Annual report pursuant to Section 13 and 15(d)
SECURITIES AND EXCHANGE COMMISSION
Form 10-K
(
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the fiscal year ended |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from _________________ to _________________ |
Commission File Number: 001-33216
(Exact name of registrant as specified in its charter)
| 68-0423298 | ||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (
(800)759-9305
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Common Stock, |
SNOA | The Nasdaq |
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| (Title of Each Class) | (Trading Symbol(s)) | ( |
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant on
There were 3,100,937shares of the registrant's common stock issued and outstanding on
DOCUMENTS INCORPORATED BY REFERENCE
Items 10 (as to directors and Section 16(a) Beneficial Ownership Reporting Compliance), 11, 12, 13 and 14 of Part III will incorporate by reference information from the registrant's proxy statement to be filed with the
TABLE OF CONTENTS
PART I
This report includes "forward-looking statements." The words "may," "will," "anticipate," "believe," "estimate," "expect," "intend," "plan," "aim," "seek," "should," "likely," and similar expressions as they relate to us or our management are intended to identify these forward-looking statements. All statements by Sonoma regarding expected financial position, revenues, cash flows and other operating results, business strategy, legal proceedings and similar matters are forward-looking statements. Our expectations expressed or implied in these forward-looking statements may not tuout to be correct. Our results could be materially different from our expectations because of various risks, including the risks discussed in this report under "Part I - Item 1A - Risk Factors." Any forward-looking statement speaks only as of the date as of which such statement is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances, including unanticipated events, after the date as of which such statement was made.
ITEM 1. Business
Corporate Information
We originally incorporated as
In
Overview
We are a global healthcare leader for developing and producing stabilized hypochlorous acid, or HOCl, products for a wide range of applications, including wound care, animal health care, eye care, oral care and dermatological conditions. Our products reduce infections, itch, pain, scarring and harmful inflammatory responses in a safe and effective manner. In-vitro and clinical studies of HOCl show it to have impressive antipruritic, antimicrobial, antiviral and anti-inflammatory properties. Our stabilized HOCl immediately relieves itch and pain, kills pathogens and breaks down biofilm, does not
Business Update
After two years of restructuring the Company, we are now focused on growing our revenues while maintaining costs. During 2021, we built out our
Some of our recent business updates include:
| · | In |
| · | On |
| · | In spring 2022, our animal healthcare partner |
| · | On |
| · | In |
We continue to invest in research and development, both in the
The COVID-19 pandemic still affects our business and presents new challenges. Whereas in the beginning of the pandemic, we had to manage closures and shelter-in-place orders, we now face higher shipping costs, shipping delays and higher labor costs driven by inflation and a surplus of opportunities for job seekers.
As we move into our new fiscal year, our path forward will consist of looking for
Business Channels
Our core market differentiation is based on being the leading developer and producer of stabilized hypochlorous acid, or HOCl, solutions. Unlike many of our competitors, we have been in business for over 20 years, and in that time we have developed significant scientific knowledge of how best to develop and manufacture HOCl products backed by decades of studies and data collection. HOCl is known to be among the safest and most-effective ways to relieve itch, inflammation and burns while stimulating natural healing through increased oxygenation and eliminating persistent microorganisms and biofilms.
We sell our products into many markets both in the
Dermatology
In
On
We sell dermatology products in
First Aid and Wound Care
Our HOCl-based wound care products are intended for the treatment of acute and chronic wounds as well as first- and second-degree burns. They work by first removing foreign material and debris from the skin surface and moistening the skin, thereby improving wound healing. Second, our HOCl products assist in the wound healing process through their antimicrobial properties by removing microorganisms. Since HOCl is an important constituent of our innate immune system and is formed and released by the macrophages during phagocytosis, it is advantageous to other wound-irrigation and antiseptic solutions as highly organized cell structures such as human tissue can tolerate the action of our wound care solution while single-celled microorganisms cannot. Due to its unique chemistry, our wound treatment solution is much more stable than similar products on the market and therefore maintains much higher levels of hypochlorous acid over its shelf life.
In
To respond to market demand for our HOCl technology-based products, we launched our first direct to consumer over-the-counter product in
In
In
Our prescription product Acuicyn™ is an antimicrobial prescription solution for the treatment of blepharitis and the daily hygiene of eyelids and lashes and helps manage red, itchy, crusty and inflamed eyes. It is strong enough to kill the bacteria that causes discomfort, fast enough to provide near instant relief, and gentle enough to use as often as needed. In
On
In international markets we rely on a network of distribution partners to sell our eye products. On
Oral, Dental and Nasal Care
We sell a variety of oral, dental, and nasal products around the world.
In late 2020 we launched two HOCl-based products in the dental, head and neck markets and launched Endocyn®, a biocompatible root canal irrigant. In
Internationally, our product Microdacyn60®
Our international nasal care product Sinudox™ based on our HOCl technology is a solution intended for nasal irrigation. Sinudox Hypotonic Nasal Hygiene clears and cleans a blocked nose, stuffy nose and sinuses by ancillary ingredients that may have a local antimicrobial effect. Sinudox is sold through Amazon in
Animal Health Care
MicrocynAH® is a HOCl-based topical product that cleans, debrides and treats a wide spectrum of animal wounds and infections. It is intended for the safe and rapid treatment of a variety of animal afflictions including cuts, burns, lacerations, rashes, hot spots, rain rot, post-surgical sites, pink eye symptoms and wounds to the outer ear of any animal.
For our animal health products sold in the
For the Asian and European markets, on
Surface Disinfectants
In-vitro and clinical studies of HOCl show it to have impressive antipruritic, antimicrobial, antiviral and anti-inflammatory properties. HOCl has been formulated as a disinfectant and sanitizer solution for our partner
Through our partner MicroSafe Group DMCC,
On
Employees
As of
Products
Our products are all classified as medical devices and categorized as prescription products, over-the-counter, or OTC, and office dispense. Below are some of our key products that we either sell through our own efforts or through partnership agreements.
Dermatology
In
Internationally, we offer GramaDerm™ Hydrogel and Solution Combo Pack to assist in the treatment of topical mild to moderate acne, Epicyn™ Scar Management Hydrogel and Pediacyn™ Atopic Dermatitis Hydrogel.
Celacyn® Scar Management Gel
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Celacyn® offers scar management by protecting and moisturizing wound and scar sites to promote lighter, flatter, less prominent scarring. Celacyn®, is a HOCl-based topical prescription product indicated to promote efficient healing through the management of new and old scars resulting from surgical procedures and trauma wounds or burns. |
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Epicyn™ relieves the common symptoms of irritated skin and dermal lesions. Epicyn™ Antimicrobial Facial cleanser is intended for the cleansing, irrigation, moistening, debridement and removal of foreign material and debris from acute and chronic dermal lesions. |
Levicyn™ Antipruritic Dermal Spray, Antipruritic Spray Gel, and Antipruritic Gel
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Levicyn™ offers fast itch relief. Levicyn™ is a HOCl-based topical prescription product indicated to manage and relieve the burning, itching and pain experienced with various types of dermatoses. |
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Lasercyn™
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Lasercyn™ Post Procedure Gel is intended for the management of post non ablative laser therapy procedures, post microdermabrasion therapy and following superficial chemical peels. Lasercyn™ Procedure Gel may also be used to relieve itch and pain from minor skin irritations, lacerations, abrasions and minor burns. |
Wound Care
In
Microcyn® Wound Care Management
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Microcyn® offers enhanced healing properties. Microcyn® is a HOCl-based topical line of products designed to stimulate expedited healing by targeting a wide range of pathogens including viruses, fungi, spores and bacteria, including antibiotic-resistant strains that slow the natural healing of wounds. |
Eye, Nasal and
Acuicyn™ Eyelid and Eyelash Hygiene
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Acuicyn™ offers safe and effective eyelid and eyelash hygiene. Acuicyn™ is a HOCl-based topical prescription product indicated to relieve itch and inflammation while helping to keep areas around the eye clean. We also offer Ocucyn® Eyelid and Eyelash Cleanser as an OTC version for purchase. Ocudox™ is substantially the same eye care product marketed by Brill in |
Microdacyn60®
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Microdacyn60 This adjuvant solution assists in reducing inflammation, pain, soothing cough relief and does not contain any harmful chemicals. It does not stain teeth, is non-irritating, non-sensitizing, has no contraindications and is ready for use with no mixing or dilution. |
Animal Health Care
In
Surface Disinfectants
Through our partner MicroSafe DMCC,
When fumigated, Nanocyn has demonstrated the ability to kill a wide range of airborne pathogens and significantly reduce the spread of infectious disease.
Research and Development
Research and development expense consists primarily of expenses for clinical studies, personnel, regulatory services and supplies. For the years ended
Manufacturing and Packaging
Through
Our machines are tested regularly, which is part of a validation protocol mandated by
We believe we own a sufficient factory space and equipment to produce an adequate amount of product to meet anticipated future requirements for at least the next two years. With expansion into new geographic markets, we may establish additional manufacturing facilities to better serve those new markets.
To date, we have obtained 21
Outside
The following table summarizes our current material regulatory approvals and clearances by brand.
| Brand | Approval Type | Summary Indication | ||
| HOCl-based Products: | ||||
| Lasercyn™ Gel, Levicyn™ Gel | Prescription and OTC product, intended for use to relieve itch and pain from minor skin irritations, lacerations, abrasions and minor burns, such as sunburn. As a prescription product it is also intended for sores, injuries, ulcers of dermal tissue and exuding wounds. | |||
| Sebuderm™ |
|
Prescription-only product, manages and relieves the burning, itching, erythema, scaling, and pain experienced with seborrhea and seborrheic dermatitis. It also helps to relieve dry, waxy skin by maintaining a moist wound and skin environment, which is beneficial to the healing process. | ||
| Celacyn® Scar Management Gel, | Prescription and OTC product, for the management of old and new hypertrophic and keloid scarring resulting from burns, general surgical procedures and trauma wounds. | |||
| Levicyn™ SG | Prescription and OTC product, for the management and relief of burning and itching associated with many common types of skin irritation, lacerations, abrasions and minor burns. As a prescription product it also relieves burning and itching and pain associated with various types of dermatoses, including radiation dermatitis and atopic dermatitis. | |||
| Epicyn™ Antimicrobial Facial Cleanser | Prescription and OTC product, management of skin abrasions, lacerations, minor irritations, cuts and intact skin. As a prescription product it is intended for the cleansing, irrigation, moistening, debridement and removal of foreign material and debris from exudating wounds, first- and second-degree burns and other skin irritations. | |||
| Lasercyn™ Gel | Prescription and OTC product, intended for the management of minor skin irritations following post non ablative laser therapy procedures, post microdermabrasion therapy and following superficial chemical peels, and to relieve itch and pain from minor skin irritations, lacerations, abrasions and minor burns. | |||
| Levicyn™ Dermal Spray, Lasercyn™ Dermal Spray | Prescription and OTC product, for the management of skin abrasions, lacerations, minor irritations, cuts and intact skin. As a prescription product it is intended for the cleansing, irrigation, moistening, debridement and removal of foreign material including microorganisms and debris from exudating wounds, acute and chronic dermal lesions, burns, and other skin irritations. |
| Acuicyn Antimicrobial Eyelid & Eyelash Hygiene |
Prescription product, Under the supervision of a healthcare professional, Acuicyn Antimicrobial Eyelid & Eyelash Hygiene is intended for the cleansing, irrigation, moistening, debridement and removal of foreign material and debris from exudating wounds, acute and chronic dermal lesions including stage I-IV pressure ulcers, stasis ulcers, diabetic ulcers, post-surgical wounds, first- and second-degree burns, abrasions, minor irritations of the skin, diabetic foot ulcers, ingrown toe nails, grafted/donor sites and exit sites. It is also intended for use to moisten and lubricate wound dressings and for use with devices intended to irrigate wounds. OTC product, Ocucyn Antimicrobial Eyelid & Eyelash Hygiene is intended for OTC use in the management of skin abrasions, lacerations, minor irritations, cuts, and intact skin. |
|||
| Endocyn Root Canal Irrigation Solution | U.S.510(k) | Endocyn Root Canal Irrigation Solution is intended to irrigate, cleanse, and debride root canal systems including the removal of foreign material and debris during root canal therapy. It is also intended to provide for lubrication and irrigation during root canal instrumentation. | ||
| Gramaderm® | Various product formulations for the topical treatment of mild to moderate acne. | |||
| Microdacyn60® | Various product formulations for the management of itching, burning and other skin irritations. | |||
| MucoClyns™ | Indicated for the use in emergencies and safe to use on mucous membranes, cuts, abrasions, burns and body surfaces for the treatment immediately after an unexpected exposure to infection risk, and professional medical attention. | |||
| Sinudox™ | Solution intended for nasal irrigation, including the moistening of cuts, abrasions and lacerations located in the nasal cavity. |
Significant Customers
We rely on certain key customers for a significant portion of revenues. In the
Intellectual Property
Our success depends in part on an ability to obtain and maintain proprietary protection for product technology and know-how, to operate without infringing proprietary rights of others, and to prevent others from infringing on our proprietary rights. We seek to protect a proprietary position by, among other methods, filing, when possible,
Although we work diligently to protect proprietary technology, there are no assurances that any patent will be issued from currently pending patent applications or from future patent applications. The scope of any patent protection may not exclude competitors or provide competitive advantages, and any patent may not be held valid if subsequently challenged, and others may claim rights in or ownership of patents and proprietary rights. Furthermore, others may develop products similar to ours and may duplicate any of the products or design around patents.
We have also filed for trademark protection for marks used with products in each of the following regions:
Competition
We compete globally across five main channels: dermatology, eye, nasal and oral care, wound and acute care, animal health and surface disinfectants with our HOCl technology.
Dermatology
Our dermatology products are at the forefront of HOCl-based solutions, a safe and highly effective active ingredient designed to relieve itching, burning and inflammation and acts as a highly effective antimicrobial agent. We believe no other solutions on the market provide the same patient benefits at the levels of safety and cost. Our HOCl-based solutions face significant competition in
Wound and Acute Care Markets
Similar to our dermatology products, our HOCl-based wound and acute care solutions provide improved efficacy at lower costs than traditional acute care products. Our HOCl-based solutions compete with topical anti-infectives and antibiotics, as well as some advanced wound technologies, such as skin substitutes, growth factors and delayed release silver-based dressings. Our opportunity in this space relative to antibiotics is based on the insight that competing antibiotic solutions may have resistance-building properties.
