (SRAs) performed by ODURF’s Frank Reidy Center. ODURF is compensated by the Company for its conduct of each study in accordance with the budget and payment terms set forth in the applicable task order. During the year ended December 31, 2018, the Company agreed to sponsor $0.8 million in research during the subsequent 12-month period to be funded through monthly payments made upon ODURF certifying, to the Company’s reasonable satisfaction, that ODURF has met its obligations pursuant to the specified task order and statement of work. The principal investigator may transfer funds with the budget as needed without the Company’s approval so long as the obligations of ODURF under the task order and statement of work remain unchanged and unimpaired. As of June 30, 2019,  approximately $0.1 million remained payable under this agreement.

In addition, during 2017, the Company agreed to provide $0.3 million in research funding to researchers affiliated with ODURF and Eastern Virginia Medical School matching funds made available to those researchers by the Virginia Biosciences Health Research Corporation. The Company’s sponsorship affords access to certain intellectual property, if any, developed during the project. As of June 30, 2019,  no amount remained available under this sponsorship.

During the three-month periods ended June 30, 2019 and 2018, the Company paid and incurred costs relating to the SRAs equal to $0.3 million and $0.1 million, respectively. During the six-month periods ended June 30, 2019 and 2018, the Company paid and incurred costs related to the SRAs equal to $0.5 million and $0.4 million, respectively.

 

10.  Commitments and Contingencies

Operating Leases

During January 2017, the Company entered into a Lease (the “Existing Lease”) with Hayward Point Eden I Limited Partnership, a Delaware limited liability company (the “Landlord”) for approximately 15,697 square feet for its corporate headquarters located at 3955 Point Eden Way, Hayward, California. The lease commenced during July 2017. During May 2019, the Company entered into a First Amendment to Lease (the “Lease Amendment”) with the Landlord. The Lease Amendment amends the Existing Lease with the Landlord and provides for the expansion of the Premises by approximately 34,601 square feet (the “Expansion Premises”) and an extension of the term of the Existing Lease.



The Company will occupy the Expansion Premises in two phases. The “Phase 1” portion of the Expansion Premises contains approximately thirteen thousand two hundred and eighty (13,280) of rentable square feet and the “Phase 2” portion of the Expansion Premises contains approximately twenty-one thousand three hundred and twenty-one (21,321) of rentable square feet. Upon inclusion of the Expansion Premises, the Company will lease approximately fifty thousand two hundred and ninety-eight (50,298) rentable square feet from the Landlord (the “Entire Premises”). The Expansion Premises will also be used for the Company’s corporate headquarters and principal operating facility.



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The term of the lease for the Expansion Premises is expected to commence on the date the Landlord delivers Phase 1 of the Expansion Premises to the Company “Ready for Occupancy,” as defined in the Lease Amendment (the “Expansion Commencement Date”) and runs contemporaneously with the term of the lease for the existing space (the “Lease Term”). The Lease Amendment extends the term of the lease with respect to the Entire Premises to expire on the date that is ten (10) years after the Expansion Commencement Date. In addition, under the Lease Amendment, the Company has two options to extend the Option Term, as defined in the Lease Amendment, by seven  (7) years upon written notice not more than twelve (12) months nor less than nine (9) months prior to the expiration of the lease, with monthly payments equal to the “Fair Rental Value” as defined in the Existing Lease.



The Company will continue to pay base monthly rent for the existing premises in accordance with the terms of the Existing Lease. The Expansion Premises’ base monthly rent shall be abated for the first four (4) months of the Lease Term and thereafter will be $2.25 per rentable square foot for the Expansion Premises, with specified annual increases occurring thereafter until reaching approximately $3.819 per rentable square foot during the last six (6) months of the Lease Term. The total base rent beginning on the Expansion Commencement Date through the minimum term of the lease is not calculable at this time since the total base rent will depend on the date the Phase 2 portion of the Expansion Premises is “Ready for Occupancy.” In addition to base rent, the Company will continue to be required to reimburse the Landlord for certain expenses during the Lease Term. Under the Lease Amendment, the Company is required to increase its refundable security deposit by $264,264.88, to be equal to $364,937.68.  



The Company adopted Topic 842 on January 1, 2019, using the transition method per ASU No. 2018-11 issued on July 2018 wherein entities were allowed to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Accordingly, all periods prior to January 1, 2019 were presented in accordance with the previous ASC 840, Leases, and no retrospective adjustments were made to the comparative periods presented. The adoption of ASC 842 resulted in an increase to total assets and liabilities due to the recording of operating lease right-of-use assets (“ROU”) presented within other assets and operating lease liabilities of approximately $0.1 million as of January 1, 2019. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.



The Company evaluated the Lease Amendment under Topic 842 and concluded that the Lease Amendment meets the definition of a lease modification as it extends the term of the Existing Lease and increases the Company’s leased premise. As the Company determined that the increase in payments under the Lease Amendment is not commensurate with the additional right-of-use assets provided in the modified lease, the modified lease is not accounted for as a separate contract. The remeasurement for the modification resulted in an increase in total lease lability of approximately $2.4 million, increase in right-of-use assets of $1.1 million, and other assets of $1.3 million.  

