(6)     Operating Lease Right-of-Use Asset, Net

The Company’s operating lease is a property lease for its laboratory and approximately $57,000corporate offices. BioCardia’s lease agreement does not contain any material residual guarantees or material restrictive covenants, nor does it contain an additional lease extension. The Company determines if an arrangement is a lease at inception by assessing whether it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

ROU assets and $30,000lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company’s lease does not provide an implicit rate. The Company used an adjusted historical incremental borrowing rate, based on the information available at the approximate lease commencement date, to determine the present value of lease payments. Variable rent expense is made up of expenses for common area maintenance and shared utilities and were not included in the determination of the present value of lease payments. The Company has no finance leases.

The lease expense for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019 was $150,000 and $150,000, respectively. The cash paid under the operating lease during the three months ended March 31, 2020 and 2019 was $158,000 and $153,000, respectively. At March 31, 2020, the weighted average remaining lease term was 1.75 years, and the weighted average discount rate was 12.05%.

Accrued expenses and other current liabilities consisted of the following (in thousands):

(8)     Stockholders’ Equity

As

Public Offering on Form S-1 Registration Statement - In April 2019, the Company submitted a Form S-1 Registration Statement (S-1) to the Securities and Exchange Commission (SEC), which was subsequently amended. On August 2, 2019, the Company entered into an underwriting agreement with Maxim Group LLC, as representative of the several underwriters named therein, relating to a firm commitment underwritten public offering pursuant to the S-1, of 1,666,667 units consisting of one share of common stock, par value of $0.001 per share, and a warrant to purchase one share of common stock. The offering price to the public was $6.00 per unit. The warrants, which are equity classified, are immediately exercisable for shares of common stock at a price of $6.30 per share and expire five years from the date of issuance. In addition, the underwriters were granted 11,958 warrants exercisable at a per warrant exercise price of $6.60 as part of their compensation. The underwriters were granted a 45-day option to purchase up to 250,000 additional shares of common stock, and/or 250,000 additional warrants to cover over-allotments, if any. The closing of the offering occurred on August 6, 2019. After deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, BioCardia realized net proceeds of approximately $8.84 million. On September 30, 2017, there4, 2019, the underwriters exercised the over-allotment and purchased 75,000 shares of common stock and 250,000 warrants for net proceeds of approximately $420,000, after deducting underwriting discounts of approximately $32,000.

Up List to Nasdaq - On August 2, 2019, the Company’s common stock and warrants to purchase common stock began trading on the Nasdaq Capital Market. Previously the common stock was quoted on the OTCQB Marketplace (OTCQB) under the symbol, “BCDA”.  “BCDA” and “BCDAW” are no notes outstanding. Below is a history of previous notes issuedthe trading symbols for the Company’s common stock and converted.warrants to purchase common stock, respectively, on the Nasdaq Capital Market.

In May 2015,Convertible Note Financing - On July 5, 2019, BioCardia Lifesciences entered into a note agreements with various stockholderspurchase agreement pursuant to which the Company issued on such date $625,000 in aggregate principal amount of BioCardia Lifesciencesconvertible promissory notes to accredited investors, a portion of which were certain of the Company’s officers and other lenders fordirectors and a total of $7.2 million, or the 2015 Notes.principal stockholder (or their respective affiliates). The 2015 Notesnotes accrued 8% annual14.0% simple interest matured 18and mature six months from the issue date, and were callable after the maturity date by written demand of a majority of the holders of the outstanding note principle. If BioCardia Lifesciences closed an effective registration statement filed under the Securities Act of 1933, as amended, covering the sale of BioCardia Lifesciences common stock (an IPO) prior to maturity, the outstanding principle and accrued interest would have automatically converted into shares of common stock at 80% of the price of the shares of common stock purchased in the IPO.on January 5, 2020. If at any time prior to the maturity date, the Company closedcloses a private placementpublic stock offering for the purpose of raising capital in which the Company’s preferredcommon stock for aggregate sales proceeds of at least $5.0 million excluding note conversions, atis listed or quoted on the note holder’s option,New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Optional Conversion Right,Nasdaq Capital Market, the outstanding principle and interest may have been convertedwould automatically convert into shares of the preferred stocksecurities offered in the financing at a conversionunit price equal to 80% of the price of the preferred shares sold in such financing, plus preferred stock warrant coverage equal to 8% with an exercise price equala 50% discount to the purchase price of the preferred stock sold in such financing. If the notes were held to maturity, subject to BioCardia Lifesciences authorizing sufficient shares of a new class of preferred stock, or the Maturity Date Preferred Stock, the holder would have had the option to convert the outstanding principle and interest to this new class of Maturity Date Preferred Stock at an exercise price of $0.07 per share, plus 8% warrant coverage.

