The following discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by such forward-looking statements as a result of many important factors, including those set forth in Part I of this Annual Report on Form 10-K under the caption "Risk Factors". Please see also the "Special Note Regarding Forward-Looking Statements" in Part I above. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K.

Introduction

This Management's Discussion and Analysis of our financial condition and results of operations is based on our financial statements, which management has prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Business Overview

We are a research and clinical-stage biomaterials and biotechnology company with a focus on treatment of spinal cord injuries, or SCIs. Our approach to treating acute SCIs is based on our investigational Neuro-Spinal Scaffold™ implant, a bioresorbable polymer scaffold that is designed for implantation at the site of injury within a spinal cord and is intended to treat acute SCI. The Neuro-Spinal Scaffold implant incorporates intellectual property licensed under an exclusive, worldwide license from Boston Children's Hospital and the Massachusetts Institute of Technology. We also plan to evaluate other technologies and therapeutics that may be complementary to our development of the Neuro-Spinal Scaffold implant or offer the potential to bring us closer to our goal of redefining the life of the SCI patient.

Overall, we expect our research and development expenses to be substantial and to increase for the foreseeable future as we continue the development and clinical investigation of our current and future products. However, expenditures on research and development programs are subject to many uncertainties, including whether we develop our products with a partner or independently, or whether we acquire products from third parties. At this time, due to the uncertainties and inherent risks involved in our business, we cannot estimate in a meaningful way the duration of, or the costs to complete, our research and development programs or whether, when or to what extent we will generate revenues or cash inflows from the commercialization and sale of any of our products. While we are currently focused on advancing our Neuro-Spinal Scaffold implant, our future research and development expenses will depend on the determinations we make as to the scientific and clinical prospects of each product candidate, as well as our ongoing assessment of regulatory requirements and each product's commercial potential. In addition, we may make acquisitions of businesses, technologies or intellectual property rights that we believe would be necessary, useful or complementary to our current business. Any investment made in a potential acquisition could affect our results of operations and reduce our limited capital resources, and any issuance of equity securities in connection with a potential acquisition could be substantially dilutive to our stockholders.

There can be no assurance that we will be able to successfully develop or acquire any product, or that we will be able to recover our development or acquisition costs, whether upon commercialization of a developed product or otherwise. We cannot provide assurance that any of our programs under development or any acquired technologies or products will result in products that can be marketed or marketed profitably. If our development-stage programs or any acquired products or technologies do not result in commercially viable products, our results of operations could be materially adversely affected.



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We were incorporated on April 2, 2003, under the name Design Source, Inc. On October 26, 2010, we acquired the business of InVivo Therapeutics Corporation, which was founded in 2005, and continued the existing business operations of InVivo Therapeutics Corporation as our wholly-owned subsidiary.

Critical Accounting Policies and Estimates

Our consolidated financial statements, which appear in Item 8 of this Annual Report on Form 10-K, have been prepared in accordance with accounting principles generally accepted in the United States, which require that our management make certain assumptions and estimates and, in connection therewith, adopt certain accounting policies. Our significant accounting policies are set forth in Note 2, "Significant Accounting Policies", in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. Of those policies, we believe that the policies discussed below may involve the highest degree of judgment and may be the most critical to an accurate reflection of our financial condition and results of operations.

Stock-Based Compensation

Our stock options are granted with an exercise price set at the fair market value of our common stock on the date of grant. Our stock options generally expire 10 years from the date of grant and vest upon terms determined by our Board of Directors.

We recognize compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors as an expense in our statements of operations over the service period based on a measure of fair value for each stock-based award. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option pricing model and the fair value of each restricted stock award or restricted stock unit, which we refer to collectively as restricted securities, is determined based on the fair market value of our common stock on the date of grant. The fair value is amortized as a compensation cost on a straight-line basis over the requisite service period of the award, which is generally the vesting period. The expected term of any options granted under our stock plans is based on the average of the contractual term (generally, 10 years) and the vesting period (generally, 48 months). The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the expected term of the option. The restricted securities generally vest over a three-year period, contingent on the recipient's continued employment. See Note 8, "Share-Based Compensation, Stock Options and Restricted Securities," in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for more information about the assumptions underlying these estimates.

