Summary of Significant Accounting Policies

Financial Statement Presentation

The condensed consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries, Viveve, Inc.

and Viveve BV. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with

U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are

not

readily apparent from other sources. Actual results

may

differ from these estimates. In addition, any change in these estimates or their related assumptions could have an adverse effect on our operating results.

Concentration of Credit Risk and Other Risks and Uncertainties

To achieve profitable operations, the Company must successfully develop, manufacture, and market its products. There can be

assurance that any such products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed. These factors could have a material adverse effect upon the Company

’s financial results, financial position, and future cash flows.

The Company

’s products likely require clearance or approval from the U.S. Food and Drug Administration or other international regulatory agencies prior to commencing commercial sales. There can be

assurance that the Company’s products will receive any of these required clearances or approvals or for the indications requested. If the Company was denied such clearances or approvals or if such clearances or approvals were delayed, it would have a material adverse effect on the Company’s financial results, financial position and future cash flows.

The Company is subject to risks common to companies in the medical device industry including, but

not

limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products, product liability, and the need to obtain additional financing. The Company

’s ultimate success is dependent upon its ability to raise additional capital and to successfully develop and market its products.

The Company designs, develops, manufactures and markets a medical device for the non-invasive treatment of vaginal introital laxity, for improved sexual function, and for vaginal rejuvenation, depending on the relevant country-specific clearance or approval, that it refers to as Geneveve™. Geneveve includes

three

major components: the Viveve System™ (a RF, or radio frequency, generator housed in a table-top console), a reusable handpiece, single-use treatment tips and other ancillary consumables. The Company outsources the manufacture and repair of the Viveve System to a single contract manufacturer. Also, certain other components and materials that comprise the Geneveve device are currently manufactured by a single supplier or a limited number of suppliers. A significant supply interruption or disruption in the operations of the contract manufacturer or these

third

-party suppliers would adversely impact the production of our products for a substantial period of time, which could have a material adverse effect on our business, financial condition, operating results and cash flows.

In the U.S., the Company sells its products primarily through a direct sales force to health care practitioners. Outside the U.S., the Company sells through an extensive network of distribution partners. During the

three

months ended

September 30, 2017,

two

distributors together accounted for

38%

of the Company’s revenue. During the

three

months ended

September 30, 2016,

two

distributors together accounted for

89%

of the Company’s revenue. During the

nine

months ended

September 30, 2017,

three

distributors together accounted for

38%

of the Company’s revenue. During the

nine

months ended

September 30, 2016,

three

distributors together accounted for

83%

of the revenue.

There were

direct sales customers that accounted for more than

10%

of the Company

’s revenue during the

three

and

nine

months ended

September 30, 2017

and

2016.

As of

September 30, 2017,

three

distributors, collectively, accounted for

53%

of total accounts receivable. As of

December 31, 2016,

three

distributors, collectively, accounted for

81%

of total accounts receivable.

Revenue Recognition

The Company recognizes revenue from the sale of its products, the Viveve System, single-use treatment tips and ancillary consumables. Revenue is recognized upon shipment, provided that persuasive evidence of an arrangement exists, the price is fixed or determinable and collection of the resulting receivable is reasonably assured. Sales of our products are subject to regulatory requirements that vary from country to country. The Company has regulatory clearance, or can sell its products without a clearance, in many countries throughout the world, including countries within the following regions: North America, Latin America, Europe, the Middle East and Asia Pacific.

The Company does

not

provide its customers with a right of return.

Customer Advance Payments

From time to time, customers will pay for a portion of the products ordered in advance.

Upon receipt of such payments, the Company records the customer advance payment as a component of accrued liabilities. The Company will remove the customer advance payment from accrued liabilities when revenue is recognized upon shipment of the products.

Investments in Unconsolidated Affiliates

The Company uses the equity method to account for its investments in entities that it does

not

control, but have the ability to exercise significant influence over the investee. Equity method investments are recorded at original cost and adjusted periodically to recognize (

) the proportionate share of the investees

’ net income or losses after the date of investment, (

) additional contributions made and dividends or distributions received, and (

) impairment losses resulting from adjustments to net realizable value. The Company eliminates all intercompany transactions in accounting for equity method investments. The Company records the proportionate share of the investees’ net income or losses in equity in earnings of unconsolidated affiliates on the condensed consolidated statements of operations.