In August 2016, the Company and the holders of the 2015 Notes amended the 2015 Notes, pursuant to which the outstanding principal amount and all accrued interest through August 31, 2016 automatically converted into shares of BioCardia Lifesciences common stock at 80% of the conversion price of thequalified financing price. The convertible notes issued in October 2016. In addition, the amendment eliminated the payment of interest for the period subsequent to August 31, 2016, and through the date of the closing of the Merger. Upon the completion of the Merger, the 2015 Notes and accrued interest converted into shares of BioCardia Lifesciences common stock, which were then exchanged at the Exchange Ratio into 67,443,988 shares of the Company’s common stock (approximately 5,620,332 shares after giving effect to the Company’s reverse stock split).

The 2015 Notes had redemptionconversion features that were determined to be a compoundan embedded derivative requiring bifurcation and separate accounting at estimated fair value. The changes infair value of the estimated value are reflected inderivative was treated as a discount on the notes, which is subject to accretion over the term of the note. The change in fair value of convertible shareholder notesthe derivative liability inand the consolidated statements of operations. We estimated the fair valueloss on extinguishment of the compound embedded derivative utilizing a Monte Carlo simulation model. The inputs used to determine the estimated fair valueconvertible notes of the compound embedded derivative instrument include the probability of an underlying event triggering the redemption event$52,000 and its timing prior to the maturity date of the 2015 Notes. The fair value measurement is based upon significant inputs not observable$521,000, respectively, was recognized in the market. These assumptions are inherently subjective and involve significant management judgment. Immediately prior toQ3 2019.

Upon the closing of the Merger,Company’s public offering of units on August 6, 2019 the compound embedded derivative was remeasured basedunpaid principal and interest on the settlement valueconvertible notes totaling approximately $633,000, converted into 210,887 units, each unit consisting of theone share of common stock exchanged for the notes, and we reclassified the balancea warrant to purchase one share of common stock, at a conversion price of $3.00 per unit. Holders of the convertible shareholder notes derivative liabilityhad the option of converting the notes into units of one share of common stock and a warrant at a unit price of $8.00 prior to additional paid-in capital.the automatic conversion in the Company’s public offering. The warrants have the same terms, including exercise price and expiration date, as the warrants issued in the public offering.

Reverse Stock Split - On June 6, 2019, the Company effected a 1-for-9 reverse stock split of the Company’s common stock. Neither the par value nor the authorized number of shares was adjusted as a result of the reverse stock split. All issued and outstanding common stock, warrants, stock options, restricted stock units and per share amounts contained in the accompanying consolidated financial statements and notes to the consolidated financial statements have been retroactively adjusted to give effect to the reverse stock split for all periods presented.

Warrants - Set forth below is a table of activity of warrants for common stock and the related weighted average exercise price per warrant.

(9)    Share-Based Compensation              

The Company recognized interestshare-based compensation expense including amortization of the debt discount of $0 and $520,000 for the three months ended September 30, 2017 and 2016, respectively, and approximately $0 and $1.6 million for the nine months ended September 30, 2017 and 2016, respectively. 

BioCardia Lifesciences adopted, and the BioCardia Lifesciences shareholders approved, the 2002 Stock Planis recorded in 2002, or the 2002 Plan, and the Company assumed the 2002 Plan in the Merger. The Company will not grant any additional awards under the 2002 Plan following the Merger. In 2016, BioCardia Lifesciences adopted, and the BioCardia Lifesciences shareholders approved, the 2016 Equity Incentive Plan, or the 2016 Plan, and the Company assumed the 2016 Plan in the Merger. The Company will grant awards, including incentive stock options and nonstatutory stock options, under the 2016 Plan following the Merger.

Stock compensation attributable to manufacturing operations was not significant and was expensed directly to cost of goods sold, inresearch and development, and selling, general and administrative expenses based on the condensed consolidated statements of operations.employee's or non-employee’s respective function. No share-based compensation was capitalized during the periods presented. Share-based compensation expense for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 was recorded as follows (in thousands):

On January 29, 2020 (the “repricing date”), the Company’s Board of Directors repriced certain previously granted and still outstanding vested and unvested stock option awards held by employees, executives and certain service providers of the Company; as a result, the exercise price was lowered to $5.32 per share. No other terms of the repriced stock options were modified, and the repriced stock options will continue to vest according to their original vesting schedules and will retain their original expiration dates. As a result of the repricing, 515,036 vested and unvested stock options outstanding with original exercise prices ranging from $10.05 to $97.21, were repriced.