Factors Affecting Competitive Position
While some other companies are able to produce small molecule, HOCl-based formulations, based on our research, their products may become unstable after a relatively short period of time or have large ranges of effectiveness. We believe our HOCl-based solutions are among the most stable therapeutics available.
Some of our competitors in the dermatology, wound care, eye, nasal and oral care, animal health care and surface disinfectant markets enjoy several competitive advantages. These include:
| · | greater name recognition; | |
| · | established relationships with healthcare professionals, patients and third-party payors; | |
| · | established distribution networks; | |
| · | additional product lines and the ability to offer rebates or bundle products to offer discounts or incentives; | |
| · | experience in conducting research and development, manufacturing, obtaining regulatory approval for products and marketing; and | |
| · | financial and human resources for product development, sales and marketing and patient support. |
Government Regulation
Government authorities in
Medical Device Regulation
To date, we have received 21 510(k) clearances for use of products as medical devices in tissue care management, such as cleaning, debridement, lubricating, moistening and dressing, including for acute and chronic wounds, and in dermatology applications. Any future product candidates or new applications classified as medical devices will require clearance by the FDA.
Medical devices are subject to FDA clearance and extensive regulation under the Federal Food Drug and Cosmetic Act. Under the Federal Food Drug and Cosmetic Act, medical devices are classified into one of three classes: Class I, Class II or Class III. The classification of a device into one of these three classes generally depends on the degree of risk associated with the medical device and the extent of control needed to ensure safety and effectiveness. Devices may also be designated unclassified. Unclassified devices are legally marketed pre-amendment devices for which a classification regulation has yet to be finalized and for which a pre-market approval is not required.
Class I devices are devices for which safety and effectiveness can be assured by adherence to a set of general controls. These general controls include compliance with the applicable portions of the
Clinical trials are almost always required to support a pre-market approval application and are sometimes required for a 510(k) pre-market notification. These trials generally require submission of an application for an investigational device exemption. An investigational device exemption must be supported by pre-clinical data, such as animal and laboratory testing results, which show that the device is safe to test in humans and that the study protocols are scientifically sound. The FDA must approve an investigational device exemption, in advance, for a specified number of patients, unless the product is deemed a non-significant risk device and is eligible for more abbreviated investigational device exemption requirements.
Both before and after a medical device is commercially distributed, manufacturers and marketers of the device have ongoing responsibilities under FDA regulations. The FDA reviews design and manufacturing practices, labeling and record keeping, and manufacturers' required reports of adverse experiences and other information to identify potential problems with marketed medical devices. Device manufacturers are subject to periodic and unannounced inspection by the FDA for compliance with the Quality System Regulation, which sets forth the Current Good Manufacturing Practice requirements that govethe methods used in, and the facilities and controls used for the design, manufacture, packaging, servicing, labeling, storage, installation and distribution of all finished medical devices intended for human use.
FDA regulations prohibit the advertising and promotion of a medical device for any use outside the scope of a 510(k) clearance or pre-market approval or for unsupported safety or effectiveness claims. Although the FDA does not regulate physicians' practice of medicine, the FDA does regulate manufacturer communications with respect to off-label use.
If the FDA finds that a manufacturer has failed to comply with FDA laws and regulations or that a medical device is ineffective or poses an unreasonable health risk, it can institute or seek a wide variety of enforcement actions and remedies, ranging from a public warning letter to more severe actions such as:
| · | imposing fines, injunctions and civil penalties | |
| · | requiring a recall or seizure of products | |
| · | implementing operating restrictions, which can include a partial suspension or total shutdown of production | |
| · | refusing requests for 510(k) clearance or pre-market approval of new products | |
| · | withdrawing 510(k) clearance or pre-market approval approvals already granted | |
| · | criminal prosecution |
The FDA also has the authority to require a company to repair, replace, or refund the cost of any medical device.
The FDA also administers certain controls over the export of medical devices from
Other Regulation in
The Physician Payments Sunshine Act
The Physician Payments Sunshine Act signed into law in 2010 as part of the Affordable Care Act requires manufacturers of medical devices, drugs, biologicals, and medical supplies to track and report certain payments made to and transfers of value provided to physicians and teaching hospitals as well as to report certain ownership and investment interests held by physicians and their immediate family members. These manufacturers must report annually to the
Health Care Coverage and Reimbursement by Third-Party Payors
Commercial success in marketing and selling products depends, in part, on the availability of adequate coverage and reimbursement from third-party health care payors, such as government and private health insurers and managed care organizations. Third-party payors are increasingly challenging the pricing of medical products and services. Government and private sector initiatives to limit the growth of health care costs, including price regulation, competitive pricing, and managed-care arrangements, are continuing in many countries where we do business, including
Fraud and Abuse Laws
In
Due to the scope and breadth of the provisions of some of these laws, it is possible that some of our practices might be challenged by the government under one or more of these laws in the future. Violations of these laws, which are discussed more fully below, can lead to civil and criminal penalties, damages, imprisonment, fines, exclusion from participation in Medicare, Medicaid and other federal health care programs, and the curtailment or restructuring of operations. Any such violations could have a material adverse effect on our business, financial condition, results of operations or cash flows.
Anti-Kickback Laws
Our operations are subject to federal and state anti-kickback laws. The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or providing remuneration directly or indirectly to induce either the referral of an individual for a good or service reimbursed under a federal healthcare program, or the furnishing, recommending, or arranging of a good or service, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. The definition of "remuneration" has been broadly interpreted to include anything of value, including such items as gifts, discounts, the furnishing of supplies or equipment, waiver of co-payments, and providing anything at less than its fair market value. Because the Anti-Kickback Statute makes illegal a wide variety of common, even beneficial, business arrangements, the
False Claims Laws
The federal False Claims Act prohibits knowingly filing a false claim, knowingly causing the filing of a false claim, or knowingly using false statements to obtain payment from the federal government. Certain violations of the Anti-Kickback Statute constitute per se violations of the False Claims Act. Under the False Claims Act, such suits are known as "qui tam" actions. Individuals may file suit on behalf of the government and share in any amounts received by the government pursuant to a settlement. In addition, certain states have enacted laws modeled after the federal False Claims Act under the Deficit Reduction Act of 2005, where the federal government created financial incentives for states to enact false claims laws consistent with the federal False Claims Act. As more states enact such laws, we expect the number of qui tam lawsuits to increase. Qui tam actions have increased significantly in recent years, causing greater numbers of healthcare companies to have to defend false claims actions, pay fines or be excluded from Medicare, Medicaid or other federal or state government healthcare programs as a result of investigations arising out of such actions.
HIPAA
Two federal crimes were created under the Health Insurance Portability and Accountability Act of 1996, or HIPAA: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
Health Information Privacy and Security
Individually, identifiable health information is subject to an array of federal and state regulation. Federal rules promulgated pursuant to HIPAA regulate the use and disclosure of health information by "covered entities." Covered entities include individual and institutional health care providers from which we may receive individually identifiable health information. These regulations govern, among other things, the use and disclosure of health information for research purposes, and require the covered entity to obtain the written authorization of the individual before using or disclosing health information for research. Failure of the covered entity to obtain such authorization could subject the covered entity to civil and criminal penalties. We may experience delays and complex negotiations in dealing with each entity's differing interpretation of the regulations and what is required for compliance. Also, where our customers or contractors are covered entities, including hospitals, universities, physicians or clinics, we may be required by the HIPAA regulations to enter into "business associate" agreements that subject the company to certain privacy and security requirements. In addition, many states have laws that apply to the use and disclosure of health information, and these laws could also affect the manner in which we conduct research and other aspects of business. Such state laws are not preempted by the federal privacy law when such laws afford greater privacy protection to the individual than the federal law. While activities to assure compliance with health information privacy laws are a routine business practice, we are unable to predict the extent to which resources may be diverted in the event of an investigation or enforcement action with respect to such laws.
Foreign Regulation
Whether or not we obtain FDA approval for a product, approval of a product by the applicable regulatory authorities of foreign countries must be obtained before clinical trials or marketing of the product in those countries can begin. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement also vary greatly from country to country. Although governed by the applicable country, clinical trials conducted outside of
European Union Regulation
Medical Device Regulation
Our products are classified as medical devices in the
On
Medical devices are divided into three regulatory classes: Class I, Class IIB and Class III. The nature of the conformity assessment procedures depends on the regulatory class of the product. In order to comply with the examination, we completed, among other things, a risk analysis and presented clinical data, which demonstrated that our products met the performance specifications claimed by us, provided sufficient evidence of adequate assessment of unwanted side effects and demonstrated that the benefits to the patient outweigh the risks associated with the device. We are subject to continued supervision and are required to report any serious adverse incidents to the appropriate authorities. We are also required to comply with additional national requirements that are beyond the scope of the Medical Devices Directive.
We received a CE certificate for 39 of our Class IIB medical devices, which allows us to affix CE markings on these products and sell them in
European Good Manufacturing Process
In the
Mexican Regulation
Under the General Health Law, a business that manufactures drugs is either required to obtain a "Sanitary Authorization" or to file an "Operating Notice." Our Mexican subsidiary, Oculus Technologies of
In addition to its Operating Notice, our
In addition, regulatory approval of prices is required in most countries other than
Available Information
We make available on sonomapharma.com, free of charge, copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, as soon as reasonably practicable after electronically filing or furnishing such materials to the
ITEM 1A. Risk Factors
Risks Related to Our Business
We have a history of losses, we expect to continue to incur losses and we may never achieve profitability and our
We reported a loss from continuing operations of
We derived a significant amount of revenue from our contract with Invekra during the fiscal years ended
Our revenues from our Latin American business that we sold to Invekra on
We depend on third party distributors and intend to continue to license or collaborate with third parties in various potential markets, and events involving these strategic partners or any future collaboration could delay or prevent us from developing or commercializing products.
Our business strategy and our short- and long-term operating results depend in part on our ability to execute on existing strategic collaborations and to license or partner with new strategic partners. We believe collaborations allow us to leverage our resources and technologies and to access markets that are compatible with our own core areas of expertise while avoiding the cost of establishing or maintaining a direct sales force in each market. We may incur significant costs in the use of third parties to identify and assist in establishing relationships with potential collaborators. We currently use distributors for most of our products.
We have limited control over the amount and timing of resources that our current partners or any future collaborators devote to our collaborations or potential products. These partners may breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner. Further, our partners may not develop or commercialize products that arise out of our collaborative arrangements or devote sufficient resources to the development, manufacture, marketing or sale of these products.
To penetrate our target markets, we may need to enter into additional collaborative agreements to assist in the development and commercialization of products. Establishing strategic collaborations is difficult and time-consuming. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position and our internal capabilities. Our discussions with potential collaborators may not lead to the establishment of new collaborations on favorable terms and may have the potential to provide collaborators with access to our key intellectual property filings and next generation formations. By entering into collaboration, we may preclude opportunities to collaborate with other third parties
Mexican tax law prevents us from deducting intercompany interest expense incurred by our
Since 2004, we loaned substantial amounts to our
In addition, any interest paid to a foreign lender is subject to
A majority of our business is conducted outside of
We have material international operations in
| · | local political or economic instability; | |
| · | continuing restrictions related to the Covid-19 pandemic; |
| · | changes in exchange rates; |
| · | changes in governmental regulation; |
| · | changes in import/export duties; |
| · | lack of experience in foreign markets; |
| · | difficulties and costs of staffing and managing operations in certain foreign countries; |
| · | work stoppages or other changes in labor conditions; |
| · | difficulties in collecting accounts receivables on a timely basis or, at all; and |
| · | adverse tax consequences or overlapping tax structures. |
We plan to continue to market and sell our products internationally to respond to customer requirements and market opportunities. We currently have manufacturing facilities in
In addition, changes in policies or laws of
Our ability to generate revenue will be diminished if we or our partners are unable to obtain acceptable prices or an adequate level of reimbursement from third-party payors, or our partners may face pricing pressure from private third-party payers, including customers, from rebates and restrictive reimbursement practices.
Currently, none of our products are reimbursed by federal healthcare programs, such as Medicare and Medicaid, and we do not anticipate that they will be reimbursed by such programs in the future. Our partner's ability to commercialize our products successfully will depend in part on the extent to which appropriate coverage and reimbursement levels for the cost of our products and related treatment are obtained from governmental authorities, private health insurers and other organizations, such as health maintenance organizations, or HMOs. In
There is significant uncertainty concerning third-party coverage and reimbursement of newly approved medical products. Third-party payors are increasingly challenging the prices charged for medical products and services. Also, the trend toward managed healthcare in
In
Increasingly, private health insurance companies and self-insured employers have been raising co-payments required from beneficiaries and looking for other ways to shift more of the cost burden to manufacturers and patients. This cost shifting has given consumers greater control of medication choices, as they pay for a larger portion of their prescription costs and may cause consumers to favor lower cost generic alternatives to branded pharmaceuticals. Additionally, patients continue to face cost reduction pressures that may cause them to curtail their use of, or seek reimbursement for, our products, to negotiate reduced fees or other concessions or to delay payment. Third-party payors may reduce or limit reimbursement for our products in the future, such as by withdrawing their coverage policies, canceling any future contracts, reviewing and adjusting the rate of reimbursement, or imposing limitations on coverage. Any such changes could negatively impact the sales of our products by our partners, and therefore, have a material adverse effect on our revenues.
Our ability to generate revenue will be diminished if we or our partners are unable to manage customer product substitutions for our prescription products.
Similar to other pharmaceutical companies, patients are increasingly seeking lower-cost substitutes to our products. Even if our patients have a prescription for our product, the pharmacist may recommend a less expensive product even if that product is less effective or designed for conditions different from what the patient is seeking to treat. As a result, the patient may choose to abandon purchasing our prescribed product for a less expensive alternative product resulting in a lost sale for our partners. If the number of consumers substituting our products increases, it could have a material adverse effect on sales of our products by our partners, and therefore, our revenues, financial position, cash flows and results of operations.