Information related to the Company's right-of-use assets and related lease liabilities were as follows (in thousands except for remaining lease term and discount rate):





 

 

Cash paid for operating lease liabilities

$

263 

Right-of-use assets recognized in exchange for new lease obligations

 

1,182 



 

 

Current operating lease liabilities

 

168 

Non-current operating lease liabilities

 

3,724 

Total lease liabilities

$

3,892 



 

 

Weighted average remaining lease term

 

10.35 

Weighted average discount rate

 

10% 



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Maturities of lease liabilities as of June 30, 2019 were as follows (in thousands):







 

 

Year Ending December 31:

 

 

2019 (remaining 6 months)

$

272 

2020

 

554 

2021

 

574 

2022

 

581 

2023

 

577 

Thereafter

 

3,792 

Total lease payments

 

6,350 

Less imputed interest

 

(2,458)

Total lease liabilities

$

3,892 

During the three-month periods ended June 30, 2019 and 2018, rent expense, including common area maintenance charges, was approximately $65,000 and $69,000, respectively. During the six-month periods ended June 30, 2019 and 2018, rent expense, including common area maintenance charges, was approximately $0.1 million, and $0.1 million, respectively.

Legal Proceedings

The Company maintains indemnification agreements with its directors and officers that may require the Company to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law.

From time to time, the Company may be involved in a variety of claims, lawsuits, investigations and proceedings relating to securities laws, product liability, patent infringement, contract disputes and other matters relating to various claims that arise in the normal course of the Company’s business. The Company currently believes that these ordinary course matters are not material to the financial statements of the business.

 

11.   Related Party Transactions

Kenneth A. Clark, a director of the Company since November 2017, is a member of the law firm of Wilson Sonsini Goodrich and Rosati (“WSGR”), which also serves as the outside corporate counsel to the Company. During the three and six-month periods ended June 30, 2019, the Company incurred expenses reported in general and administrative expenses in the consolidated statement of operations for legal services rendered by WSGR totaling approximately $0.1 million and $0.2 million, respectively. During the three and six-month periods ended June 30, 2018, the Company incurred expenses for legal services rendered by WSGR totaling approximately $0.8 million and $1.1 million, respectively.

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

In this report, “Pulse,” “Pulse Biosciences,” “we,” “us,” “our” and the “Company” refer to Pulse Biosciences, Inc. and its wholly-owned subsidiaries.



This management’s discussion and analysis of financial condition as of June 30, 2019, and results of operations for the three- and six-month periods ended June 30, 2019, and 2018, should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2018.

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to expectations concerning matters that are not historical facts. . Words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “projects,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, but are not limited to, statements related to our expected business, new product introductions, procedures and procedure adoption, future results of operations, future financial position, our ability to generate revenues, the anticipated mix of our revenues between procedure and system revenues, our financing plans and future capital requirements, anticipated costs of revenue, anticipated expenses, the effect of recent accounting pronouncements, our investments, anticipated cash flows, our ability to finance operations from cash flows and similar matters, and statements based on current expectations, estimates, forecasts and projections about the economies and markets in which we intend to operate and our beliefs and assumptions regarding these economies and markets. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. You should read the “Risk Factors” section of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. We do not assume any obligation to update any forward-looking statements.

Pulse Biosciences, CellFX, Nano-Pulse Stimulation, and NPS and the stylized logos are trademarks or registered trademarks of the Company in the United States and other countries.

Overview

We are a novel bioelectric medicine company committed to health innovation that improves and potentially extends the lives of patients. The Company is pursuing regulatory clearance from the FDA for its proprietary CellFX System, the first planned commercial product to harness the distinctive advantages of Pulse Biosciences NPS technology platform.

Plan of Operation



We intend to commercialize novel, proprietary, and differentiated products that have the potential to significantly improve patient outcomes in the markets we intend to serve. To achieve this plan, we intend to:



·

Demonstrate the unique benefits of our proprietary CellFX System and its unique mechanism of action across a number of compelling indications. The CellFX System is the only tunable nanosecond pulsed energy system designed for use in human medicine of which we are aware. Our proprietary CellFX System allows for the adjustment of four key pulsing parameters: pulse duration, pulse amplitude, pulse frequency, and the number of pulses, depending on the tissue and desired treatment outcome. We have conducted or are conducting several clinical studies, including studies in Seborrheic Keratosis (SK), the most common benign raised pigmented lesion, Sebaceous Hyperplasia (SH), a common but difficult to treat facial lesion, Basal Cell Carcinoma (BCC), the most common form of skin cancer, cutaneous non-genital warts, and acne. We expect to conduct clinical studies on an ongoing basis to continue to demonstrate the value of our CellFX System across a growing list of valuable applications;