The repricing resulted in incremental stock-based compensation expense of $569,000, of which $412,000 related to vested employee stock option awards and was expensed on the repricing date, and $157,000 related to unvested stock option awards and is being amortized on a straight-line basis over the approximately three year remaining weighted average vesting period of those awards.

The following table summarizes the activity of stock options and related information:

The weighted average grant-date fair value of options granted during the nine months ended September 30, 2017 was $6.44 per share.

Employee Share-Based Compensation (Stock Options)

During the nine months ended September 30, 2017, the Company granted stock options to certain non-employee directors and employees to purchase 542,631 shares of common stock. The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model with the weighted average assumptions in the table below:  

Unrecognized share-based compensation for employee and nonemployee options granted through September 30, 2017March 31, 2020 is approximately $4.7$3.0 million to be recognized over a remaining weighted average service period of 3.02.1 years.

Non-Employee DirectorShare-Based Compensation (RSUs)

During the nine months ended September 30, 2017, the Company granted to certain non-employee directors 97,996 restricted stock units, or RSUs. The fair value of each RSU is estimated on the closing market price on the grant date.  

The following summarizes the activity of non-vested RSUs:

Unrecognized share-based compensation for employee RSUs granted through September 30, 2017 is approximately $642,000 to be recognized over a remaining weighted average service period of 2.0 years.

Nonemployee Share-Based Compensation

ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any and all statements contained in this Annual Report that involve riskare not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future” and uncertainties.terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Quarterly Report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating to the development of our cell therapy systems and our clinical trials, (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our ability to raise additional capital, (iv) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the SEC and (vi) the assumptions underlying or relating to any statement described in points (i) – (iv) above. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and elsewhere in this Quarterly Report on Form 10-Q and those listed in our Annual Report on Form 10-K and elsewhere in this report. for the year ended December 31, 2019. Historical results are not necessarily indicative of future results.

Special Note Regarding Smaller Reporting Company Status

We are filing Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q as a “smaller reporting company” (as definedto conform these statements to actual results or to changes in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act) based on our public float (the aggregate market value of our common equity held by non-affiliates of the Company) as of the last business day of our second fiscal quarter of 2016. As a result of being a smaller reporting company, we are allowed and have elected to omit certain information, including tabular disclosure of contractual obligations, from this Management’s Discussion and Analysis of Financial Condition and Results of Operations; however, we have provided all information for the periods presented that we believe to be appropriate and necessary.expectations.

Overview

We are a clinical-stage regenerative medicine company developing novel therapeutics for cardiovascular and pulmonary diseases with large unmet medical needs. CardiAMP and CardiALLO cell therapies are the Company’s biotherapeutic product candidates in clinical development. 

Our lead therapeutic candidate is the CardiAMP Cell Therapy System, or CardiAMPcell therapy platform provides an autologous bone marrow derived cell therapy (using a patient’s own cells) for the treatment of heart failure. We initiated our U.S. Food and Drug Administration, or FDA, accepted Phase III pivotal trial for CardiAMP in ischemic systolictwo clinical indications: heart failure in December 2016. The CardiAMP Heart Failure Trial isthat develops after a Phase III, multi-center, randomized, double-blinded, sham-controlled study of up to 260 patients at 40 centers nationwide, which includes a 10-patient roll-in cohort. The trial’s primary endpoint is an improvement in six minute walking distance at 12 months post-treatment. In addition, the primary endpoint analysis incorporates the impact of major adverse cardiac eventsheart attack (BCDA-01) and other clinically meaningful events.

In September 2017, the independent Data Safety Monitoring Board (DSMB) completed the pre-specified interim analysis of safety outcomes for the first 10 patients treated in the Phase 3 trial of its investigational CardiAMP cell therapy product. The DSMB indicated there were no significant safety concerns with the CardiAMP study results and recommended that the trial continue, as planned. Currently five world class centers are actively enrolling in the study.

We anticipate filing an investigational device exemption (IDE) supplement to add an interim efficacy readout in the fourth quarter of 2018 and expect top line data in the fourth quarter of 2019. If our trial is successful, we believe we will be the first company to reach the market with a cell-based therapy to treat heart failure. Additionally, the Company anticipates an FDA filing for a second CardiAMP indication in chronic myocardial ischemia (CMI) in 2017 instead(BCDA-02).  Our allogenic cell therapy, derived from donor cells and provided “off the shelf” is also being advanced for two indications, heart failure as CardiALLO cell therapy (BCDA-03) and for the pulmonary indication of in post myocardial infarction as previously disclosedacute respiratory distress that has developed from COVID-19 (BCDA-04).