If we fail to obtain, or experience significant delays in obtaining, additional regulatory clearances or approvals to market our current or future products, we may be unable to commercialize these products.
The developing, testing, manufacturing, marketing and selling of medical technology products is subject to extensive regulation by numerous governmental authorities in
The FDA generally clears marketing of a medical device through the 510(k) pre-market clearance process if it is demonstrated the new product has the same intended use and the same or similar technological characteristics as another legally marketed Class II device, such as a device already cleared by the FDA through the 510(k) premarket notification process, and otherwise meets the
In addition, we do not know whether the necessary approvals or clearances will be granted or delayed for future products. The FDA could request additional information, changes to product formulation(s) or clinical testing that could adversely affect the time to market and sale of products as drugs. If we do not obtain the requisite regulatory clearances and approvals, we will be unable to commercialize our products and may never recover any of the substantial costs we have invested in the development of HOCl.
Distribution of our products outside
If our products do not gain market acceptance, our business will suffer because we might not be able to fund future operations.
A number of factors may affect the market acceptance of our products or any other products we develop or acquire, including, among others:
| · | the price of our products relative to other products for the same or similar treatments; |
| · | the perception by patients, physicians and other members of the healthcare community of the effectiveness and safety of our products for their indicated applications and treatments; |
| · | changes in practice guidelines and the standard of care for the targeted indication; |
| · | our ability to fund our sales and marketing efforts; and |
| · | the effectiveness of our sales and marketing efforts or our partners' sales and marketing efforts. |
Our ability to effectively promote and sell any approved products will also depend on pricing and cost-effectiveness, including our ability to produce a product at a competitive price and our ability to obtain sufficient third-party coverage or reimbursement, if any. In addition, our efforts to educate the medical community on the benefits of our product candidates may require significant resources, may be constrained by FDA rules and policies on product promotion, and may never be successful. If our products do not gain market acceptance, we may not be able to fund future operations, including developing, testing and obtaining regulatory approval for new product candidates and expanding our sales and marketing efforts for our approved products, which would cause our business to suffer.
If our competitors develop products with similar characteristics to HOCl, we may need to modify or alter our business strategy, which may delay the achievement of our goals.
Competitors have and may continue to develop products with similar characteristics to HOCl. Such similar products marketed by larger competitors can hinder our or our partners' efforts to penetrate the market. As a result, we may be forced to modify or alter our business and regulatory strategy and sales and marketing plans, as a response to changes in the market, competition and technology limitations, among others. Such modifications may pose additional delays in achieving our goals.
We rely on a number of key customers
Although we have a significant number of customers in each of the geographic markets that we operate in, we rely on certain key customers for a significant portion of our revenues. For the year ended
Negative economic conditions increase the risk that we could suffer unrecoverable losses on our customers' accounts receivable which would adversely affect our financial results.
We grant credit to our business customers, which are primarily located in
If we fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.
Regulatory approvals or clearances that we currently have and that we may receive in the future are subject to limitations on the indicated uses for which the products may be marketed, and any future approvals could contain requirements for potentially costly post-marketing follow-up studies. If the FDA determines that our promotional materials or activities constitute promotion of an unapproved use or we otherwise fail to comply with FDA regulations, we may be subject to regulatory enforcement actions, including warning letters, injunctions, seizures, civil fines or criminal penalties. In addition, the manufacturing, labeling, packaging, adverse event reporting, storing, advertising, promoting, distributing and record-keeping for approved products are subject to extensive regulation. We are subject to continued supervision by European regulatory agencies relating to our CE markings and are required to report any serious adverse incidents to the appropriate authorities. Our manufacturing facilities, processes and specifications are subject to periodic inspection by the FDA, Mexican and other regulatory authorities and, from time to time, we may receive notices of deficiencies from these agencies as a result of such inspections. Our failure to continue to meet regulatory standards or to remedy any deficiencies could result in restrictions being imposed on our products or manufacturing processes, fines, suspension or loss of regulatory approvals or clearances, product recalls, termination of distribution, product seizures or the need to invest substantial resources to comply with various existing and new requirements. In the more egregious cases, criminal sanctions, civil penalties, disgorgement of profits or closure of our manufacturing facilities are possible. The subsequent discovery of previously unknown problems with HOC1, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of our products, and could include voluntary or mandatory recall or withdrawal of products from the market.
New government regulations may be enacted and changes in FDA policies and regulations and, their interpretation and enforcement, could prevent or delay regulatory approval of our products. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in
We may experience difficulties in manufacturing our products, which could prevent us from commercializing one or more of our products.
The machines used to manufacture our products are complex, use complicated software and must be monitored by highly trained engineers. Slight deviations anywhere in our manufacturing process, including quality control, labeling, and packaging, could lead to a failure to meet the specifications required by the FDA, the
Our competitive position depends on our ability to protect our intellectual property and our proprietary technologies.
Our ability to compete and to achieve and maintain profitability depends on our ability to protect our intellectual property and proprietary technologies. We currently rely on a combination of patents, patent applications, trademarks, trade secret laws, confidentiality agreements, license agreements and invention assignment agreements to protect our intellectual property rights. We also rely upon unpatented know-how and continuing technological innovation to develop and maintain our competitive position. These measures may not be adequate to safeguard our HOC1 technology. If we do not protect our rights adequately, third parties could use our technology, and our ability to compete in the market would be reduced.
Our pending patent applications and any patent applications we may file in the future may not result in issued patents, and we do not know whether any of our in-licensed patents or any additional patents that might ultimately be issued by the
The degree of future protection for our proprietary rights is more uncertain in part because legal means afford only limited protection and may not adequately protect our rights, and we will not be able to ensure that:
| · | we were the first to invent the inventions described in patent applications; |
| · | we were the first to file patent applications for inventions; |
| · | others will not independently develop similar or alternative technologies or duplicate our products without infringing our intellectual property rights; |
| · | any patents licensed or issued to us will provide us with any competitive advantages; |
| · | we will develop proprietary technologies that are patentable; or |
| · | the patents of others will not have an adverse effect on our ability to do business. |
The policies we use to protect our trade secrets may not be effective in preventing misappropriation of our trade secrets by others. In addition, confidentiality and invention assignment agreements executed by our employees, consultants and advisors may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosures.
We cannot be certain that the steps we have taken will prevent the misappropriation and use of our intellectual property in
We may face intellectual property infringement claims that could be time-consuming, costly to defend and could result in our loss of significant rights and, in the case of patent infringement claims, the assessment of treble damages.
On occasion, we may receive notices of claims of infringement, misappropriation, or misuse of other parties' proprietary rights. We may have disputes regarding intellectual property rights with the parties that have licensed those rights to us. We may also initiate claims to defend our intellectual property. Intellectual property litigation, regardless of its outcome, is expensive and time-consuming, and could divert management's attention from our business and have a material negative effect on our business, operating results, or financial condition. In addition, the outcome of such litigation may be unpredictable. If there is a successful claim of infringement against us, we may be required to pay substantial damages, including treble damages if we were to be found to have willfully infringed a third party's patent, to the party claiming infringement, develop non-infringing technology, stop selling our products or using technology that contains the allegedly infringing intellectual property or enter into royalty or license agreements that may not be available on acceptable or commercially practical terms, if at all. Our failure to develop non-infringing technologies or license the proprietary rights on a timely basis could harm our business. In addition, modifying our products to exclude infringing technologies could require us to seek re-approval or clearance from various regulatory bodies for our products, which would be costly and time consuming. Also, we may be unaware of pending patent applications that relate to our technology. Parties making infringement claims on future issued patents may be able to obtain an injunction that would prevent us from selling our products or using technology that contains the allegedly infringing intellectual property, which could harm our business.
We could be required to indemnify third parties for alleged intellectual property infringement, which could cause us to incur significant costs.
Some of our distribution agreements contain commitments to indemnify our distributors against liability arising from infringement of third-party intellectual property, such as patents. We may be required to indemnify our customers for claims made against them or to contribute to license fees they are required to pay. If we are forced to indemnify for claims or to pay license fees, our business and financial condition could be substantially harmed.
Our international operations are subject to trade policies and trade agreements and unfavorable changes could harm our business.
We have significant international operations in
Our sales in international markets subject us to foreign currency exchange and other risks and costs which could harm our business.
A substantial portion of our revenues are derived from outside
The markets in which we operate are highly competitive and subject to rapid technological change. If our competitors are better able to develop and market products that are less expensive or more effective than any products that we may develop, our commercial opportunity may be reduced or eliminated.
Our success depends, in part, upon our ability to stay at the forefront of technological change and to maintain a competitive position. We compete with large healthcare, pharmaceutical and biotechnology companies, along with smaller or early-stage companies that have collaborative arrangements with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Our competitors may:
| · | develop and patent processes or products earlier than we will; |
| · | develop and commercialize products that are less expensive or more efficient than any products that we may develop; |
| · | obtain regulatory approvals for competing products more rapidly than we will; and |
| · | improve upon existing technological approaches or develop new or different approaches that render our technology or products obsolete or non-competitive. |
As a result, we may not be able to successfully commercialize any future products.
The success of our research and development efforts may depend on our ability to find suitable collaborators to fully exploit our capabilities. If we are unable to establish collaborations or if these future collaborations are unsuccessful, our research and development efforts may be unsuccessful, which could adversely affect our results of operations and financial condition.
An important element of our business strategy is to enter into collaborative or license arrangements under which we license our HOC1 technology to other parties for development and commercialization. We expect to seek collaborators for our potential products because of the expense, effort and expertise required to conduct clinical trials and further develop those potential product candidates. Because collaboration arrangements are complex to negotiate, we may not be successful in our attempts to establish these arrangements. If we need third party assistance in identifying and negotiating one or more acceptable arrangements, it might be costly. Also, we may not have products that are desirable to other parties, or we may be unwilling to license a potential product because the party interested in it is a competitor. The terms of any arrangements that we establish may not be favorable to us. Alternatively, potential collaborators may decide against entering into an agreement with us because of our financial, regulatory or intellectual property position or for scientific, commercial or other reasons. If we are unable to establish collaborative agreements, we may not be able to develop and commercialize new products, which would adversely affect our business and our revenues.
In order for any of these collaboration or license arrangements to be successful, we must first identify potential collaborators or licensees whose capabilities complement and integrate well with ours. We may rely on these arrangements for not only financial resources, but also for expertise or economies of scale that we expect to need in the future relating to clinical trials, manufacturing, sales and marketing, and for licensing technology rights. However, it is likely that we will not be able to control the amount and timing or resources that our collaborators or licensees devote to our programs or potential products. If our collaborators or licensees prove difficult to work with, are less skilled than we originally expected, or do not devote adequate resources to the program, the relationship will not be successful. If a business combination involving a collaborator or licensee and a third party were to occur, the effect could be to diminish, terminate or cause delays in development of a potential product.
If we are unable to comply with broad and complex federal and state fraud and abuse laws, including state and federal anti-kickback laws, we could face substantial penalties and our products could be excluded from government healthcare programs.
We are subject to various federal and state laws pertaining to healthcare fraud and abuse, which include, among other things, "anti-kickback" laws that prohibit payments to induce the referral of products and services, and "false claims" statutes that prohibit the fraudulent billing of federal healthcare programs. Our operations are subject to the Federal Anti-Kickback Statute, a criminal statute that, subject to certain statutory exceptions, prohibits any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, to induce or reward a person either (i) for referring an individual for the furnishing of items or services for which payment may be made in whole or in part by a government healthcare program such as Medicare or Medicaid, or (ii) for purchasing, leasing, ordering or arranging for or recommending the purchasing, leasing or ordering of an item or service for which payment may be made under a government healthcare program. Because of the breadth of the Federal Anti-Kickback Statute, the
In addition, if there is a change in law, regulation or administrative or judicial interpretations of these laws, we may have to change our business practices or our existing business practices could be challenged as unlawful, which could have a negative effect on our business, financial condition and results of operations.
Healthcare fraud and abuse laws are complex, and even minor, inadvertent irregularities can potentially give rise to claims that a statute or regulation has been violated. The frequency of suits to enforce these laws has increased significantly in recent years and has increased the risk that a healthcare company will have to defend a false claim action, pay fines or be excluded from the Medicare, Medicaid or other federal and state healthcare programs as a result of an investigation arising out of such action. We cannot guarantee that we will not become subject to such litigation. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could harm our reputation, be costly to defend and divert management's attention from other aspects of our business. Similarly, if the physicians or other providers or entities with which we do business are found to have violated abuse laws, they may be subject to sanctions, which could also have a negative impact on us.
We may not be able to maintain sufficient product liability insurance to cover claims against us.
Product liability insurance for the healthcare industry is generally expensive to the extent it is available at all. We may not be able to maintain such insurance on acceptable terms or be able to secure increased coverage if the commercialization of our products progresses, nor can we be sure that existing or future claims against us will be covered by our product liability insurance. Moreover, the existing coverage of our insurance policy or any rights of indemnification and contribution that we may have may not be sufficient to offset existing or future claims. A successful claim against us with respect to uninsured liabilities or in excess of insurance coverage and not subject to any indemnification or contribution could have a material adverse effect on our future business, financial condition, and results of operations.
If any of our third-party contractors fail to perform their responsibilities to comply with FDA rules and regulations, the manufacture, marketing and sales of our products could be delayed, which could decrease our revenues.
Supplying the market with our HOC1 technology products requires us to manage relationships with an increasing number of collaborative partners, suppliers and third-party contractors. As a result, our success depends partially on the success of these third parties in performing their responsibilities to comply with FDA rules and regulations. Although we pre-qualify our contractors and we believe that they are fully capable of performing their contractual obligations, we cannot directly control the adequacy and timeliness of the resources and expertise that they apply to these activities. For example, we and our suppliers are required to comply with the
If any of our partners or contractors fail to perform their obligations in an adequate and timely manner or fail to comply with the
If we fail to comply with the
Our Company, our products, the manufacturing facilities for our products, the distribution of our products, and our promotion and marketing materials are subject to strict and continual review and periodic inspection by the FDA and other regulatory agencies for compliance with pre-approval and post-approval regulatory requirements.
If we fail to comply with the
If our products fail to comply with FDA and other governmental regulations, or our products are deemed defective, we may be required to recall our products and we could suffer adverse public relations that could adversely impact our sales, operating results, and reputation which would adversely affect our business operations.