Research and Development Expense

Our research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

? employee related expenses, including salaries, benefits, travel, and stock

based compensation expense;

? expenses incurred under agreements with clinical research organization, or

CROs, and clinical sites that conduct our clinical studies;

facilities, depreciation, and other expenses, which include direct and

? allocated expenses for rent and maintenance of facilities, insurance, and other

supplies;

? costs associated with our research platform and preclinical activities;

? costs associated with our regulatory, quality assurance, and quality control

operations; and

? amortization of intangible assets.

Our research and development costs are expensed as incurred. We are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual



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costs. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrued expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.

New Accounting Pronouncements

In May 2021 the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the Emerging Issues Task Force, which amends the FASB Accounting Standards Codification, or the ASC, to provide explicit guidance, and, thus, reduce diversity in practice, on accounting by issuers for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange. This amendment provides that for an entity that presents earnings per share, or EPS, in accordance with Topic 260, the effects of a modification or an exchange of a freestanding equity-classified written call option that is recognized as a dividend should be an adjustment to net income (or net loss) in the basic EPS calculation. We adopted ASU 2021-04 effective January 1, 2022, and it did not have a material impact on our consolidated financial statements.

Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

Research and Development Expenses

Research and development expenses increased by $0.8 million to $5.2 million for the year ended December 31, 2022 from $4.4 million for the year ended December 31, 2021. The increase in research and development expenses for the year ended December 31, 2022 is primarily due to an increase in clinical consulting costs of $0.4 million associated with the processing of responses to the FDA on comments received on our HDE submission of the second module, an increase in scaffold manufacturing costs of $0.2 million and an increase in compensation related costs of $0.2 million.

General and Administrative Expenses

General and administrative expenses decreased by $0.1 million to $5.4 million for the year ended December 31, 2022 from $5.5 million for year ended December 31, 2021. The decrease in general and administrative expenses for the year ended December 31, 2022 is primarily due to lower compensation related costs of $0.2 million and lower consulting costs of $0.2 million due to the absence of a one time business development initiative expense incurred in 2021. These decreases were partially offset by an increase in legal costs of $0.2 million and an increase of $0.1 million in other miscellaneous general and administrative costs.

Interest Income / (Expense), Net

Interest income increased by $148 thousand to $151 thousand for the year ended December 31, 2022 from $3 thousand for the year ended December 31, 2021. The increase in interest income was primarily due to higher yields in our cash and cash equivalents in 2022.

Other Income

Other income for the years ended December 31, 2022 and 2021 was $9 thousand and $2 thousand, respectively.



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Liquidity, Capital Resources and Going Concern

Liquidity is a measure of our ability to meet potential cash requirements, including planned capital expenditures. Since inception, we have devoted substantially all of our efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets, and raising capital. We have historically financed our operations primarily through the sale of equity-related securities. We have not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. We do not expect to be profitable in the next several years, but rather expects to incur additional operating losses.

As of December 31, 2022, we had approximately $15.1 million in working capital, our accumulated deficit was $248.6 million, we had total assets of $18.8 million, total liabilities of $3.1 million, and total stockholders' equity of $15.7 million. During the year ended December 31, 2022, we recorded a net loss of $10.5 million. We believe that our cash and cash equivalents at December 31, 2022 will provide necessary funding to fund operations into the first quarter of 2024. This estimate is based on assumptions that may prove to be wrong; expenses could prove to be significantly higher, leading to a more rapid consumption of our existing resources.

Our consolidated financial statements as of December 31, 2022 were prepared under the assumption that we will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt exists about our ability to continue as a going concern exists and we will require additional liquidity to continue operations beyond the next 12 months.

We have limited liquidity and capital resources and must obtain significant additional capital resources in order to fund our operations and sustain our product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, for selling, general and administrative expenses and for other working capital requirements. We will need to raise additional capital through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.

We may pursue various other dilutive and non­dilutive funding alternatives depending upon our clinical path forward and the extent to which we require additional capital to proceed with development of some or all of our product candidates on expected timelines. The source, timing and availability of any future financing will depend principally upon market conditions and the status of our clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us to, among other things, delay, scale back or eliminate some or all of our research and product development programs, planned clinical trials, and capital expenditures or to license our potential products or technologies to third parties. We may alternatively engage in cost-cutting measures in an attempt to extend our cash resources as long as possible. If we are unable to raise additional capital, we may be forced to cease operations entirely.

Our consolidated financial statements as of December 31, 2022, do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if we were unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate its assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that investors will lose all or part of their investment.