Our second therapeutic candidate isThe Company's approved products include the CardiALLO Cell TherapyHelix™ transendocardial delivery system and its steerable guide and sheath catheter portfolio. BioCardia partners with other biotherapeutic companies to provide its Helix System or CardiALLO, which utilizes bone marrow derived mesenchymal cells from a donor to treat heart failure. We anticipate submitting an Investigational New Drug (IND) application for submission to the FDA for a Phase II trial for CardiALLO for the treatment of ischemic systolic heart failure in 2018. This IND is expected to have improved Chemistry Manufacturing Controls in the IND relative to our previous co-sponsored investigations utilizing culture expanded bone marrow derived mesenchymal stem cells.

We are committed to applying our expertise in the fields of autologous and allogeneic cell-based therapies to improve the lives of patients with cardiovascular conditions. As we engage in clinical trials of our therapeutic candidates, we have compensated and intend to compensate all parties performing the trials or studies (including all the parties identified in our Annual Report on Form 10-K) only on terms that are standard and customary in clinical study arrangements. support.

To date, we have devoted substantially all of our resources to research and development efforts relating to our therapeutic candidates and biotherapeutic delivery systems, including conducting clinical trials, developing manufacturing and sales capabilities, in-licensing related intellectual property, providing general and administrative support for these operations and protecting our intellectual property. We have also generated modest revenues from sales of our approved products. We have funded our operations primarily through the sales of equity and convertible debt securities, and certain government and private grants. All convertible debt securities were converted into shares of our Common Stock in connection with the Merger.

We have incurred net losses in each year since our inception. Our net losses were approximately $3.0$4.6 million and $3.3$3.7 million for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and approximately $8.8 million and $6.7 million for the nine months ended September 30, 2017 and 2016,2019, respectively. As of September 30, 2017,March 31, 2020, we had an accumulated deficit of approximately $69.0$105.7 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs, clinical trials, intellectual property matters, building our manufacturing and sales capabilities, and from general and administrative costs associated with our operations. As discussed in more detail under “Liquidity and Capital Resources”, there is substantial doubt about our ability to continue as a going concern within one year after the date this Quarterly Report on Form 10-Q is filed with the SEC, and we plan to raise additional capital, potentially including debt and equity arrangements, to finance our future operations. There can be no assurances as to the availability of capital or the terms on which capital will be available, if at all.

CardiAMP Cell Therapy

The CardiAMP Heart Failure Trial is a Phase III, multi-center, randomized, double-blinded, sham-controlled study of up to 260 patients at 40 centers nationwide, which includes a 10-patient roll-in cohort. The Phase III pivotal trial is designed to provide the primary support for the safety and efficacy of the CardiAMP Cell Therapy System for this indication (BCDA-01).

The ongoing CardiAMP Heart Failure trial is active at 25 clinical sites and 74 patients have been enrolled to date. The independent Data Safety Monitoring Board (DSMB) completed a prespecified data review in March 2020, which included the safety follow-up results available for these patients. From this review, the DSMB indicated there were no safety concerns with the study results and recommended that the trial continue as planned.

We anticipate another prespecified DSMB interim readout from the trial in the fourth quarter of 2020 on all patients enrolled at that time point, which will include a futility analysis on the 60 patients that will have reached one-year follow-up.  This fourth quarter of 2020 event is anticipated to be the first randomized data set including the primary efficacy endpoint reviewed by the DSMB. 

We are currently assessing the impact of COVID-19 on the enrollment in the CardiAMP Heart Failure Trial. Our clinical centers have advised us that they will not be performing elective procedures until restrictions on elective procedures are lifted.  Many centers are also delaying patient follow-up visits during this period out of concern for patient exposure to COVID-19.  In alignment with recent FDA guidance on clinical trials, “FDA Guidance on Conduct of Clinical Trials of Medical Products during COVID-19 Pandemic Guidance for Industry, Investigators, and Institutional Review Boards”, we are taking steps to address unavoidable protocol deviations due to COVID-19 illness and/or COVID-19 control measures. The Company has already had exchanges with the FDA modifying the protocol to require documentation for patients whose follow-up visits may be outside the time window specified in the protocol due to patient protective measures. Clinical sites remain engaged, and although there are no patients actively being treated or returning for follow-up during the current “shelter in place” period, most clinical research teams at the twenty five sites are advancing paperwork and chart review through electronic records to further advance the trial.

The FDA has approved a second IDE for the randomized controlled pivotal trial of the CardiAMP Cell Therapy System in patients with refractory chronic myocardial ischemia (BCDA-02) for up to 343 patients at up to 40 clinical sites in the United States. This therapeutic approach uses many of the same novel aspects as the CardiAMP Heart Failure Trial and is expected to leverage our experience and investment in the heart failure trial. We anticipate that many of the investigators and sites will be the same for both the heart failure and chronic myocardial ischemia indications. We are actively working to activate first clinical sites for this study.