We may be exposed to product recalls, including voluntary recalls or withdrawals, and adverse public relations if our products are alleged to cause injury or illness, or if we are alleged to have mislabeled or misbranded our products or otherwise violated governmental regulations. Governmental authorities can also require product recalls or impose restrictions for product design, manufacturing, labeling, clearance, or other issues. For the same reasons, we may also voluntarily elect to recall, restrict the use of a product or withdraw products that we consider below our standards, whether for quality, packaging, appearance or otherwise, in order to protect our brand reputation.
Product recalls, product liability claims, even if unmerited or unsuccessful, or any other events that cause consumers to no longer associate our brand with high quality and safe products may also result in adverse publicity, hurt the value of our brand, harm our reputation among our customers and other healthcare professionals
Our inability to raise additional capital on acceptable terms in the future may cause us to curtail certain operational activities, including regulatory trials, sales and marketing, and international operations, in order to reduce costs and sustain the business, and such inability would have a material adverse effect on our business and financial condition.
We expect capital outlays and operating expenditures to increase over the next several years as we work to expand our sales force, conduct regulatory trials, commercialize our products and expand our infrastructure. We may need to raise additional capital in order to, among other things:
| · | increase our sales and marketing efforts to drive market adoption and address competitive developments; |
| · | sustain commercialization of our current products or new products; |
| · | acquire or license technologies; |
| · | expand our manufacturing capabilities; and |
| · | finance capital expenditures and our general and administrative expenses. |
Our present and future funding requirements will depend on many factors, including:
| · | the level of research and development investment required to maintain and improve our technology position; |
| · | cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; |
| · | our efforts to acquire or license complementary technologies or acquire complementary businesses; |
| · | changes in product development plans needed to address any difficulties in commercialization; |
| · | competing technological and market developments; and |
| · | changes in regulatory policies or laws that affect our operations. |
If we raise additional funds by issuing equity securities, it will result in dilution to our stockholders. Any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise additional funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of holders of our common stock, and the terms of the debt securities issued could impose significant restrictions on our operations. If we raise additional funds through collaborations or licensing arrangements, we might be required to relinquish significant rights to our technologies or products, or grant licenses on terms that are not favorable to us. A failure to obtain adequate funds may cause us to curtail certain operational activities, including regulatory trials, sales and marketing, and international operations, in order to reduce costs and sustain our business, and would have a material adverse effect on our business and financial condition.
Our information technology and infrastructure may be breached or attacked.
In the ordinary course of our business, we collect and store a limited amount of sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers, business partners, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, maintenance, and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations and the services we provide to customers, and damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business, revenues and competitive position.
Risks Related to Our Common Stock
The market price of our common stock may be volatile, and the value of your investment could decline significantly.
The trading price for our common stock has been, and we expect it to continue to be, volatile. The price at which our common stock trades depends upon a number of factors, including our historical and anticipated operating results, our financial situation, announcements of new products by us or our competitors, our ability or inability to raise the additional capital we may need and the terms on which we raise it, and general market and economic conditions. Some of these factors are beyond our control. Broad market fluctuations may lower the market price of our common stock and affect the volume of trading in our stock, regardless of our financial condition, results of operations, business or prospects. It is impossible to assure you that the market price of our shares of common stock will not fall in the future.
Our operating results may fluctuate, which could cause our stock price to decrease.
Fluctuations in our operating results may lead to fluctuations, including declines, in our share price. Our operating results and our share price may fluctuate from period to period due to a variety of factors, including:
| · | demand by physicians, other medical staff and patients for our HOC1-based products; |
| · | reimbursement decisions by third-party payors and announcements of those decisions; |
| · | clinical trial results published by others in our industry and publication of results in peer-reviewed journals or the presentation at medical conferences; |
| · | the inclusion or exclusion of our HOC1-based products in large clinical trials conducted by others; |
| · | actual and anticipated fluctuations in our quarterly financial and operating results; |
| · | developments or disputes concerning our intellectual property or other proprietary rights; |
| · | issues in manufacturing our product candidates or products; |
| · | new or less expensive products and services or new technology introduced or offered by our competitors or by us; |
| · | the development and commercialization of product enhancements; |
| · | changes in the regulatory environment; |
| · | delays in establishing our sales force or new strategic relationships; |
| · | costs associated with collaborations and new product candidates; |
| · | introduction of technological innovations or new commercial products by us or our competitors; |
| · | litigation or public conceabout the safety of our product candidates or products; |
| · | changes in recommendations of securities analysts or lack of analyst coverage; |
| · | failure to meet analyst expectations regarding our operating results; |
| · | additions or departures of key personnel; and |
| · | general market conditions. |
Variations in the timing of our future revenues and expenses could also cause significant fluctuations in our operating results from period to period and may result in unanticipated earning shortfalls or losses. In addition, The Nasdaq Capital Market, in general, and the market for life sciences companies, in particular, have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.
Anti-takeover provisions in our certificate of incorporation and bylaws and under
Our corporate documents and
| · | the ability of our Board of Directors to issue and designate, without stockholder approval, the rights of up to 714,286 shares of convertible preferred stock, which rights could be senior to those of common stock; |
| · | limitations on persons authorized to call a special meeting of stockholders; and |
| · | advance notice procedures required for stockholders to make nominations of candidates for election as directors or to bring matters before meetings of stockholders. |
We are subject to Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prohibits "business combinations" between a publicly-held
These provisions might discourage, delay or prevent a change of control in our management. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors and cause us to take other corporate actions. In addition, the existence of these provisions, together with
Our stockholders may experience substantial dilution in the value of their investment if we issue additional shares of our capital stock or other securities convertible into common stock.
Our Restated Certificate of Incorporation, as amended, allows us to issue up to 24,000,000 shares of our common stock and to issue and designate, without stockholder approval, the rights of up to 714,286 shares of preferred stock. In the event we issue additional shares of our capital stock, dilution to our stockholders could result. In addition, if we issue and designate a class of convertible preferred stock, these securities may provide for rights, preferences or privileges senior to those of holders of our common stock. Additionally, if we issue preferred stock, it may convert into common stock at a ratio of 1:1 or greater because our Restated Certificate of Incorporation, as amended, allows us to designate a conversion ratio without limitations.
Shares issuable upon the conversion of warrants or preferred stock or the exercise of outstanding options may substantially increase the number of shares available for sale in the public market and depress the price of our common stock.
As of
We have filed several registration statements with the
ITEM 2. Properties
At
| Location | Rent per month | Purpose | ||
| Principal executive office | ||||
| Offices | ||||
| Industria Vidriera 81, & 87 Zapopan Industrial Norte, |
MXN 173,063 | Office, manufacturing | ||
| Industria Maderera 124, 106, 115 & 815 Zapopan Industrial Norte, |
MXN 191,036 | Warehouse |
We believe that our properties will be adequate to meet our needs for at least the next 12 months.
ITEM 3. Legal Proceedings
We may be involved in legal matters arising in the ordinary course of our business including matters involving proprietary technology. While management believes that such matters are currently insignificant, matters arising in the ordinary course of business for which we are or could become involved in litigation may have a material adverse effect on our business, financial condition or results of comprehensive (loss) income.
ITEM 4. Mine Safety Disclosures.
Not applicable.
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Market Information
Our common stock is traded on The Nasdaq Capital Market under the symbol "SNOA." Previously, it traded under the symbol "OCLS" until
Holders
As of
Dividends
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain all future earnings for the operation of our business and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required to be disclosed by Item 201(d) of Regulation S-K, "Securities Authorized for Issuance Under Equity Compensation Plans," is incorporated herein by reference. Refer to Item 12 of Part III of this annual report on Form 10-K for additional information.
Recent Sales of
We did not issue any unregistered securities during the year ended
ITEM 6. Selected Financial Data
As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in
On an ongoing basis, we evaluate our estimates and judgments. Areas in which we exercise significant judgment include, but are not necessarily limited to, our valuation of accounts receivable, inventory, income taxes, equity transactions (compensatory and financing) and contingencies.
We base our estimates and judgments on a variety of factors including our historical experience, knowledge of our business and industry, current and expected economic conditions, the attributes of our products, the regulatory environment, and in certain cases, the results of outside appraisals. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary.
While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.
For a Summary of Critical Accounting Policies, please refer to Notes to Consolidated Financial Statements, Note 3.
Results of Continuing Operations
Comparison of the Year Ended
Revenue
The following table shows our consolidated total revenue and revenue by geographic region for the year ended
|
Years Ended |
||||||||||||||||
| (In thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||
| $ | 3,807 | $ | 5,419 | $ | (1,612 | ) | (30% | ) | ||||||||
| 2,095 | 5,976 | (3,881 | ) | (65% | ) | |||||||||||
| 6,726 | 7,234 | (508 | ) | (7% | ) | |||||||||||
| Total | $ | 12,628 | $ | 18,629 | $ | (6,001 | ) | (32% | ) | |||||||
The decrease in
As a result of the asset purchase agreement and arrangement we entered into on
The decrease in
Cost of Revenue and Gross Profit
The cost of revenue and gross profit metrics are as follows:
|
Year ended |
||||||||||||||||
| (In thousands, except for percentages) | 2022 | 2021 | Change | % Change | ||||||||||||
| Cost of Revenue | $ | 8,635 | $ | 12,070 | $ | (3,435 | ) | (28)% | ||||||||
| Cost of Revenue as a % of Revenue | 68% | 65% | 3% | |||||||||||||
| Gross Profit | $ | 3,993 | $ | 6,559 | $ | (2,566 | ) | (39)% | ||||||||
| Gross Profit as a % of Revenue | 32% | 35% | (3)% | |||||||||||||
The gross margin decrease of 3% for the year ended
Research and Development Expense
The research and development metrics are as follows:
|
Year ended |
||||||||||||||||
| (In thousands, except for percentages) | 2022 | 2021 | Change | % Change | ||||||||||||
| Research and Development Expense | $ | 125 | $ | 555 | $ | (430 | ) | (77)% | ||||||||
| Research and Development Expense as a % of Revenue | 1% | 3% | (2)% | |||||||||||||
For the year ended
Selling, General and Administrative Expense
The selling, general and administrative expense metrics are as follows:
|
Year ended |
||||||||||||||||
| (In thousands, except for percentages) | 2022 | 2021 | Change | % Change | ||||||||||||
| Selling, General and Administrative Expense | $ | 9,755 | $ | 9,453 | $ | 302 | 3% | |||||||||
| Selling, General and Administrative Expense as a % of Revenue | 77% | 50% | 27% | |||||||||||||
The increase in Selling, General and Administrative expense for the year ended
Interest (Expense) Income, net
Interest (expense) income, net was
Forgiveness of PPP loan
On
Other Expense, net
Other expense, net for the year ended
Gain on Sale of Assets
For the year ended
Income Tax Benefit (Expense)
Income tax benefit (expense) for the year ended
Net Loss from Continuing Operations
Net loss from continuing operations for the year ended
Results of Discontinued Operations
Comparison of Year ended
On
The related assets, liabilities, results of operations and cash flows for our
The operations of the
| Year ended |
||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | - | $ | 214,000 | ||||
| Cost of revenues | - | 53,000 | ||||||
| Selling general and administrative expenses | - | 38,000 | ||||||
| Income from discontinued operations before tax | - | 123,000 | ||||||
| Gain on disposal of discontinued operations before income taxes | - | 770,000 | ||||||
| Total income from discontinued operating, before tax | - | 893,000 | ||||||
| Income Tax benefit (expense) | - | (228,000 | ) | |||||
| Income from discontinued operations, net of tax | $ | - | $ | 665,000 | ||||
Gain on disposal of discontinued operations for the year ended
Net Loss
The following table provides the net loss for each period along with the computation of basic and diluted net income per share:
| For the Year Ended |
||||||||
| (In thousands, except per share data) | 2022 | 2021 | ||||||
| Numerator: | ||||||||
| Loss from continuing operations | $ | (5,086 | ) | $ | (4,615 | ) | ||
| Income from discontinued operations | - | 665 | ||||||
| Net loss | $ | (5,086 | ) | $ | (3,950 | ) | ||
| Denominator: | ||||||||
| Weighted-average number of common shares outstanding: basic and diluted | 2,653 | 1,996 | ||||||
| Loss per share from continuing operations | $ | (1.92 | ) | $ | (2.31 | ) | ||
| Income per share from discontinued operations | - | 0.33 | ||||||
| Net loss per share: basic and diluted | $ | (1.92 | ) | $ | (1.97 | ) | ||
Liquidity and Capital Resources
We reported a net loss of
Since
| · | Proceeds of |
|
| · | Proceeds of |
The following table presents a summary of our consolidated cash flows for operating, investing and financing activities for the year ended
| Year ended |
||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (4,248 | ) | $ | (3,378 | ) | ||
| Investing activities | (99 | ) | 388 | |||||
| Financing activities | 7,396 | 3,308 | ||||||
| Effect of exchange rates on cash | 127 | 211 | ||||||
| Net change in cash and cash equivalents | 3,176 | 529 | ||||||
| Cash and cash equivalents, beginning of the period | 4,220 | 3,691 | ||||||
| Cash and cash equivalents, end of the period | $ | 7,396 | $ | 4,220 | ||||
| Working capital (1), end of period | $ | 10,611 | $ | 8,905 | ||||
| (1) | Defined as current assets minus current liabilities. |
As of
Net cash used in operating activities during the year ended
Net cash used in operating activities during the year ended
Net cash used in investing activities for the year ended
Net cash provided by investing activities for the year ended
Net cash provided by financing activities for the year ended
Net cash provided by financing activities for the year ended
We expect revenues to fluctuate and may incur losses in the foreseeable future and may need to raise additional capital to pursue our product development initiatives, to penetrate markets for the sale of our products and continue as a going concern. We cannot provide any assurances that we will be able to raise additional capital.
Management believes that we have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means; however, we cannot provide any assurance that new financing will be available on commercially acceptable terms, if at all. If the economic climate in the
Capital Expenditures
We currently forecast capital expenditures in order to execute on our business plan and maintain growth; however, the actual amount and timing of such capital expenditures will ultimately be determined by the volume of business. We currently do not anticipate that a material amount will be purchased for the year ended
Material Trends and Uncertainties
We are exposed to risk from decline in foreign currency for both the Euro and the Mexico Peso versus the US dollar. Most recently there has been a sharp decline in the Euro versus the US Dollar which has impacted our financial results.