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Financing Transactions

In October 2022, we closed a registered offering of shares of our common stock and associated pre-funded warrants, or the October 2022 Registered Direct Offering, and a concurrent private placement of pre-funded warrants and preferred investment options, or(the October 2022 Private Placement, with an institutional investor together, the October 2022 Financing. In the October 2022 Registered Direct Offering, we issued (i) an aggregate of 154,000 common shares, or the Shares; and (ii) 369,810 pre-funded warrants, or the October 2022 Pre-Funded Warrants. In the concurrent October 2022 Private Placement, we issued (i) additional October 2022 Pre-Funded Warrants to purchase an aggregate of 1,190,476 shares of our common stock, and (ii) Preferred Investment Options to purchase an aggregate of 1,714,286 shares of our common stock, or the Preferred Investment Options. The purchase price of each Share and associated Preferred Investment Option sold in the October 2022 Registered Direct Offering was $5.25 and the purchase price of each Pre-Funded Warrant and associated Preferred Investment Option sold in each of the October 2022 Registered Direct Offering and October 2022 Private Placement was $5.2499. In connection with the October 2022 Financing, we issued, to designees of H.C. Wainwright & Co., LLC, or Wainwright, the placement agent for the October 2022 Financing, Preferred Investment Options to purchase an aggregate of 114,429 shares of our common stock, or the Wainwright Preferred Investment Options. The net proceeds to us, after deducting Wainwright's placement agent fees and other offering expenses payable by us, were approximately $8.0 million. Concurrent with the October 2022 Financing, we modified certain outstanding warrants, consisting of 29,091 Series A Warrants issued in March 2020, 19,048 Series C Warrants issued in April 2020 and 32,000 Series A Warrants issued in October 2020, held by the institutional investor that participated in the October 2022 Financing to lower the exercise price of these warrants to $5.05 and extend the term of the warrants through April 2028. During the year ended December 31, 2022, we issued an aggregate of 884,286 shares of our common stock upon the exercise of certain of the October 2022 - Prefunded Warrants for an immaterial amount, as they were substantially pre-funded.

Cashflows

Net cash used in operating activities for the year ended December 31, 2022, consisted of net loss of $10.5 million, non-cash items of $0.6 million and cash used in working capital of $0.6 million. Adjustments for non-cash items consisted primarily of $0.4 million and $0.2 million in amortization of operating lease right-of-use assets and stock-based compensation expense, respectively. The change in cash from working capital can be attributed primarily to a $0.4 million decrease in the operating lease liability and a $0.2 million decrease in accrued expenses and other liabilities.

Net cash used in operating activities for the year ended December 31, 2021, consisted of net loss of $9.9 million, non-cash items of $0.7 million and cash provided by working capital of $0.4 million. Adjustments for non-cash items consisted primarily of $0.3 million each in amortization of operating lease right-of-use assets and stock-based compensation expense, respectively. The change in cash from working capital included a $0.5 million increase in accrued expenses, and a $0.1 million increase in accounts payable. These increases were offset by a $0.3 million decrease in the operating lease liability and a $0.1 million decrease in prepaid expenses and other assets.

Net cash used in investing activities for the years ended December 31, 2022 and 2021, was $160 thousand and $77 thousand, respectively, attributable to purchases of capital equipment.

Net cash provided by financing activities for the year ended December 31, 2022 was $8.0 million related to proceeds from the October 2022 Financing. This compares to net cash provided by financing activities of $8.5 million for the year ended December 31, 2021 related to proceeds from the exercise of warrants.

Inflation and Changing Prices

We do not believe that inflation has had, or will have, a material impact on our operating costs and earnings.



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Material Cash Requirements from Contractual Obligations

Leases

As of December 31, 2022, we reported current and long-term operating lease liabilities of $0.4 million and $0.6 million, respectively. These balances represent our contractual obligation to make future payments on our Cambridge headquarters lease, discounted to reflect our cost of borrowing. In the event that we were to vacate the Cambridge facility, we may be obliged to continue making payments under the Cambridge lease.

Clinical Trial Commitments

We have engaged and executed contracts with CRO's to assist with the administration of our ongoing INSPIRE 1.0 and INSPIRE 2.0 clinical trials. As of December 31, 2022, approximately $3.9 million remains to be paid on these contracts.

See Note 11, "Commitments and Contingencies," in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for information regarding our commitments.

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