The Department of Health & Human Services Centers for Medicare & Medicaid Services, or CMS, has designated that both the CardiAMP Heart Failure Trial and the CardiAMP Chronic Myocardial Ischemia Trial qualify for Medicare national coverage. Covered costs include patient screening, the CardiAMP Cell Therapy System and procedure, and clinical follow-up at one and two years after the procedure.  Private insurance plans covering 50 million insured Americans follow this CMS reimbursement policy and are similarly anticipated to cover these costs.  This coverage significantly reduces our cost of conducting these pivotal trials.  

ALLOGENIC Cell Therapy for Cardiac and Pulmonary Disease

Our second therapeutic platform is our investigational culture expanded bone marrow derived allogenic or “off the shelf” mesenchymal cell therapy being advanced for cardiac and pulmonary disease. These are the Company’s Neurokinin 1 Receptor Positive Mesenchymal Stem Cells (NK1R+ MSC).

We are actively working to secure FDA acceptance of an Investigational New Drug (“IND”) application for a Phase I/II trial for CardiALLO Cell Therapy System for the treatment of ischemic systolic heart failure (BCDA-03). To date we have completed manufacturing validation runs of these cells at BioCardia to support future clinical studies as well as preclinical animal data and have received written input from the FDA on the protocol design and the chemistry manufacturing and controls. Our goal is to receive FDA acceptance of the IND in the second quarter of 2020.

The Company also intends to submit an IND for the use of its ALLO delivered via intravenous (IV) infusion for Acute Respiratory Distress Syndrome (ARDS) caused by COVID-19. Based on preliminary clinical reports on COVID-19, respiratory failure complicated by ARDs is the leading cause of death for COVID-19 patients. ARDS is a type of respiratory failure characterized by rapid onset of widespread inflammation in the lungs.

Helix™ Biotherapeutic Delivery System

We believe our Helix Biotherapeutic Delivery System or “Helix” is the leading percutaneous catheter delivery system for cardiovascular regenerative medicine. It enables investigational studies of local delivery of cell and gene-based therapies, including CardiAMP and CardiALLO cell therapies to treat cardiovascular indications. Helix is in use or has potential to be used to treat many cardiac diseases including heart failure with reduced ejection fraction, heart failure with preserved ejection fraction, obstructive hypertrophic cardiomyopathy, myocardial infarction, chronic myocardial ischemia, and cardiac conduction disorders. The Helix’s small hollow, distal helical needle is advanced, similar to an angioplasty catheter, and is passed over the aortic arch and across the aortic valve through our Morph guide catheter or “Morph”. The Helix is then advanced from within the Morph, and its helical needle is rotated into the heart tissue to provide active fixation during therapeutic delivery, similar to the active fixation electrodes used in cardiac pacing. This fixation to the beating heart wall provides for stability and control during the delivery procedure. It uses simplified fluoroscopic imaging, crosses the aortic arch and valve over a guide wire, and provides the operator with three degrees of freedom to maximize operator control. The Helix is approved in Europe with CE Mark and is under investigational use in the United States and is being used in pre-clinical and clinical investigations of cell, gene, and protein therapies.  

Morph Deflectable Guide and Sheaths Product

Our Morph catheter is designed to enable physicians to navigate through tortuous anatomy, customize the shape of the catheter to the patient’s anatomy and their clinical needs during the procedure, and to have stellar back up support once positioned. Morph catheters enable all Helix procedures and have been commercially available to treat more than ten thousand patients. A number of Morph guides and sheaths are approved for commercial sale in the United States, including the AVANCE™ steerable introducer which received FDA clearance in May 2019 and was first used commercially in September 2019 and the Morph DNA guide, which received clearance in January 2020. Certain Morph catheter systems are approved in Europe with CE Mark.

Financial Overview

Revenue

We currently have a portfolio of enabling and delivery products, from which we have generated modest revenue. Net product revenues include commercial sales of our Morph vascular access system in the US and EU and collaboration agreement revenues include revenue from partnering agreements with corporate and academic institutions. Under these partnering agreements, we provide our Helix biotherapeutic delivery system and customer training and support for use in preclinical and clinical studies.

Cost of Goods Sold

Cost of goods sold includes the costs of raw materials and components, manufacturing personnel and facility costs and other indirect and overhead costs associated with manufacturing our commercial enabling and delivery products.products, which generate net product revenue.

Research and Development Expenses

Our research and development expenses consist primarily of:

We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress toof completion of specific tasks using information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and the services are performed.received.