As we have previously discussed in our annual report on Form 10-K filed with the
As the pandemic continues to impact economies worldwide, we are closely watching inflation, increased volatility within financial markets, shipping costs, supply chain issues and labor costs. At this time, the overall impact of these issues has been minimal. The potential impact to our business operations, customer demand and supply chain due to increased shipping costs may ultimately impact sales. We continue to evaluate our end-to-end supply chain and assess opportunities to refine the impact on sales. Currently, most of our customers pay for shipping expenses, including increased shipping costs, if any. We have not yet faced labor shortages however it is possible we may have difficulties retaining and finding qualified employees in a tight labor market in the future. Furthermore, overall inflation tendencies may put pressure on our product pricing and/or costs.
We also closely monitor overall economic conditions and consumer sentiment and the prospect of a recession in
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in
Off-Balance Sheet Transactions
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.
ITEM 8. Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of
Substantial Doubt About the Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit. We are a public accounting firm registered with the
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
We have served as the Company's auditor since 2021.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of
Explanatory Paragraph - Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition from Contracts with Customers - Measurement of the Transaction Price, including the Constraint on Variable Consideration for Rebates And Discounts
Critical Audit Matter Description
As discussed in Note 3 to the consolidated financial statements, the Company offers sales incentives and other programs that they may make available to certain customers, which are considered to be a form of variable consideration. The Company maintains estimated accruals and allowances using the expected value method. Revenue recognized varies depending on whether a patient is covered by insurance or is not covered by insurance. In addition, the Company may incur a revenue deductions related to the use of the Company's rebate program.
The principal considerations for our determination that performing procedures relating to the identification of contractual terms in customer arrangements to determine the transaction price is a critical audit matter are there was significant judgment by management in identifying contractual terms due to the volume and customized nature of the Company's customer arrangements. This in tuled to significant effort in performing our audit procedures which were designed to evaluate whether the contractual terms used in the determination of the transaction price and the timing of revenue recognition were appropriately identified and determined by management and to evaluate the reasonableness of management's estimates.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.
How We Addressed the Matter in Our Audit
Our audit procedures included, amongst others:
| · | Testing the completeness and accuracy of management's identification of the contractual terms by examining customer arrangements on a test basis | |
| · | Testing management's process for determining the appropriate amount and timing of revenue recognition based on the contractual terms identified in the customer arrangements | |
| · | We evaluated whether the assumptions used in the estimates were reasonable, including performing lookback analysis, considering actual historical rebates and discount percentages utilized as well as actual collection patterns | |
| · | We performed ratio and disaggregated revenue analysis for the Company's product and customer types, comparing reserve balances to gross to net sales | |
| · | We confirmed balances due to third party for rebate claims, which are billed to the Company after end user customers submission, in order to perform an analysis on rebates/discounts recorded compared to the Company's revenue recognition |
/s/ Marcum llp
Marcum llp
We are uncertain as to the year we began serving consecutively as the auditor of the Company's financial statements; however, we are aware that we have been the Company's auditor consecutively since at least 2006.
Consolidated Balance Sheets
(In thousands, except share amounts)
|
2022 |
2021 |
||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 7,396 | $ | 4,220 | |||
| Accounts receivable, net | 2,407 | 2,806 | |||||
| Inventories, net | 2,663 | 2,530 | |||||
| Prepaid expenses and other current assets | 3,746 | 3,218 | |||||
| Total current assets | 16,430 | 12,983 | |||||
| Property and equipment, net | 320 | 360 | |||||
| Operating lease, right of use assets | 559 | 769 | |||||
| Deferred tax asset | 829 | - | |||||
| Other assets | 77 | 112 | |||||
| Total assets | $ | 18,845 | $ | 14,987 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 1,641 | $ | 1,769 | |||
| Accrued expenses and other current liabilities | 1,843 | 1,154 | |||||
| Deferred revenue | 1,223 | 267 | |||||
| Deferred revenue Invekra | 54 | 52 | |||||
| Current portion of debt-PPP | 120 | - | |||||
| Short-term debt | 688 | 596 | |||||
| Operating lease liabilities | 250 | 240 | |||||
| Total current liabilities | 5,819 | 4,078 | |||||
| Long-term deferred revenue Invekra | 182 | 229 | |||||
| Long-term debt, less current portion - PPP | - | 1,310 | |||||
| Withholding Tax Payable | 3,838 | 3,478 | |||||
| Operating lease liabilities, less current portion | 309 | 529 | |||||
| Total liabilities | $ | 10,148 | $ | 9,624 | |||
| Commitments and Contingencies (Note 12) | |||||||
| Stockholders' Equity | |||||||
| Convertible preferred stock, $0.0001par value; 714,286shares authorized at |
- | - | |||||
| Common stock, $0.0001par value; 24,000,000shares authorized at |
2 | 2 | |||||
| Additional paid-in capital | 197,370 | 189,217 | |||||
| Accumulated deficit | (184,363 | ) | (179,277) | ||||
| Accumulated other comprehensive loss | (4,312 | ) | (4,579) | ||||
| Total stockholders' equity | 8,697 | 5,363 | |||||
| Total liabilities and stockholders' equity | $ | 18,845 | $ | 14,987 | |||
The accompanying footnotes are an integral part of these consolidated financial statements.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands, except per share amounts)
| Year ended |
||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | 12,628 | $ | 18,629 | ||||
| Cost of revenues | 8,635 | 12,070 | ||||||
| Gross profit | 3,993 | 6,559 | ||||||
| Operating expenses | ||||||||
| Research and development | 125 | 555 | ||||||
| Selling, general and administrative | 9,755 | 9,453 | ||||||
| Total operating expenses | 9,880 | 10,008 | ||||||
| Loss from operations | (5,887 | ) | (3,449 | ) | ||||
| Interest income (expense), net | (10 | ) | 4 | |||||
| Forgiveness of PPP Loan | 723 | - | ||||||
| Other expense, net | (394 | ) | (594 | ) | ||||
| Gain on sale of assets | 150 | 137 | ||||||
| Income tax benefit (expense) | 332 | (713 | ) | |||||
| Loss from continuing operations, net of tax | (5,086 | ) | (4,615 | ) | ||||
| Income from discontinued operations, net of tax | - | 665 | ||||||
| Net loss | $ | (5,086 | ) | $ | (3,950 | ) | ||
| Loss per share: basic and diluted | ||||||||
| Continuing operations | $ | (1.92 | ) | $ | (2.31 | ) | ||
| Discontinued operations | - | 0.33 | ||||||
| Total loss per share | $ | (1.92 | ) | $ | (1.97 | ) | ||
| Weighted-average shares outstanding: basic and diluted | 2,653 | 1,996 | ||||||
| Other comprehensive loss | ||||||||
| Net loss | $ | (5,086 | ) | $ | (3,950 | ) | ||
| Foreign currency translation adjustments | 267 | 1,031 | ||||||
| Comprehensive loss | $ | (4,819 | ) | $ | (2,919 | ) | ||
The accompanying footnotes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended
(In thousands, except share amounts)
| Series C Preferred Stock ( |
Common Stock ( |
Additional Paid in |
Accumulated | Accumulated Other Comprehensive | ||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Total | |||||||||||||||||||||||
| Balance |
- | $ | - | 2,092,909 | $ | 2 | $ | 189,217 | $ | (179,277 | ) | $ | (4,579 | ) | $ | 5,363 | ||||||||||||||
| Shares issued in connection with ATM, net of transaction costs | - | - | 950,100 | - | 7,554 | - | - | 7,554 | ||||||||||||||||||||||
| Shares issued in connection with exercise of stock options | - | - | 44,042 | - | 193 | - | - | 193 | ||||||||||||||||||||||
| Shares issued in connection with exercise of common stock warrants | - | - | 12,290 | - | 24 | - | - | 24 | ||||||||||||||||||||||
| Employee stock-based compensation expense | - | - | - | - | 372 | - | - | 372 | ||||||||||||||||||||||
| Stock based compensation related to issuance of common stock restricted stock grants | - | - | 1,596 | - | 10 | - | - | 10 | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | 267 | 267 | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | (5,086 | ) | - | (5,086 | ) | ||||||||||||||||||||
| Balance, |
- | $ | - | 3,100,937 | $ | 2 | $ | 197,370 | $ | (184,363 | ) | $ | (4,312 | ) | $ | 8,697 | ||||||||||||||
| Series C Preferred Stock ( |
Common Stock ( |
Additional Paid in |
Accumulated | Accumulated Other Comprehensive | ||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Total | |||||||||||||||||||||||
| Balance |
1.55 | $ | - | 1,777,483 | $ | 2 | $ | 186,559 | $ | (175,327 | ) | $ | (5,610 | ) | $ | 5,624 | ||||||||||||||
| Shares issued in connection with exercise of stock options | - | - | 93,301 | - | 511 | - | - | 511 | ||||||||||||||||||||||
| Shares issued in connection with vesting of restricted stock | - | - | 3,919 | - | - | - | - | - | ||||||||||||||||||||||
| Shares issued in connection with exercise of common stock warrants | - | - | 200,984 | - | 1,776 | - | - | 1,776 | ||||||||||||||||||||||
| Shares issued with conversion of C shares | (1.55 | ) | - | 17,222 | - | - | - | - | - | |||||||||||||||||||||
| Employee stock-based compensation expense | - | - | - | - | 332 | - | - | 332 | ||||||||||||||||||||||
| Stock based compensation related to issuance of common stock restricted stock grants | - | - | - | - | 39 | - | - | 39 | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | 1,031 | 1,031 | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | (3,950 | ) | - | (3,950 | ) | ||||||||||||||||||||
| Balance, |
- | $ | - | 2,092,909 | $ | 2 | $ | 189,217 | $ | (179,277 | ) | $ | (4,579 | ) | $ | 5,363 | ||||||||||||||
The accompanying footnotes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
Year Ended |
||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (5,086 | ) | $ | (3,950 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 186 | 227 | ||||||
| Recovery of doubtful accounts | (125 | ) | (903 | ) | ||||
| Provision for (recovery of) discounts, rebates, distributor fees and returns | (1,407 | ) | 259 | |||||
| Stock-based compensation | 382 | 371 | ||||||
| Forgiveness of PPP loan | (723 | ) | - | |||||
| Deferred income tax expense | (829 | ) | - | |||||
| Operating lease right-of-use asset | 223 | - | ||||||
| Gain on sale of assets | - | (770 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 1,971 | 2,608 | ||||||
| Inventories | (100 | ) | (65 | ) | ||||
| Prepaid expenses and other current assets | (460 | ) | (5 | ) | ||||
| Accounts payable | (157 | ) | (796 | ) | ||||
| Accrued expenses and other current liabilities | 679 | (668 | ) | |||||
| Withholding tax payable | 360 | 397 | ||||||
| Operating lease liabilities | (222 | ) | (215 | ) | ||||
| Deferred revenue | 900 | (15 | ) | |||||
| Net cash used in operating activities | (4,248 | ) | (3,378 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (137 | ) | (179 | ) | ||||
| Deposits | 38 | (43 | ) | |||||
| Proceeds from Micromed Transaction | - | 610 | ||||||
| Net cash (used in) provided by investing activities | (99 | ) | 388 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock, net of issuance costs | 7,554 | - | ||||||
| Payments on PPP Loan | (467 | ) | - | |||||
| Proceeds from PPP Loan | - | 1,310 | ||||||
| Proceeds from exercise of common stock options and purchase warrants | 216 | 2,287 | ||||||
| Principal payments on short-term debt | (30 | ) | (481 | ) | ||||
| Proceeds on short-term debt | 123 | - | ||||||
| Benefit from lease assumed less principal payments on ROU Assets | - | 192 | ||||||
| Net cash provided by financing activities | 7,396 | 3,308 | ||||||
| Effect of exchange rate on cash and cash equivalents | 127 | 211 | ||||||
| Net increase in cash and cash equivalents | 3,176 | 529 | ||||||
| Cash and cash equivalents, beginning of year | 4,220 | 3,691 | ||||||
| Cash and cash equivalents, end of year | $ | 7,396 | $ | 4,220 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 24 | $ | 12 | ||||
| Cash paid for taxes | $ | 767 | $ | 941 | ||||
| Non-cash operating and financing activities: | ||||||||
| Insurance premiums financed | $ | 748 | $ | 596 | ||||
The accompanying footnotes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Recent Developments
Organization
NOTE 2 - Liquidity and Financial Condition
The Company reported a net loss of $5,086,000for the year ended
Management believes that the Company has access to additional capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means; however, the Company cannot provide any assurance that other new financings will be available on commercially acceptable terms, if needed. If the economic climate in the
COVID - 19
On
NOTE 3 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries,
Basis of presentation
The accompanying consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and all highly liquid investments with an original maturity of three months or less when purchased. The Company's cash equivalents are held in prime money market investments with strong sponsor organizations which are monitored on a continuous basis.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Significant estimates and assumptions include reserves and write-downs related to receivables and inventories, the recoverability of long-lived assets, the valuation allowance relating to the Company's deferred tax assets, valuation of equity, fair value allocation of assets sold to Invekra, and the estimated amortization periods of upfront product licensing fees received from customers. Periodically, the Company evaluates and adjusts estimates accordingly.
Revenue Recognition
On
The Company derives the majority of its revenue through sales of its products directly to end users and to distributors. The Company also sells products to a customer base, including hospitals, medical centers, doctors, pharmacies, distributors and wholesalers. The Company also has entered into agreements to license its technology and products.
The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. For each contract, the Company considers the promise to transfer products, each of which are distinct, to be the identified performance obligations. In determining the transaction price the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which it expects to be entitled.
For all of its sales to non-consignment distribution channels, revenue is recognized when control of the product is transferred to the customer (i.e. when its performance obligation is satisfied), which typically occurs when title passes to the customer upon shipment but could occur when the customer receives the product based on the terms of the agreement with the customer. For product sales to its value-added resellers, non-stocking distributors and end-user customers, the Company grants retuprivileges to its customers, and because the Company has a long history with its customers, the Company is able to estimate the amount of product that will be returned. Sales incentives and other programs that the Company may make available to these customers are considered to be a form of variable consideration, and the Company maintains estimated accruals and allowances using the expected value method.