·

Commercialize our proprietary CellFX System and applications for its use across a broad array of clinical indications. During February 2019, we submitted a Pre-Market Notification 510(k) to the U.S. Food and Drug Administration (FDA) seeking clearance to commercialize our CellFX System. Our FDA filing requests clearance of the CellFX System for commercial use in common dermatologic procedures to remove general benign lesions including SH and SK. On April 30, 2019, we received an additional information (AI) letter from the FDA that,

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among other things, requested additional information regarding our selected predicate device and clinical study data provided in the 510(k) submission. Responding to this request has added time to our approval process. We are preparing our response to the FDA and continue to believe our selected predicate device and the results from our clinical studies support a 510(k) clearance. We anticipate submitting our response to the AI letter during the third quarter and a decision from the FDA during third or fourth quarter. Pending regulatory clearance, we plan to commercially introduce our CellFX System in the United States by the end of 2019.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our unaudited financial statements, which have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to the critical accounting policies and estimates discussed in our Annual Report on Form 10-K as of and for the year ended December 31, 2018, except for the adoption of the lease accounting standard as of January 1, 2019 as disclosed in Note 2.



Recent Accounting Pronouncements

Refer to “Recent Accounting Pronouncements” in Note 2 of Notes to Condensed Consolidated Financial Statements of this Quarterly Report.

Segment and Geographical Information 

We operate and manage our business as one reportable and operating segment. Our Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. All of our long-lived assets are based in the United States.



Results of Operations

Comparison of the three-month periods ended June 30, 2019 and 2018

Our condensed consolidated statements of operations as discussed herein are presented below:

 







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Three-Month Periods Ended

 

 

 



 

June 30,

 

 

 

(in thousands)

 

2019

 

2018

 

$ Change

Revenue

 

$

 —

 

$

 —

 

$

 —

Operating expenses:

 

 

 

 

 

 

 

 

 

General and administrative

 

 

5,146 

 

 

5,173 

 

 

(27)

Research and development

 

 

6,337 

 

 

3,960 

 

 

2,377 

Amortization of intangible assets

 

 

166 

 

 

167 

 

 

(1)

Total operating expenses

 

 

11,649 

 

 

9,300 

 

 

2,349 

Other income:

 

 

 

 

 

 

 

 

 

Interest income

 

 

290 

 

 

137 

 

 

153 

Total other income

 

 

290 

 

 

137 

 

 

153 

Net loss

 

$

(11,359)

 

$  

(9,163)

 

$

2,196 



General and Administrative

General and administrative expenses consist of compensation and related expenses for executives, finance, legal, human resources, information technology and administrative personnel, professional fees, patent fees and costs, insurance costs and other general corporate expenses. General and administrative expenses decreased by $0.1 million to $5.1 million

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for the three-month period ended June 30, 2019, from $5.2 million during the same period in 2018 primarily due to $0.7 million of decreased stock-based compensation expenses and $0.6 million of decreased professional service expenses, partially offset by $0.6 million of increased compensation costs and $0.6 million of increased consulting and outside service costs. Stock-based compensation decreased principally due to timing of vesting of certain awards and options granted. Professional service expenses decreased primarily due to decreased legal costs related to corporate matters. Compensation costs increased primarily due to increased headcount from 2018 to 2019. Consulting and outside service costs increased primarily due to increased marketing activities initiated in preparation for commercialization. General and administrative expenses are expected to substantially increase during 2019 relative to 2018 in connection with the buildout of additional operational commercial and infrastructure to support the anticipated commercialization of our CellFX System in the aesthetic dermatology market.

Research and Development

Research and development expenses consist of compensation and related expenses for research and development personnel, clinical trials and consulting costs related to the design, development and enhancement of our potential future products, prototype material and devices. Research and development expenses increased by $2.4 million to $6.3 million for the three-month period ended June 30, 2019, from $4.0 million during the same period in 2018 primarily due to $0.8 million of increased compensation costs, $0.7 million of increased clinical trial costs, $0.4 million of increased facilities-related expenses, $0.2 million of increased stock-based compensation costs, $0.1 million of increased consulting and outside service costs,  $0.1 million of increased sponsored research, and $0.1 million of increased travel expenses. Compensation costs, stock-based compensation and travel expenses increased primarily due to increased headcount from 2018 to 2019, respectively. Clinical trial costs increased due to our ongoing and recently started clinical trials including, among others, basal cell carcinoma, warts, and acne as well as production of additional CellFX Systems for clinical use. Facilities-related expenses increased to accommodate the infrastructure growth of the company. Consulting and outside service costs increased due to product development activities. Sponsored research expenses increased due to timing of sponsored research activities conducted by our research partners.  Research and development expenses are expected to continue to increase substantially during 2019 relative to 2018 as we expand our clinical study activities by initiating additional studies, continue development and enhancement of our CellFX System in preparation for additional clinical trials. 

Interest Income

Interest income increased by $0.2 million to $0.3 million for the three-month period ended June 30, 2019, from $0.1 million during the same period in 2018 due to higher cash equivalent and investment balances.