The Company assesses the potential impairment of the equity method investments when indicators such as a history of operating losses, a negative earnings and cash flow outlook, and the financial condition and prospects for the investee

’s business segment might indicate a loss in value. The carrying value of the investments are reviewed annually for changes in circumstances or the occurrence of events that suggest the investment

may

not

be recoverable. During the

three

and

nine

months ended

September 30, 2017,

impairment charges have been recorded.

Product Warranty

The Company

’s products are generally subject to a

one

-year warranty, which provides for the repair, rework or replacement of products (at the Company’s option) that fail to perform within stated specification. The Company has assessed the historical claims and, to date, product warranty claims have

not

been significant. The Company will continue to assess the need to record a warranty accrual at the time of sale going forward.

Comprehensive Loss

Comprehensive loss represents the changes in equity of an enterprise, other than those resulting from stockholder transactions. Accordingly, comprehensive loss

may

include certain changes in equity that are excluded from net loss. For the

three

and

nine

months ended

September 30, 2017

and

2016,

the Company’s comprehensive loss is the same as its net loss.

Net Loss per Share

The Company

’s basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period. The diluted net loss per share is computed by giving effect to all potentially dilutive common stock equivalents outstanding during the period. For purposes of this calculation, stock options and warrants to purchase common stock and restricted common stock awards are considered common stock equivalents. For periods in which the Company has reported net losses, diluted net loss per share is the same as basic net loss per share, since dilutive common shares are

not

assumed to have been issued if their effect is anti-dilutive.

The following

securities were excluded from the calculation of net loss per share because the inclusion would be anti-dilutive.

	Nine Months Ended
	September 30,
	2017		2016

Stock options to purchase common stock		2,489,979		1,315,808
Warrants to purchase common stock		642,622		425,274
Restricted common stock awards		-		64,405

Recently Issued and Adopted Accounting Standards

May 2014,

as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards (“IFRS”),

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2014

09,

“Revenue from Contracts with Customers (Topic

606

).” The new guidance sets forth a new

five

-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were

not

addressed completely in the prior accounting guidance. The ASU provides alternative methods of initial adoption and is effective for annual and interim periods beginning after

December 15, 2017.

The FASB has issued several updates to the standard which i) defer the original effective date from

January 1, 2017

January 1, 2018,

while allowing for early adoption as of

January 1, 2017 (

ASU

2015

); ii) clarify the application of the principal versus agent guidance (ASU

2016

); iii) clarify the guidance on inconsequential and perfunctory promises and licensing (ASU

2016

); and clarify the guidance on certain sections of the guidance providing technical corrections and improvements (ASU

2016

). In

May 2016,

the FASB issued ASU

2016

12,

“Revenue from Contracts with Customers (Topic

606

) Narrow-Scope Improvements and Practical Expedients”, to address certain narrow aspects of the guidance including collectibility criterion, collection of sales taxes from customers, noncash consideration, contract modifications and completed contracts. This issuance does

not

change the core principle of the guidance in the initial topic issued in

May 2014.

The Company has set up a team for the implementation of the new revenue recognition accounting standard. Based on preliminary analysis, the Company expects that the new standard will

not

significantly impact the recognition of product sales given their point of sale nature. The Company is still in the process of evaluating its arrangements

. The Company will adopt this new standard effective

January 1, 2018.

The guidance permits the use of either a full retrospective or modified retrospective transition method as of the adoption date. The Company has

not

yet selected a transition method and is still finalizing the analysis to quantify the adoption impact of the provisions of this guidance on its condensed consolidated financial statements.

February 2016,

the FASB issued ASU

2016

02,

“Leases (Topic

842

)”. Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after

December 15, 2018,

including interim periods within the reporting period, and requires a modified retrospective adoption, with early adoption permitted. We are currently evaluating the effect of the adoption of this guidance on our condensed consolidated financial statements.

August 2016,

the FASB issued ASU

No.

2016

15,

“Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments (Topic

230

)”.

This guidance addresses specific cash flow issues with the objective of reducing the diversity in practice for the treatment of these issues. The areas identified include: debt prepayment or debt extinguishment costs; settlement of

zero

-coupon debt instruments; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions and application of the predominance principle with respect to separately identifiable cash flows. This guidance is effective for annual reporting periods beginning after

December 15, 2017,

including interim periods within that reporting period, with early adoption permitted. We are currently evaluating the effect of the adoption of this guidance on our condensed consolidated financial statements.

We have reviewed other recent accounting pronouncements and concluded they are either

not

applicable to the business, or

material effect is expected on the condensed consolidated financial statements as a result of future adoption.