The Company has entered into consignment arrangements, in which goods are left in the possession of another party to sell. As products are sold from the customer to third parties, the Company recognizes revenue based on a variable percentage of a fixed price. Revenue recognized varies depending on whether a patient is covered by insurance or is not covered by insurance. In addition, the Company may incur a revenue deduction related to the use of the Company's rebate program.
Sales to stocking distributors are made under terms with fixed pricing and limited rights of retu(known as "stock rotation") of the Company's products held in their inventory. Revenue from sales to distributors is recognized upon the transfer of control to the distributor.
The Company assessed the promised goods and services in the technical support to Invekra for a ten-year period as being a distinct service that Invekra can benefit from on its own and is separately identifiable from any other promises within the contract. Given that the distinct service is not substantially the same as other goods and services within the Invekra contract, the Company accounted for the distinct service as a performance obligation.
Service revenue from testing contracts is recognized as tests are completed and a final report is sent to the customer.
Concentration of Credit Risk and Major Customers
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents and accounts receivable. Cash and cash equivalents are maintained in financial institutions in
The Company grants credit to its business customers, which are primarily located in
Accounts Receivable
Trade accounts receivable are recorded net of allowances for cash discounts for prompt payment, doubtful accounts, and sales returns. Estimates for cash discounts and sales returns are based on analysis of contractual terms and historical trends.
The Company's policy is to reserve for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance for doubtful accounts is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Other factors that the Company considers include its existing contractual obligations, historical payment patterns of its customers and individual customer circumstances, an analysis of days sales outstanding by customer and geographic region, and a review of the local economic environment and its potential impact on government funding and reimbursement practices. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts represents probable credit losses at
Inventories
Inventories are stated at the lower of cost, cost being determined on a standard cost basis (which approximates actual cost on a first-in, first-out basis), or net realizable value.
Due to changing market conditions, estimated future requirements, age of the inventories on hand and production of new products, the Company regularly reviews inventory quantities on hand and records a provision to write down excess and obsolete inventory to its estimated net realizable value. The Company recorded a provision to reduce the carrying amounts of inventories to their net realizable value in the amounts of
Financial Assets and Liabilities
Financial instruments, including cash and cash equivalents, accounts receivable and accounts payable are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The fair value of capital lease obligations and equipment loans approximates their carrying amounts as a market rate of interest is attached to their repayment. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The Company uses three levels of inputs that may be used to measure fair value:
Level 1 - quoted prices in active markets for identical assets or liabilities
Level 2 - quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
Level 3 - inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company's accounting and finance department,
As of
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the respective assets. Depreciation of leasehold improvements is computed using the straight-line method over the lesser of the estimated useful life of the improvement or the remaining term of the lease. Estimated useful asset life by classification is as follows:
| Years | |||
| Office equipment | 3 | ||
| Manufacturing, lab and other equipment | 5 | ||
| Furniture and fixtures | 7 |
Upon retirement or sale, the cost and related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred.
Impairment of Long-Lived Assets
The Company periodically reviews the carrying values of its long-lived assets when events or changes in circumstances would indicate that it is more likely than not that their carrying values may exceed their realizable values, and records impairment charges when considered necessary. Specific potential indicators of impairment include, but are not necessarily limited to:
| · | a significant decrease in the fair value of an asset; |
| · | a significant change in the extent or manner in which an asset is used or a significant physical change in an asset; |
| · | a significant adverse change in legal factors or in the business climate that affects the value of an asset; |
| · | an adverse action or assessment by the |
| · | an accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset; and operating or cash flow losses combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an income-producing asset. |
When circumstances indicate that an impairment may have occurred, the Company tests such assets for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their carrying amounts. In estimating these future cash flows, assets and liabilities are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other such groups. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss, measured as the excess of the carrying value of the asset over its estimated fair value, will be recognized. The cash flow estimates used in such calculations are based on estimates and assumptions, using all available information that management believes is reasonable.
During the years ended
Research and Development
Research and development expenses are charged to operations as incurred and consists primarily of personnel expenses, clinical and regulatory services and supplies. For the years ended
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising costs amounted to $86,000and $41,000, for the years ended
Shipping and Handling Costs
The Company classifies amounts billed to customers related to shipping and handling in sale transactions as product revenues. The corresponding shipping and handling costs incurred are recorded in cost of product revenues. For the years ended
Foreign Currency Reporting
The Company's subsidiary, OTM, uses the local currency (Mexican Pesos) as its functional currency and its subsidiary, SP Europe, uses the local currency (Euro) as its functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date, and revenue and expense accounts are translated at average exchange rates during the period. Resulting translation adjustments amounted to $267,000and $1,031,000for the years ended
Foreign currency transaction gains (losses) relate primarily to trade payables and receivables and intercompany transactions between subsidiaries OTM and SP Europe. These transactions are expected to be settled in the foreseeable future. The Company recorded foreign currency transaction losses of $579,000for the year ended
Stock-Based Compensation
The Company accounts for share-based awards exchanged for employee services at the estimated grant date fair value of the award. The Company estimates the fair value of employee stock option awards using the Black-Scholes option pricing model. The Company amortizes the fair value of employee stock options on a straight-line basis over the requisite service period of the awards. Compensation expense includes the impact of an forfeitures for all stock options as incurred.
The Company accounts for equity instruments issued to non-employees at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic adjustment as the underlying equity instrument vests or becomes non-forfeitable. Non-employee stock-based compensation charges are amortized over the vesting period or as earned.
Income Taxes
Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
Tax benefits claimed or expected to be claimed on a tax retuare recorded in the Company's consolidated financial statements. A tax benefit from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Uncertain tax positions have had no impact on the Company's consolidated financial condition, results of comprehensive (loss) income or cash flows.
Comprehensive Loss
Other comprehensive loss includes all changes in stockholders' equity during a period from non-owner sources and is reported in the consolidated statement of changes in stockholders' equity. To date, other comprehensive loss consists of changes in accumulated foreign currency translation adjustments. Accumulated other comprehensive losses at
Net Income Loss per Share
The Company computes basic net loss per share by dividing net loss per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the "treasury stock" and/or "if converted" methods as applicable.
| For the Year Ended |
||||||||
| (In thousands, except per share data) | 2022 | 2021 | ||||||
| Loss from continuing operations | $ | (5,086 | ) | $ | (4,615 | ) | ||
| Income from discontinued operations | - | 665 | ||||||
| Net loss | $ | (5,086 | ) | $ | (3,950 | ) | ||
| Weighted-average shares outstanding: basic and diluted | 2,653 | 1,996 | ||||||
| Loss per share from continuing operations | $ | (1.92 | ) | $ | (2.31 | ) | ||
| Income per share from discontinued operations | - | 0.33 | ||||||
| Net loss per share: basic and diluted | $ | (1.92 | ) | $ | (1.97 | ) | ||
The computation of basic loss per share for the years ended
| (In thousands) | 2022 | 2021 | ||||||
| Common stock to be issued upon vesting of restricted stock units | 1 | 1 | ||||||
| Common stock to be issued upon exercise of options | 466 | 268 | ||||||
| Common stock to be issued upon exercise of warrants | 108 | 119 | ||||||
| Common stock to be issued upon conversion of Series C | - | - | ||||||
| Common stock to be issued upon exercise of common stock units (1) | 46 | 46 | ||||||
| 621 | 434 | |||||||
Common Stock Purchase Warrants and Other Derivative Financial Instruments
The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The Company determined that its freestanding derivatives, which principally consist of warrants to purchase common stock, satisfied the criteria for classification as equity instruments, other than certain warrants that contained reset provisions and certain warrants that required net-cash settlement that the Company classified as derivative liabilities. The company currently does not have any active derivative financial instruments.
Preferred Stock
The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Shares that are subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company's control, as temporary equity. At all other times, preferred shares are classified as stockholders' equity.
Subsequent Events
Management has evaluated subsequent events or transactions occurring through the date these consolidated financial statements were issued.
Recent Accounting Standards
The Company has evaluated all the recent accounting standards and determined that none of them are material to it.
NOTE 4 - Sale of Assets - Discontinued Operations
Sale of Assets to
On
Accounting for the disposition
For accounting purposes, the Company determined that there was only one discrete component of the sale to Infinity. This component was the customer base and related services to be provided.
| Component of Sale | Methodology to Estimate Selling Price |
| Customer Base | Based upon revenues expected from a market participant to provide technical services at expected service levels |
The Company determined an arm's length selling price for each component of the sale and then allocated the net proceeds received to the components on a relative selling price basis. The Company estimated the selling prices of each component as described below:
Proceeds were allocated to the components of the sale based upon their relative selling prices are as follows:
| Customer base | $ | 850,000 | ||
| Less: Funds remaining in escrow | (60,000 | ) | ||
| Less: Services due from buyer | (100,000 | ) | ||
| Less: Working capital adjustment | (80,000 | ) | ||
| Total proceeds | $ | 610,000 |
Discontinued operations
As of
There were no carrying value of the assets and liabilities of discontinued operations on the consolidated balance sheets as of
The operations of the
| Year ended |
||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | - | $ | 214,000 | ||||
| Cost of revenues | - | 53,000 | ||||||
| Selling general and administrative expenses | - | 38,000 | ||||||
| Income from discontinued operations before tax | - | 123,000 | ||||||
| Gain on disposal of discontinued operations before income taxes | - | 770,000 | ||||||
| Total income from discontinued operations, before tax | - | 893,000 | ||||||
| Income Tax benefit (expense) | - | (228,000 | ) | |||||
| Income from discontinued operations, net of tax | $ | - | $ | 665,000 | ||||
NOTE 5 - Accounts Receivable
Accounts receivable, net consists of the following:
| 2022 | 2021 | |||||||
| Accounts receivable | $ | 2,488,000 | $ | 4,419,000 | ||||
| Less: allowance for doubtful accounts | - | (125,000 | ) | |||||
| Less: discounts, rebates, distributor fees and returns | (81,000 | ) | (1,488,000 | ) | ||||
| $ | 2,407,000 | $ | 2,806,000 | |||||
NOTE 6 - Inventories
Inventories consist of the following:
| 2022 | 2021 | |||||||
| Raw materials | $ | 1,626,000 | $ | 1,670,000 | ||||
| Finished goods | 1,037,000 | 860,000 | ||||||
| $ | 2,663,000 | $ | 2,530,000 | |||||
NOTE 7 - Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
| 2022 | 2021 | |||||||
| Prepaid insurance | $ | 755,000 | $ | 705,000 | ||||
| Tax prepaid to Mexican tax authorities | 2,371,000 | 1,850,000 | ||||||
| Other prepaid expenses and other current assets | 620,000 | 663,000 | ||||||
| Total prepaid expenses and other current assets | $ | 3,746,000 | $ | 3,218,000 | ||||
NOTE 8 - Property and Equipment
Property and equipment consists of the following:
| 2022 | 2021 | |||||||
| Manufacturing, lab, and other equipment | $ | 1,281,000 | $ | 1,170,000 | ||||
| Office equipment | 139,000 | 109,000 | ||||||
| Furniture and fixtures | 108,000 | 66,000 | ||||||
| Leasehold improvements | 503,000 | 486,000 | ||||||
| Property and equipment, gross | 2,031,000 | 1,831,000 | ||||||
| Less: accumulated depreciation and amortization | (1,711,000 | ) | (1,471,000 | ) | ||||
| Property and equipment, net | $ | 320,000 | $ | 360,000 | ||||
Depreciation and amortization expense amounted to $186,000and $227,000for the years ended
NOTE 9 - Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
| 2022 | 2021 | |||||||
| Salaries and related costs | $ | 1,059,000 | $ | 787,000 | ||||
| Other | 784,000 | 367,000 | ||||||
| $ | 1,843,000 | $ | 1,154,000 | |||||
NOTE 10 - Debt
Financing of Insurance Premiums
On
On
Paycheck Protection Program Loan
On
The unsecured loan, which is in the form of a note dated
NOTE 11 - Leases
The Company's operating leases are comprised primarily of facility leases. Balance sheet information related to the Company's leases is presented below:
| 2022 | 2021 | |||||||
| Operating leases: | ||||||||
| Operating lease right-of-use assets | $ | 559,000 | $ | 769,000 | ||||
| Operating lease liabilities - current | 250,000 | 240,000 | ||||||
| Operating lease liabilities - non-current | 309,000 | 529,000 | ||||||
Other information related to leases is presented below:
|
Year ended |
Year ended |
|||||||
| Lease cost | ||||||||
| Operating lease cost | $ | 367,000 | $ | 435,000 | ||||
| As of |
||||||||
| Other information: | ||||||||
| Operating cash flows from operating leases | $ | (223,000 | ) | $ | (215,000 | ) | ||
| Weighted-average remaining lease term - operating leases (in months) | 27.3 | 37.7 | ||||||
| Weighted-average discount rate - operating leases | 6.00% | 6.00% | ||||||
As of
| For Years Ending |
||||
| 2023 | 297,000 | |||
| 2024 | 210,000 | |||
| 2025 | 106,000 | |||
| Thereafter | 14,000 | |||
| Total future minimum lease payments, undiscounted | 627,000 | |||
| Less: imputed interest | (68,000 | ) | ||
| Total lease liability | $ | 559,000 | ||
NOTE 12 - Commitments and Contingencies
Legal Matters
On occasion, the Company may be involved in legal matters arising in the ordinary course of business including matters involving proprietary technology. While management believes that such matters are currently insignificant, matters arising in the ordinary course of business for which the Company is or could become involved in litigation may have a material adverse effect on its business and financial condition of comprehensive loss.
Employment Agreements
As of
Related Party Transactions
NOTE 13 - Stockholders' Equity
Effective
Description of Common Stock
Each share of common stock has the right to one vote. The holders of common stock are entitled to dividends when funds are legally available and when declared by the board of directors.