We plan to increase our research and development expenses for the foreseeable future as we continue to developthe pivotal CardiAMP and subject to the availability of additional funding, furtherHeart Failure Trial, advance the development of CardiALLOpivotal CardiAMP Chronic Myocardial Ischemia Trial, further develop our autologous and any other therapeutic candidates for additional indications.allogenic cell therapy candidates. We typically use our employee and infrastructure resources across multiple research and development programs, and accordingly, we have not historically allocated resources specifically to our individual programs.

The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our therapeutic candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our therapeutic candidates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration, sales, corporate development and administrative support functions, including share-based compensation expenses and benefits. Other significant selling, general and administrative expenses include sales commissions, rent, accounting and legal services, obtaining and maintaining patents, the cost of consultants, occupancy costs, insurance premiums and information systems costs.

We expect that our selling, general and administrative expenses will increase as we advance our Phase III pivotal heart failure trial for CardiAMP, and subject to the availability of additional funding, conduct our Phase II trial for CardiALLO and prepare for commercialization. We believe that these increases will likely include increased costs for director and officer liability insurance, costs related to the hiring of additional personnel to support product commercialization efforts and operations and increased fees for outside consultants, attorneys and accountants. We also expect to incur increased costs to comply with corporate governance, internal controls, investor relations and disclosures, and similar requirements applicable to public companies.

Other Income (Expense)

Other income and expense consistsconsist primarily of interest income we earn on our cash,, cash equivalents and investments, and interest charges we incurred in periods during 2019 when we have convertible debt outstanding, and changes in the fair value of our warrant and convertible shareholder note derivative liabilities in periods when we have warrants orhad convertible debt outstanding. Subsequent to the Merger, we have no interest charges related to the convertible debt and changes in the fair value of our warrant and convertible shareholder note derivative liabilities as such instruments were converted, cancelled or exchanged as part of the Merger. We expect our interest income to increase following the completion of the Merger as we invest our cash on hand pending its use in our operations.

Critical Accounting Policies and Estimates

Our management’smanagement’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.States. The preparation of our financial statements requires us 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 our financial statements, as well as the reported expenses during the periods presented.liabilities. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on other factorsvarious judgements that we believe 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 apparentclear from other sources. Actual results may differ from these estimates under different assumptions or conditions. 

Other than below, there were no material changes inWe define our critical accounting policies as those that require us to make subjective estimates orand judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. Our critical accounting policies are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”Item 2 in our 2016 Annual Report on Form 10-K duringfor the nine monthsyear ended September 30, 2017.

Share-Based Compensation 

We measure and recognize share-based compensation expense for equity awards to employees, directors and consultants based on fair value at the grant date. We use the Black-Scholes-Merton option-pricing model, or BSM, to calculate the fair value of stock options. Restricted stock units (RSUs) are measured based on the fair market values of the underlying stock on the dates of grant. Share-based compensation expense recognized in the statements of operations is based on awards at the time of grant, and is reduced for actual forfeitures at the time that the forfeitures occur. Compensation cost for employee share-based awards will be recognized over the vesting period of the applicable award on a straight-line basis. 

For options granted to nonemployees, we revalue the unearned portion of the share-based compensation and the resulting change in fair value is recognized in the statements of operations over the period the related services are rendered.

The BSM option-pricing model requires the input of subjective assumptions, including the risk-free interest rate, the expected volatility in the value of our Common Stock, and the expected term of the option. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our share-based compensation expense could be materially different in the future. 

December 31, 2019, filed April 9, 2020.

Results of Operations

Comparison of Three Months Ended September 30, 2017March 31, 2020 and 20162019

The following table summarizes our results of operations for the three months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):

Revenue.    Revenue increased by approximately $13,000decreased to $38,000 in the three months ended September 30, 2017first quarter of 2020 as compared to $216,000 in the three months ended September 30, 2016, primarilyfirst quarter of 2019, due to higher collaboration revenues partially offset byreduced volumes of commercial catheter sales as a reduction in Morph sales.part of the planned transition to the new AVANCE™ product family coupled with lower revenue generating partnering activities during the quarter.  We expect current sales volumescollaboration agreement revenue to remain relatively stable, withincrease modestly lower netin 2020, depending on the timing and progress of existing collaborative programs of our partners and the initiation of new partnering relationships anticipated later in the year. Net product revenue is expected to be limited in 2020 and will be subject to customer demand, production resource availability for 2017 relativethe new product family, the timing of FDA clearance for market release of different models and sizes and the resumption of medical procedures by our health care provider customers that have been adversely impacted by the response to 2016.the COVID-19 pandemic.