Description of Series B Preferred Stock
On
In connection with the adoption of the Rights Agreement, the Company's board of directors adopted a Certificate of Designation of Series B Preferred Stock. The Certificate of Designation was filed with the Secretary of State of the
The Company's board of directors adopted the Rights Agreement to protect shareholder value by guarding against a potential limitation on the Company's ability to use its net operating loss carryforwards, or NOLs, and other tax benefits, which may be used to reduce potential future income tax obligations. The Company has experienced and continue to experience substantial operating losses, and under the Internal Revenue Code of 1986, as amended, and rules promulgated thereunder, the Company may "carry forward" these NOLs and other tax benefits in certain circumstances to offset any current and future earnings and thus reduce our income tax liability, subject to certain requirements and restrictions. To the extent that the NOLs and other tax benefits do not otherwise become limited, the Company believes that it will be able to carry forward a significant amount of NOLs and other tax benefits, and therefore these NOLs and other tax benefits could be a substantial asset to the Company. However, if the Company experiences an "ownership change," as defined in Section 382 of the Code, its ability to use its NOLs and other tax benefits will be substantially limited. Generally, an ownership change would occur if our shareholders
Exercise of Series C Preferred Stock Units
During the year ended
NOTE 14 - Stock-Based Compensation
2006 Stock Plan
The board initially adopted the 2006 Stock Incentive Plan on
The 2006 Plan provided for the granting of incentive stock options to employees and the granting of non-statutory stock options to employees, non-employee directors, advisors and consultants. The 2006 Plan also provided for grants of restricted stock, stock appreciation rights and stock unit awards to employees, non-employee directors, advisors and consultants.
In accordance with the 2006 Plan the stated exercise price may not be less than 100% and 85% of the estimated fair market value of common stock on the date of grant for ISOs and NSOs, respectively, as determined by the board of directors at the date of grant. With respect to any 10% stockholder, the exercise price of an ISO or NSO shall not be less than 110% of the estimated fair market value per share on the date of grant.
Options issued under the 2006 Plan generally have a ten-year term.
At
2011 Stock Plan
On
The 2011 Plan provides for the grant of incentive stock options as defined in Section 422 of the Internal Revenue Code to employees, and the grant of non-statutory stock options and stock purchase rights to employees, non-employee directors, advisors and consultants. The 2011 Plan also permits the grant of stock appreciation rights, stock units and restricted stock.
The board has initially authorized 9,508of the Company's common stock for issuance under the 2011 Plan, in addition to automatic increases provided for in the 2011 Plan through
Options issued under the 2011 Plan will generally have a ten-year term.
In accordance with the 2011 Plan, the stated exercise price of an employee incentive stock option shall not be less than 100% of the estimated fair market value of a share of common stock on the date of grant, and the stated exercise price of an non-statutory option shall not be less 85% of the estimated fair market value of a share of common stock on the date of grant, as determined by the board of directors. An employee
Shares subject to awards that expire unexercised or are forfeited or terminated for any other reason will again become available for issuance under the 2011 Plan. No participant in the 2011 Plan can receive option grants, stock appreciation rights, restricted shares, or stock units for more than 2,381 shares in the aggregate in any calendar year. As provided under the 2011 Plan, the aggregate number of shares authorized for issuance as awards under the 2011 Plan automatically increases on
The plan expired on
At
2016 Stock Plan
On
The 2016 Plan provides for the grant of options, including incentive stock options as defined in Section 422 of the Internal Revenue Code to employees, stock appreciation rights, restricted awards, performance share awards and performance compensation awards to employees, non-employee directors, advisors and consultants.
Options issued under the 2016 Plan will generally have a ten-year term.
In accordance with the 2016 Plan, the stated exercise price of an employee incentive stock option or a non-statutory stock option shall not be less than 100% of the estimated fair market value of a share of common stock on the date of grant. An employee
Shares subject to awards that expire unexercised or are forfeited or terminated for any other reason will again become available for issuance under the 2016 Plan. No participant in the 2016 Plan can receive more than 11,112 option grants, or other awards with respect to more than 13,334 shares in the aggregate in any calendar year.
The board has authorized 44,445of the Company's common stock for issuance under the 2016 Plan, in addition to automatic increases provided for in the 2016 Plan through April 1, 2026. The number of shares of the Company's common stock reserved for issuance under the 2016 Plan will automatically increase, with no further action by the stockholders, at the beginning of each fiscal year by an amount equal to the lesser of (i) 8% of the outstanding shares of the Company's common stock on the last day of the immediately preceding year, or (ii) an amount determined by the Company's board of directors. During the year ended March 31, 2019, the board of directors approved an increase of 4,860shares authorized for issuance. During the year ended March 31, 2020, the board of directors approved an increase of 105,306shares authorized for issuance. During the year ended March 31, 2022, the board of directors approved an increase of 167,432shares authorized for issuance.
At March 31, 2022 there were 112,106shares available for future issuance.
2021 Stock Plan
On September 21, 2021, upon recommendation of the board, the stockholders approved the Company's 2021 Equity Incentive Plan (the "2021 Plan"). The 2021 Plan is effective as of September 21, 2021.
The 2021 Plan provides for the grant of options, including incentive stock options as defined in Section 422 of the Internal Revenue Code to employees, stock appreciation rights, restricted awards, performance share awards and performance compensation awards to employees, non-employee directors, advisors and consultants.
Options issued under the 2021 Plan will generally have a ten-year term.
In accordance with the 2021 Plan, the stated exercise price of an employee incentive stock option or a non-statutory stock option shall not be less than 100% of the estimated fair market value of a share of common stock on the date of grant. An employee
Shares subject to awards that expire unexercised or are forfeited or terminated for any other reason will again become available for issuance under the 2021 Plan.
The board has authorized 1,000,000shares of the Company's common stock for issuance under the 2021 Plan.
At March 31, 2022, there were 869,999shares available for future issuance.
Stock-Based Compensation
The Company issues service, performance and market-based stock options to employees and non-employees. The Company estimates the fair value of service and performance stock option awards using the Black-Scholes option pricing model. The Company estimates the fair value of market-based stock option awards using a Monte-Carlo simulation. Compensation expense for stock option awards is amortized on a straight-line basis over the awards' vesting period. Compensation expense includes the impact of forfeitures as they are incurred.
The expected term of the stock options represents the average period the stock options are expected to remain outstanding and is based on the expected term calculated using the approach prescribed by the Securities and Exchange Commission's Staff Accounting Bulletin No. 110 for "plain vanilla" options. The expected stock price volatility for the Company's stock options was determined by using an average of the historical volatilities of the Company and its industry peers. The Company will continue to analyze the stock price volatility and expected term assumptions as more data for the Company's common stock and exercise patterns become available. The risk-free interest rate assumption is based on the
The Company estimated the fair value of employee and non-employee stock options using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service periods of the respective awards. The fair value of employee stock options was estimated using the following weighted-average assumptions:
| Year Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Fair value of the Company's common stock on date of grant | $ | 4.60 | $ | 8.03 | ||||
| Expected term | 6.00yrs | 6.00yrs | ||||||
| Risk-free interest rate | 1.60% | 0.5800% | ||||||
| Dividend yield | 0.00% | 0.00% | ||||||
| Volatility | 123.27% | 80.7% | ||||||
| Fair value of options granted | $ | 4.03 | $ | 5.48 | ||||
Share-based awards compensation expense is as follows:
| Year Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cost of revenues | $ | - | $ | (27,000 | ) | |||
| Research and development | - | 26,000 | ||||||
| Selling, general and administrative | 382,000 | 372,000 | ||||||
| Total stock-based compensation | $ | 382,000 | $ | 371,000 | ||||
At March 31, 2022, there were unrecognized compensation costs of $1,325,000related to stock options which is expected to be recognized over a weighted-average amortization period of 2.14years.
A tax benefit of $54,000has been recognized relating to stock-based compensation as a result of non-qualified stock options and restricted stock exercised during the year ending March 31, 2022. In addition, the stock-based compensation deferred tax asset has been reduced by $309,000primarily related to the expiration of stock compensation grants.
Stock-Based Award Activity
Stock-based awards outstanding at March 31, 2022 under the various plans are as follows:
| Unvested | ||||||||||||
| Plan | Stock Options | Restricted Stock | Total | |||||||||
| 2006 Plan | 2,787 | - | 2,787 | |||||||||
| 2011 Plan | 111,949 | - | 111,949 | |||||||||
| 2016 Plan | 221,497 | - | 221,497 | |||||||||
| 2021 Plan | 130,001 | - | 130,001 | |||||||||
| 466,234 | - | 466,234 | ||||||||||
| Stock-based awards available for grant as of March 31, 2022 | 982,105 | |||||||||||
Stock options award activity is as follows:
| Number of Shares |
Weighted- Average Exercise Price |
Weighted- Average Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
| Outstanding at April 1, 2021 | 267,569 | $ | 25.16 | |||||||||||||
| Options granted | 272,958 | 4.60 | ||||||||||||||
| Options exercised | (44,042 | ) | 4.38 | |||||||||||||
| Options forfeited | (5,250 | ) | 6.89 | |||||||||||||
| Options expired | (25,001 | ) | 84.83 | |||||||||||||
| Outstanding at March 31, 2022 | 466,234 | $ | 12.09 | 8.89 | $ | 0 | ||||||||||
| Exercisable at March 31, 2022 | 115,144 | $ | 32.56 | 6.85 | $ | 0 | ||||||||||
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company's common stock, or $4.01and $7.43per share at March 31, 2022 and 2021, respectively.
Restricted stock award activity is as follows:
|
Number of Shares |
Weighted Average Award Date Fair Value per Share |
|||||||
| Unvested restricted stock awards outstanding at April 1, 2021 | 833 | $ | 13.68 | |||||
| Restricted stock awards granted | 1,596 | 3.05 | ||||||
| Restricted stock awards vested | (2,429 | ) | 6.70 | |||||
| Unvested restricted stock awards outstanding at March 31, 2022 | - | $ | - | |||||
The Company did not capitalize any cost associated with stock-based compensation.
The Company issues new shares of common stock upon exercise of stock options or release of restricted stock awards.
NOTE 15 - Income Taxes
The Company has the following net deferred tax assets:
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | $ | 28,224,000 | $ | 25,687,000 | ||||
| Research and development tax credit carryforwards | 1,850,000 | 1,850,000 | ||||||
| Stock-based compensation | 309,000 | 3,120,000 | ||||||
| Allowances and accruals | 1,336,000 | 659,000 | ||||||
| Other deferred tax assets | - | 398,000 | ||||||
| Lease liability | 63,000 | 78,000 | ||||||
| Gross deferred tax assets | $ | 31,782,000 | $ | 31,792,000 | ||||
| Less valuation allowance | (30,613,000 | ) | (31,528,000 | ) | ||||
| Total deferred tax assets | $ | 1,169,000 | $ | 264,000 | ||||
| Deferred tax liabilities: | ||||||||
| Fixed assets | (17,000 | ) | (3,000 | ) | ||||
| Prepaid expenses | (260,000 | ) | (186,000 | ) | ||||
| Right of Use asset | (63,000 | ) | (75,000 | ) | ||||
| Gross deferred tax liabilities | (340,000 | ) | (264,000 | ) | ||||
| Net deferred tax assets | $ | 829,000 | $ | - | ||||
The income tax provision (benefit) is based on the following loss before income taxes, which are from domestic sources and foreign loss before income taxes:
| Year Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Domestic | $ | (3,516,000) | $ | (2,052,000) | ||||
| Foreign | (1,883,000) | (1,467,000) | ||||||
| $ | (5,399,000) | $ | (3,519,000) | |||||
The Company's income tax expense/(benefits) consist of the following:
| Year Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Current: | ||||||||
| State | $ | 8,000 | $ | 1,000 | ||||
| Foreign | 469,000 | 941,000 | ||||||
| 477,000 | 942,000 | |||||||
| Deferred: | ||||||||
| Federal | - | - | ||||||
| State | - | - | ||||||
| Foreign | (809,000) | - | ||||||
| $ | (332,000) | $ | 942,000 | |||||
A reconciliation of the statutory federal income tax rate to the Company's effective tax rate for continuing operations is as follows:
| Year Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Expected federal statutory rate | 21.0% | 21.0% | ||||||
| State income taxes | 5.7% | 2.1% | ||||||
| Foreign earnings taxed at different rates | 3.7% | 3.6% | ||||||
| Foreign tax true-up | - | (12.4% | ) | |||||
| Effect of permanent differences | (3.0% | ) | (9.5% | ) | ||||
| Effect of intercompany interest permanent differences | (12.3% | ) | (17.9% | ) | ||||
| True-up of state deferred assets | (25.6% | ) | (120.7% | ) | ||||
| (10.5% | ) | (133.8% | ) | |||||
| Change in valuation allowance | 16.7% | 107.1% | ||||||
| Totals | (6.2% | ) | (26.7% | ) | ||||
As of March 31, 2022, the Company had net operating loss carryforwards for Federal, State and Foreign income tax purposes of approximately $115.3million, $44million and $541,000, respectively. Due to the Tax Cuts and Job Act, Federal NOLs generated after March 31, 2018 have an indefinite life. Federal NOL generated on and before March 31, 2017 will begin to expire 2024, if not utilized. State and Foreign NOLs will begin to expire in the year 2029 and 2024, respectively, if not utilized.
As of March 31, 2022, the Company had Federal and
Section 382 of the Internal Revenue Code limits the use of the Federal net operating losses in certain situations where changes occur in stock ownership of a company. If the Company should have an ownership change of more than 50% of the value of the Company's capital stock, utilization of the carryforwards could be restricted. The Company is not aware of any changes in ownership that would result in a change in control under Internal Revenue Code section 382.
The Company released the valuation allowance recorded against its
The Company has filed tax returns for federal, state and foreign jurisdictions. The Company's evaluation of uncertain tax matters was performed for tax years ended through March 31, 2022. Generally, the Company is subject to audit for the years ended March 31, 2021, 2020 and 2019. The Company has elected to retain its existing accounting policy with respect to the treatment of interest and penalties attributable to income taxes and continues to reflect interest and penalties attributable to income taxes, to the extent they arise, as a component of its income tax provision or benefit as well as its outstanding income tax assets and liabilities. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments to result in a material change to its financial position.
NOTE 16 - Employee Benefit Plan
The Company has a program to contribute and administer a qualified 401(k) plan. Under the 401(k) plan, the Company matches employee contributions to the plan up to 4% of the employee's salary. Company contributions to the plan amounted to an aggregate of $50,600and $89,000for the years ended March 31, 2022 and 2021, respectively.
NOTE 17 - Revenue Disaggregation
The Company generates product revenues from products which are sold into the human and animal healthcare markets, and the Company generates service revenues from laboratory testing services which are provided to medical device manufacturers.
The following table presents the Company's disaggregated revenues by source:
|
Year Ended March 31, |
||||||||
| 2022 | 2021 | |||||||
| Product | ||||||||
| Human Care | $ | 9,010,000 | $ | 15,317,000 | ||||
| Animal Care | 3,169,000 | 3,200,000 | ||||||
| Total Product Revenue | 12,179,000 | 18,517,000 | ||||||
| Service/Royalty | 449,000 | 112,000 | ||||||
| Total | $ | 12,628,000 | $ | 18,629,000 | ||||
The following table shows the Company's revenues by geographic region:
| Year Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| $ | 3,807,000 | $ | 5,419,000 | |||||
| 2,095,000 | 5,976,000 | |||||||
| 6,726,000 | 7,234,000 | |||||||
| Total | $ | 12,628,000 | $ | 18,629,000 | ||||
The Company's service revenues in
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of our most recent fiscal year. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2022.
Notwithstanding the material weaknesses, management believes the consolidated financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, the Company's financial condition, results of operations and cash flows at and for the periods presented in accordance with
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rule 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management concluded that our internal control over financial reporting was not effective as of March 31, 2022. We concluded this because of the errors we found in the Form 10-Q filing from June 30, 2020 that were restated in our 10-Q/A that was filed on November 17, 2020. We have determined that there were inadequate spreadsheet controls, a lack of separation of duties with preparation and review of the reported numbers, and inadequate analysis of revenue reporting among other things. We also determined during the quarter ended March 31, 2021 that there were errors related to income tax withholding accruals that required a revision in these financial statements.
Management's Remediation Measures
Management, with oversight from the Audit Committee of the Board of Directors of the Company, is actively engaged in remediation efforts to address the material weaknesses identified in the management's evaluation of internal controls and procedures. Management has taken a number of actions to remediate the material weaknesses described above, including the following:
| · | Improved monitoring and risk assessment activities to address these control deficiencies. | |
| · | Hired a new full time Chief Financial Officer in September 2020 and a new corporate controller in October 2020 to replace the transitionary staff in place while we moved our corporate offices from |
|
| · | Separated the preparation of the financial reports from review of the financial reports. | |
| · | Implemented additional process-level controls over revenue recognition of new contracts. | |
| · | Developed and delivered further internal controls training to individuals associated with these control deficiencies and enhance training provided to all personnel |
|
| · | Did a detailed review of income taxes and our intercompany agreements which uncovered the fact that we should be accruing withholding taxes that will be paid to |
These improvements are targeted at strengthening the Company's internal control over financial reporting and remediating the material weaknesses. We remain committed to an effective internal control environment and management believes that these actions and the improvements management expects to achieve as a result, will effectively remediate the material weaknesses. However, the material weaknesses in the Company's internal control over financial reporting will not be considered remediated until the controls operate for a sufficient period of time and management has concluded, through testing that these controls operate effectively. As of the date of filing this Form 10-K, management is in the process of testing and evaluating these additional controls to determine whether they are operating effectively.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the year ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not finished our testing our remediated controls and sufficient time has not elapsed to make the determination these controls are operating effectively.
ITEM 9B. Other Information
None.
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated by reference to the definitive proxy statement for our 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended March 31, 2022 (the "2022 Proxy Statement").
Item 405 of Regulation S-K requires the disclosure of, based upon our review of the forms submitted to us during and with respect to our most recent fiscal year, any known failure by any director, officer, or beneficial owner of more than ten percent of any class of our securities, or any other person subject to Section 16 of the Exchange Act ("reporting person") to file timely a report required by Section 16(a) of the Exchange Act. This disclosure is contained in the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2022 Proxy Statement.
Code of Business Conduct
We have adopted a Code of Business Conduct that applies to all of our officers, directors, and employees, including our Chief Executive Officer, Chief Financial Officer, and other employees
To date, there have been no waivers under our Code of Business Conduct. We intend to disclose future amendments to certain provisions of our Code of Business Conduct or any waivers, if and when granted, of our Code of Business Conduct on our website at http://www.sonomapharma.com within four business days following the date of such amendment or waiver.
Procedures for Nominating Directors
There have been no material changes to the procedures by which stockholders may recommend nominees to our Board of Directors. The Board of Directors will consider candidates for director positions that are recommended by any of our stockholders. Any such recommendation for a director nomination should be provided to our Secretary. The recommended candidate should be submitted to us in writing and addressed to
ITEM 11. Executive Compensation
The information required by this Item is incorporated by reference to the 2022 Proxy Statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated by reference to the 2022 Proxy Statement.
The information required to be disclosed by Item 201(d) of Regulation S-K, "Securities Authorized for Issuance Under Equity Compensation Plans," appears under the caption "Equity Compensation Plan Information" in the 2022 Proxy Statement and such information is incorporated by reference into this report.
ITEM 13. Certain Relationships, Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to the 2022 Proxy Statement.
ITEM 14. Principal Accounting Fees and Services
The information required by this Item is incorporated by reference to the 2022 Proxy Statement.
PART IV
ITEM 15. Exhibits, Financial Statement Schedules
(a) Documents filed as part of this report
(1) Financial Statements
Reference is made to the Index to Consolidated Financial Statements of
(2) Financial Statement Schedules
Financial statement schedules have been omitted that are not applicable or not required or because the information is included elsewhere in the Consolidated Financial Statements or the Notes thereto.
(b) Exhibits
Exhibit Index
| Exhibit No. | Description |
| 3.1 | Restated Certificate of Incorporation of Oculus Innovative Sciences, Inc., effective January 30, 2006(included as exhibit 3.1 of the Company's Annual Report on Form 10-K filed June 20, 2007, and incorporated herein by reference). |
| 3.2 | Certificate of Amendment of Restated Certificate of Incorporation of Oculus Innovative Sciences, Inc., effective October 22, 2008(included as exhibit A in the Company's Definitive Proxy Statement on Schedule 14A filed July 21, 2008, and incorporated herein by reference). |
| 3.4 | Certificate of Amendment of Restated Certificate of Incorporation of Oculus Innovative Sciences, Inc., as amended, effective March 29, 2013(included as exhibit 3.1 to the Company's Current Report on Form 8-K filed March 22, 2013, and incorporated herein by reference). |
| 3.5 | Certificate of Amendment of Restated Certificate of Incorporation of Oculus Innovative Sciences, Inc., as amended, effective December 4, 2014(included as exhibit 3.1 to the Company's Current Report on Form 8-K filed December 8, 2014, and incorporated herein by reference). |
| 3.6 | Certificate of Amendment of Restated Certificate of Incorporation of Oculus Innovative Sciences, Inc., as amended, effective October 22, 2015(included as exhibit 3.1 to the Company's Current Report on Form 8-K filed October 27, 2015, and incorporated herein by reference). |
| 3.7 | Certificate of Amendment of Restated Certificate of Incorporation of Oculus Innovative Sciences, Inc., as amended, effective June 24, 2016(included as exhibit 3.1 to the Company's Current Report on Form 8-K filed June 28, 2016, and incorporated herein by reference). |
| 3.8 | Certificate of Amendment of Restated Certificate of Incorporation of |
| 3.9 | Amended and Restated Bylaws, as amended, of |
| 3.10 | Certificate of Designation of Preferences, Rights and Limitations of Series A 0% Convertible Preferred Stock, filed with the |
| 3.11 | Certificate of Designation of Series B Preferred Stock, effective October 18, 2016(included as exhibit 3.1 to the Company's Current Report on Form 8-K filed October 21, 2016, and incorporated herein by references). |
| 3.12 | Certificate of Amendment of Restated Certificate of Incorporation of |
| 4.1 | Specimen Common Stock Certificate(included as exhibit 4.1 to the Company's Annual Report on Form 10-K filed June 28, 2017, and incorporated herein by reference). |
| 4.2 | Section 382 Rights Agreement, dated as of October 18, 2016, between Oculus Innovative Sciences, Inc. and |
| 4.3 | Form of Placement Agent Warrant granted to |
| 4.4 | Form of Placement Agent Warrant granted to |
| 10.1 | Form of Indemnification Agreement between Oculus Innovative Sciences, Inc. and its officers and directors(included as exhibit 10.1 to the Company's Registration Statement on Form S-1 (File No. 333-135584), as amended, declared effective on January 24, 2007, and incorporated herein by reference). |
| 10.2 | Office Lease Agreement, dated May 18, 2006, between Oculus Technologies of |
| 10.3 | Office Lease Agreement, dated July 2003, between Oculus Innovative Sciences, B.V. and Artikona Holding B.V. (translated from Dutch)(included as exhibit 10.11 to the Company's Registration Statement on Form S-1 (File No. 333-135584), as amended, declared effective on January 24, 2007, and incorporated herein by reference). |
| 10.4 | Form of Director Agreement(included as exhibit 10.20 to the Company's Registration Statement on Form S-1 (File No. 333-135584), as amended, declared effective on January 24, 2007, and incorporated herein by reference). |
| 10.5 | Amended and Restated Oculus Innovative Sciences, Inc. 2006 Stock Incentive Plan and related form stock option plan agreements(included as exhibit 10.2 to the Company's Current Report on Form 8-K filed May 2, 2007, and incorporated herein by reference). |
| 10.6 | Amendment to Office Lease Agreement, effective February 15, 2008, by and between Oculus Innovative Sciences Netherlands B.V. and Artikona Holding B.V. (translated from Dutch)(included as exhibit 10.44 to the Company's Annual Report on Form 10-K filed June 13, 2008, and incorporated herein by reference). |
| 10.7 | Oculus Innovative Sciences, Inc. 2011 Stock Incentive Plan(included as exhibit A in the Company's Definitive Proxy Statement on Schedule 14A filed July 29, 2011, and incorporated herein by reference). |
| 10.8† | Exclusive Sales and Distribution Agreement, dated November 6, 2015, by and between Oculus Innovative Sciences, Inc. and |
| 10.9† | Asset Purchase Agreement dated October 27, 2016, between Oculus Innovative Sciences, Inc. and Invekra, S.A.P.I de C.V.(included as Exhibit 10.1 to the Company's Current Report on Form 8-K filed October 31, 2016, and incorporated herein by reference). |
| 10.10† | Amendment Agreement to Acquisition Option dated October 27, 2016, by and between More Pharma Corporation S. de R.L. de C.V. and Oculus Technologies of |
| 10.11 | 2016 Equity Incentive Plan(included as exhibit A in the Company's Definitive Proxy Statement on Schedule 14A filed July 29, 2016, and incorporated herein by reference). |
| 10.12 | Securities Purchase Agreement entered into by and between |
| 10.13† | Exclusive License and Distribution Agreement entered into by and between |
| 10.14 | Warrant Agency Agreement entered into by and among |
| 10.15⸸+ | Asset Purchase Agreement dated May 14, 2019, between |
| 10.16⸸+ | Asset Purchase Agreement dated February 21, 2020, between |
| 10.17⸸+ | License, Distribution and Supply Agreement by and between |
| 10.18 | Consulting Agreement between the Company and Dr. |
| 10.19⸸+ | Asset Purchase Agreement between the Company and Infinity Labs SD, Inc., dated June 24, 2020(included as exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 30, 2020, and incorporated herein by reference.) |
| 10.20+ | Woodstock Lease Agreement between the Company and Fowler Crossing Partners, LP, dated October 1, 2018. |
| 10.21⸸ | Licensing Agreement between |
| 10.22⸸ | Licensing and Distribution Agreement between |
| 10.23⸸ | Exclusive Supply and Distribution Agreement between the Company and EMC Pharma, LLC, dated March 26, 2021(included as exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 31, 2021, and incorporated herein by reference). |
| 10.24 | Employment Agreement by and between the Company and |
| 10.25 | Employment Agreement by and between the Company and |
| 10.26 | Employment Agreement by and between the Company and |
| 10.27 | At-The-Market Offering Agreement, by and between the Company and |
| 10.28 |
2021 Equity Incentive Plan (included as appendix on the Company's proxy statement filed on July 29, 2021 and incorporated herein by reference). |
| 10.29+⸸ |
Exclusive License and Distribution Agreement between the Company and Dyamed Biotech Pte Ltd., dated November 4, 2021 (included as exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 9, 2021, and incorporated herein by reference). |
| 10.30+⸸ |
Non-Exclusive Distribution and Supply Agreement between the Company and Salus Medical, LLC dated January 19, 2022 (included as exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 20, 2022, and incorporated herein by reference). |
| 101.INS* | XBRL Instance Document. |
| 101.SCH* | XBRL Taxonomy Extension Schema. |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase. |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase. |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase. |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase. |
| * | Filed herewith. |
| † | Confidential treatment has been granted with respect to certain portions of this agreement. |
| ⸸ | Certain portions of the exhibit have been omitted to preserve the confidentiality of such information. The Company will furnish copies of any such information to the |
| + | The schedules to the exhibit have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish copies of any such schedules to the |
Copies of above exhibits not contained herein are available to any stockholder, upon payment of a reasonable per page fee, upon written request to: Chief Financial Officer,
(c) Financial Statements and Schedules
Reference is made to Item 15(a)(2) above.
ITEM 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: July 13, 2022 | By: | /s/ |
|
|
President and Chief Executive Officer, (Principal Executive Officer) |
|||
| Date: July 13, 2022 | /s/ |
||
| Chief Financial Officer | |||
|
( Principal Accounting Officer |
|||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ |
President, Chief Executive Officer | July 13, 2022 | ||
| (Principal Executive Officer) | ||||
| /s/ |
Chief Financial Officer | July 13, 2022 | ||
| ( |
||||
| /s/ |
Director | July 13, 2022 | ||
| /s/ Philippe Weigerstorfer | Director | July 13, 2022 | ||
| Philippe Weigerstorfer | ||||
| /s/ |
Director | July 13, 2022 | ||
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