Cost of Goods Sold.    Cost of goods sold decreased by approximately $49,000$102,000 in the three months ended September 30, 2017first quarter of 2020 as compared to the three months ended September 30, 2016,first quarter of 2019, due primarily due to $57,000 charged to cost of goods sold for inventory write-downs and reservesthe decrease in the three months ended September 30, 2016 coupled with lower revenues in the three months ended September 30, 2017.net product sales volumes. We expect cost of goods sold for 2017 to be relatively consistent with 2016.limited in 2020 depending on the timing and demand for the new product family introductions.

Research and Development Expenses.   Research and development expenses increased by approximately $1,016,000 in$620,000 during the three months ended September 30, 2017first quarter of 2020 as compared to the three months ended September 30, 2016,first quarter of 2019, primarily due to expenses incurred in the planning, preparation and inceptionexecution of the pivotal CardiAMP Phase III pivotal heart failure trial.Heart Failure Trial, development of the CardiALLO Cell Therapy System and our other therapeutic programs, including fees paid to consultants, contract research organizations, additional personnel costs and increased stock compensation expense including the January 29, 2020 option repricing. We expect research and development expenses to increase modestly year over year in 2020 as we continue to enroll and treat patients in the trial and incur additional development expenses related to CardiALLO therapeutic program. 

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased by approximately $403,000 in the three months ended September 30, 2017 compared to the three months ended September 30, 2016, primarily due to additional costs for the organizational structure needed to supportadvance the CardiAMP Phase III pivotal trialHeart Failure Trial and operations as a public company. These expenses include additional salary expenses, stock compensationwe further develop the BioCardia autologous and legal, accounting, tax and other corporate expenses. We expect selling, general and administrative expenses for the remaining quarter of 2017 to increase moderately from the three months ended September 30, 2017 as we continue to build the supporting staff and infrastructure to support the CardiAMP Phase III pivotal trial and public company operations.  

Interest Income.   Interest income for the three months ended September 30, 2017 consisted primarily of interest income earned on cash equivalents and short-term investments.

Interest Expense.   Interest expense for the three months ended September 30, 2016 consisted primarily of interest expense related to convertible notes which are no longer outstanding.

Other Income (Expense). Other income (expense) for the three months ended September 30, 2016 consisted primarily of the changes in value of the convertible preferred stock warrant liabilities and the change in value of the convertible shareholder note derivative liability.

Comparison of Nine Months Ended September 30, 2017 and 2016

The following table summarizes our results of operations for the nine months ended September 30, 2017 and 2016 (in thousands):

Revenue.     Revenue decreased by approximately $60,000 in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to a reduction in Morph sales volumes. We expect current sales volumes to remain relatively stable, with modestly lower net product revenue for 2017 relative to 2016.

Cost of Goods Sold.    Cost of goods sold decreased by approximately $53,000 in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to the decrease in revenues, partially offset by increased stock compensation cost for manufacturing personnel. We expect cost of goods sold for 2017 to be relatively consistent with 2016.

Research and Development Expenses.    Research and development expenses increased by approximately $2.4 million in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to expenses incurred in the planning, preparation and inception of the CardiAMP Phase III pivotal heart failure trial, including fees paid to consultants and contract research organization (CRO), higher personnel costs and increased stock compensation expense. We expect research and development expenses to increase as we continue to enroll and treat patients in the trial and incur additional development expenses related to CardiALLO therapeutic program. allogenic cell therapies.

Selling, General and Administrative Expenses.   Selling, general and administrative expenses for the first quarter of 2020 increased by approximately $2.3 million in the nine months ended September 30, 2017$226,000 compared to the nine months ended September 30, 2016,first quarter of 2019, primarily due to additional costs for the organizational structure needed to support the CardiAMP Phase III pivotal trial and operations as a public company. These costs include additional salary expenses,increased stock compensation, including the January 29, 2020 repricing, coupled with increased insurance premiums and legal, accounting, tax, and other corporate expenses.professional service fees. We expect selling, general and administrative expenses to decrease modestly year over year for the final quarterremainder of 2017 to increase moderately from the three months ended September 30, 2017, as we continue to build the supporting staff and infrastructure to support the CardiAMP Phase III pivotal trial and public company operations.  2020.

Interest Income.   Interest income for the nine months ended September 30, 2017 consisted primarily of interest income earned on cash equivalents and short-term investments.

Interest Expense.   Interest expense for the nine months ended September 30, 2016 consisted primarily of interest expense related to convertible notes which are no longer outstanding.

Other Income (Expense).  Other income (expense) for the nine months ended September 30, 2016 consisted primarily of the changes in value of the convertible preferred stock warrant liabilities and the change in value of the convertible shareholder note derivative liability.

Liquidity and Capital Resources

We have incurred net losses each year since our inception and as of September 30, 2017,March 31, 2020, we had an accumulated deficit of approximately $69.0$105.7 million. We anticipate that we will continue to incur net losses for at least the next several years.

We have funded our operations principally through the sales of equity and convertible debt and equity securities as well as the cash acquired through our reverse merger transaction that was completed on October 24, 2016, $3.8 million raised from the Merger.sale of unregistered securities on December 24, 2018, the $625,000 raised from convertible notes that converted in July 2019 and the $9.27 million in net proceeds raised from the sale of common stock and warrants in August and September 2019. As of September 30, 2017,March 31, 2020, we had cash and cash equivalents of approximately $13.3$2.6 million.

The following table shows a summary of our cash flows for the periods indicated (in thousands):

Cash Flows from Operating Activities. The increase in overall spending for operating activities of approximately $3.1$0.5 million in the nine months ended September 30, 2017first quarter of 2020 compared to the nine months ended September 30, 2016 relatesfirst quarter of 2019 related primarily to increases in payments to third parties involved in clinical trial treatments and increased cash outflowsprofessional fees and insurance premiums. We expect spending to conductincrease modestly as we advance the CardiAMP Phase III pivotal trial,Heart Failure Trial, further develop the CardiAMPour cell therapy systems and CardiALLO programscontinue to strengthen and to buildenhance the supporting infrastructure to sustain these efforts and support operations as a public company.   organization.

Cash Flows from Investing Activities. Net cash used in investing activities of $1.9 million$5,000 during the nine months ended September 30, 2017 consistsfirst quarter of the2020 consisted primarily of purchases of property and equipment and short-term investments.

office equipment. Net cash used in investing activities of $55,000 during the first quarter of 2019 consisted primarily of purchases of lab equipment.

Cash Flows from Financing Activities. NetThere was no net cash provided by financing activities of $26,000 during the nine months ended September 30, 2017 consistsfirst quarter of either 2020 or 2019.

PPP Loan

 On May 1, 2020, BioCardia Lifesciences, Inc., our wholly owned subsidiary, entered into a promissory note (the “Note”) with Silicon Valley Bank (the “Lender”) evidencing an unsecured loan in the aggregate principal amount of $506,413 pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration. All the funds under the Note were disbursed to us on May 1, 2020.

In accordance with the requirements of the CARES Act, we intend to use the proceeds from the exerciseNote in accordance with the requirements of stock options.the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. Interest accrues on the Note at the rate of 1.00% per annum. We may apply for forgiveness of amount due under the Note, in an amount equal to the sum of qualified expenses under the PPP, which include payroll costs, rent obligations, and covered utility payments incurred during the eight weeks following disbursement under the Note. We intend to use the entire proceeds under the Note for such qualifying expenses.

Subject to any forgiveness under the PPP, the Note mature two years following the date of issuance of the Note and includes a period for the first six months during which time required payments of interest and principal are deferred. Beginning on the seventh month following the date of the Note, the Borrower is required to make 18 monthly payments of principal and interest. The Note may be prepaid at any time prior to maturity with no prepayment penalties.

Future Funding Requirements

To date, we have generated modest revenue from sales of our approved products. We do not know when, or if, we will generate any revenue from our development stage biotherapeutic programs. We do not expect to generate any revenue from sales of our CardiAMP or CardiALLO therapeuticcell therapy candidates unless and until we obtain regulatory approval. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our therapeutic candidates. In addition, subject to obtaining regulatory approval for any of our therapeutic candidates and companion diagnostic, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need additional funding in connection with our continuing operations.  

Based upon our current operating plan, we believe that the cash and cash equivalents of $13.3$2.6 million coupled with $1.8 million in short-term investments as of September 30, 2017 areMarch 31, 2020 is not sufficient to fund our operations intobeyond the thirdsecond quarter of 2018.2020. In order to continue to further the development of our lead therapeutic candidate, the CardiAMP cell therapy system, and our second therapeutic candidate, the CardiALLO cell therapy system, through andcandidates beyond the thirdsecond quarter of 2018,2020, we will be requiredneed to raise additional capital. We plan to raise additional capital, potentially including debt and equity arrangements, to finance our future operations. If adequate funds are not available, we may be required to reduce operating expenses, delay or reduce the scope of our product development programs, obtain funds through arrangements with others that may require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves, or cease operations. While we believe in the viability of our strategy to raise additional funds, there can be no assurances that we will be able to obtain additional capital on acceptable terms and in the amounts necessary to fully fund our operating needs. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our therapeutic candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our therapeutic candidates.

Our future capital requirements will depend on many factors, including: