UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM
10-Q
(Mark one)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended June 30, 2020March 31, 2023
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period fromto
Commission File
Number 001-39430
ACUTUS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware | 45-1306615 | |||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||
2210 Faraday Ave., Suite 100, Carlsbad, CA | 92008 | |||||
| (Address of principal executive offices) | (Zip Code) | |||||
(Registrant’s telephone number, including area code) (442) 232-6080
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Common Stock, par value | AFIB | The Nasdaq Stock Market LLC | ||||||||||||
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 ☒
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation(§ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YESYes ☒ NONo ☐
S-T
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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-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 registrant is a shell company (as defined in RuleYESYes ☐ NONo ☒
12b-2
of the Exchange Act). Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| Class of Common Stock | Outstanding Shares as of May 8, 2023 | |||||||||||
| 28,975,677 | ||||||||||||
Acutus Medical, Inc.
Form 10-Q
For the Quarter Ended March 31, 2023
Table of Contents
| Page | ||||||||||||
Item 1. Financial Statements.
Acutus Medical, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| March 31, 2023 | December 31, 2022 | ||||||||||
| (in thousands, except share and per share amounts) | (unaudited) | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 22,738 | $ | 25,584 | |||||||
| Marketable securities, short-term | 46,839 | 44,863 | |||||||||
| Restricted cash, short-term | 7,139 | 5,764 | |||||||||
| Accounts receivable | 5,340 | 21,085 | |||||||||
| Inventory | 14,938 | 13,327 | |||||||||
| Employer retention credit receivable | 2,562 | 4,703 | |||||||||
| Prepaid expenses and other current assets | 2,232 | 2,541 | |||||||||
| Total current assets | 101,788 | 117,867 | |||||||||
| Property and equipment, net | 8,145 | 9,221 | |||||||||
| Right-of-use assets, net | 3,708 | 3,872 | |||||||||
| Intangible assets, net | 1,533 | 1,583 | |||||||||
| Other assets | 822 | 897 | |||||||||
| Total assets | $ | 115,996 | $ | 133,440 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 5,569 | $ | 4,721 | |||||||
| Accrued liabilities | 7,302 | 9,686 | |||||||||
| Contingent consideration, short-term | 2,000 | 1,800 | |||||||||
| Operating lease liabilities, short-term | 339 | 319 | |||||||||
| Warrant liability | 1,900 | 3,346 | |||||||||
| Total current liabilities | 17,110 | 19,872 | |||||||||
| Operating lease liabilities, long-term | 3,883 | 4,103 | |||||||||
| Long-term debt | 34,526 | 34,434 | |||||||||
| Other long-term liabilities | 11 | 12 | |||||||||
| Total liabilities | 55,530 | 58,421 | |||||||||
| Commitments and contingencies (Note 12) | |||||||||||
| Stockholders' equity | |||||||||||
| Preferred stock, $0.001 par value; 5,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 6,666 shares of the preferred stock, designated as Series A Common Equivalent Preferred Stock, are issued and outstanding as of March 31, 2023 and December 31, 2022 | — | — | |||||||||
| Common stock, $0.001 par value; 260,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 28,894,080 and 28,554,656 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | 29 | 29 | |||||||||
| Additional paid-in capital | 595,864 | 594,173 | |||||||||
| Accumulated deficit | (534,629) | (518,314) | |||||||||
| Accumulated other comprehensive loss | (798) | (869) | |||||||||
| Total stockholders' equity | 60,466 | 75,019 | |||||||||
| Total liabilities and stockholders' equity | $ | 115,996 | $ | 133,440 | |||||||
June 30, 2020 | December 31, 2019 | |||||||
(unaudited) | ||||||||
ASSETS: | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 24,295 | $ | 9,452 | ||||
Marketable securities | 5,037 | 62,351 | ||||||
Restricted cash | 150 | 150 | ||||||
Accounts receivable | 860 | 263 | ||||||
Inventory | 12,266 | 8,424 | ||||||
Deferred offering costs | 2,506 | — | ||||||
Prepaid expenses and other current assets | 1,323 | 1,816 | ||||||
Total current assets | 46,437 | 82,456 | ||||||
Property and equipment, net | 7,584 | 4,427 | ||||||
Right-of-use asset, net | 2,005 | 2,341 | ||||||
Intangible assets, net | 3,890 | 4,110 | ||||||
Goodwill | 12,026 | 12,026 | ||||||
Other assets | 87 | 95 | ||||||
Total assets | $ | 72,029 | $ | 105,455 | ||||
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 9,084 | $ | 3,882 | ||||
Accrued liabilities | 7,036 | 10,076 | ||||||
Contingent consideration, short-term | 3,500 | 8,200 | ||||||
Operating lease liabilities, short-term | 882 | 833 | ||||||
Common and preferred stock warrant liability | 10,791 | 8,919 | ||||||
Total current liabilities | 31,293 | 31,910 | ||||||
Operating lease liabilities, long-term | 1,594 | 2,054 | ||||||
Long-term debt | 38,558 | 38,244 | ||||||
Contingent consideration, long-term | 4,000 | 5,700 | ||||||
Total liabilities | 75,445 | 77,908 | ||||||
Commitments and contingencies (Note 11) | ||||||||
C onvertible preferred stock | ||||||||
Series A convertible preferred stock, $0.001 par value; 3,848,696 shares authorized as of each of June 30, 2020 and December 31, 2019; 391,210 shares issued and outstanding as of each of June 30, 2020 and December 31, 2019; liquidation preference of $3,245 as of each of June 30, 2020 and December 31, 2019 | 3,059 | 3,059 | ||||||
Series B convertible preferred stock, $0.001 par value; 30,032,100 shares authorized as of each of June 30, 2020 December 31, 2019; 3,088,444 shares issued and outstanding as of each of June 30, 2020 and December 31, 2019; liquidation preference of $41,294 as of each of June 30, 2020 and December 31, 2019 | 40,685 | 40,685 | ||||||
Series C convertible preferred stock, $0.001 par value; 48,184,000 shares authorized as of each of June 30, 2020 and December 31, 2019; 4,499,921 shares issued and outstanding as of each of June 30, 2020 and December 31, 2019; liquidation preference of $75,000 as of each of June 30, 2020 and December 31, 2019 | 74,575 | 74,575 | ||||||
Series D convertible preferred stock, $0.001 par value; 90,000,000 shares authorized as of each of June 30, 2020 and December 31, 2019; 8,593,360 and 8,200,297 issued and outstanding as of June 30, 2020 and December 31, 2019, respectively; liquidation preference of $157,348 and $136,675 as of June 30, 2020 and December 31, 2019, respectively | 142,236 | 135,039 | ||||||
Stockholders’ deficit | ||||||||
Common stock, $0.001 par value; 260,000,000 shares authorized as of each of June 30, 2020 and December 31, 2019; 775,403 and 695,902 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively | 1 | 1 | ||||||
Additional paid-in capital | 36,355 | 33,252 | ||||||
Accumulated deficit | (300,325 | ) | (259,034 | ) | ||||
Accumulated other comprehensive loss | (2 | ) | (30 | ) | ||||
Total stockholders’ deficit | (263,971 | ) | (225,811 | ) | ||||
Total liabilities, convertible preferred stock and stockholders’ deficit | $ | 72,029 | $ | 105,455 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Acutus Medical, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| (in thousands, except share and per share amounts) | (unaudited) | |||||||||||||||||||||||||
| Revenue | $ | 4,170 | $ | 3,681 | ||||||||||||||||||||||
| Cost of products sold | 6,790 | 6,941 | ||||||||||||||||||||||||
| Gross profit | (2,620) | (3,260) | ||||||||||||||||||||||||
| Operating (income) expenses: | ||||||||||||||||||||||||||
| Research and development | 6,117 | 8,003 | ||||||||||||||||||||||||
| Selling, general and administrative | 9,565 | 14,385 | ||||||||||||||||||||||||
| Goodwill impairment | — | 12,026 | ||||||||||||||||||||||||
| Restructuring | 12 | 949 | ||||||||||||||||||||||||
| Change in fair value of contingent consideration | 200 | 7 | ||||||||||||||||||||||||
| Gain on sale of business | (1,207) | — | ||||||||||||||||||||||||
| Total operating (income) expenses | 14,687 | 35,370 | ||||||||||||||||||||||||
| Loss from operations | (17,307) | (38,630) | ||||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||
| Change in fair value of warrant liability | 1,446 | — | ||||||||||||||||||||||||
| Interest income | 853 | 24 | ||||||||||||||||||||||||
| Interest expense | (1,307) | (1,411) | ||||||||||||||||||||||||
| Total other income (expense), net | 992 | (1,387) | ||||||||||||||||||||||||
| Loss before income taxes | (16,315) | (40,017) | ||||||||||||||||||||||||
| Income tax benefit | — | — | ||||||||||||||||||||||||
| Net loss | $ | (16,315) | $ | (40,017) | ||||||||||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||||||||
| Unrealized gain (loss) on marketable securities | 12 | (57) | ||||||||||||||||||||||||
| Foreign currency translation adjustment | 59 | (166) | ||||||||||||||||||||||||
| Comprehensive loss | $ | (16,244) | $ | (40,240) | ||||||||||||||||||||||
| Net loss per common share, basic and diluted | $ | (0.57) | $ | (1.42) | ||||||||||||||||||||||
| Weighted average shares outstanding, basic and diluted | 28,764,444 | 28,118,090 | ||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue | $ | 1,134 | $ | 734 | $ | 2,717 | $ | 1,521 | ||||||||
Costs and operating expenses: | ||||||||||||||||
Cost of products sold | 2,663 | 2,435 | 5,857 | 4,611 | ||||||||||||
Research and development | 8,176 | 5,247 | 16,149 | 9,624 | ||||||||||||
Selling, general and administrative | 9,125 | 6,927 | 19,360 | 11,020 | ||||||||||||
Change in fair value of contingent consideration | 635 | — | (1,584 | ) | — | |||||||||||
Total costs and operating expenses | 20,599 | 14,609 | 39,782 | 25,255 | ||||||||||||
Loss from operations | (19,465 | ) | (13,875 | ) | (37,065 | ) | (23,734 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Change in fair value of warrant liability and embedded derivative | (2,453 | ) | (1,446 | ) | (1,872 | ) | (605 | ) | ||||||||
Loss on debt extinguishment | — | (1,398 | ) | — | (1,398 | ) | ||||||||||
Interest income | 95 | 143 | 370 | 208 | ||||||||||||
Interest expense | (1,370 | ) | (13,769 | ) | (2,724 | ) | (19,511 | ) | ||||||||
Total other expense, net | (3,728 | ) | (16,470 | ) | (4,226 | ) | (21,306 | ) | ||||||||
Net loss | $ | (23,193 | ) | $ | (30,345 | ) | $ | (41,291 | ) | $ | (45,040 | ) | ||||
Other comprehensive income (loss) | ||||||||||||||||
Unrealized (loss) gain on marketable securities | (14 | ) | 6 | (41 | ) | 7 | ||||||||||
Foreign currency translation adjustment | 96 | 2 | 69 | (12 | ) | |||||||||||
Comprehensive loss | $ | (23,111 | ) | $ | (30,337 | ) | $ | (41,263 | ) | $ | (45,045 | ) | ||||
Net loss per common share, basic and diluted | $ | (32.24 | ) | $ | (45.70 | ) | $ | (58.16 | ) | $ | (68.21 | ) | ||||
Weighted-average shares outstanding, basic and diluted | 719,421 | 663,972 | 709,961 | 660,333 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Acutus Medical, Inc. and Subsidiaries
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ DeficitEquity
For the Three Months Ended June 30, 2020
| (in thousands, except share amounts) | Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 6,666 | $ | — | 28,554,656 | $ | 29 | $ | 594,173 | $ | (518,314) | $ | (869) | $ | 75,019 | |||||||||||||||||||||||||||||||||
| Unrealized gain on marketable securities | — | — | — | — | — | — | 12 | 12 | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | 59 | 59 | |||||||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | 3,218 | — | 4 | — | — | 4 | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 336,206 | — | 1,687 | — | — | 1,687 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (16,315) | — | (16,315) | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 (unaudited) | 6,666 | $ | — | 28,894,080 | $ | 29 | $ | 595,864 | $ | (534,629) | $ | (798) | $ | 60,466 | |||||||||||||||||||||||||||||||||
Series A Convertible Preferred Stock | Series B Convertible Preferred Stock | Series C Convertible Preferred Stock | Series D Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2020 (unaudited) | 391,210 | $ | 3,059 | 3,088,444 | $ | 40,685 | 4,499,921 | $ | 74,575 | 8,593,360 | $ | 142,236 | 710,841 | $ | 1 | $ | 34,993 | $ | (277,132 | ) | $ | (84 | ) | $ | (242,222 | ) | ||||||||||||||||||||||||||||||
Unrealized loss on marketable securities | — | — | — | — | — | — | — | — | — | — | — | — | (14 | ) | (14 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | — | 96 | 96 | ||||||||||||||||||||||||||||||||||||||||||
Stock option exercises | — | — | — | — | — | — | — | — | 64,562 | — | 205 | — | — | 205 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | — | 1,157 | — | — | 1,157 | ||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | — | (23,193 | ) | — | (23,193 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2020 (unaudited) | 391,210 | $ | 3,059 | 3,088,444 | $ | 40,685 | 4,499,921 | $ | 74,575 | 8,593,360 | $ | 142,236 | 775,403 | $ | 1 | $ | 36,355 | $ | (300,325 | ) | $ | (2) | $ | (263,971 | ) | |||||||||||||||||||||||||||||||
For the Three Months Ended June 30, 2019
| (in thousands, except share amounts) | Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | 6,666 | $ | — | 27,957,223 | $ | 28 | $ | 584,613 | $ | (478,698) | $ | (217) | $ | 105,726 | |||||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities | — | — | — | — | — | — | (57) | (57) | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | (166) | (166) | |||||||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | 35,478 | — | 66 | — | — | 66 | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 192,138 | — | 3,028 | — | — | 3,028 | |||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan shares issued | — | — | 94,226 | — | 182 | — | — | 182 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (40,017) | — | (40,017) | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 (unaudited) | 6,666 | $ | — | 28,279,065 | $ | 28 | $ | 587,889 | $ | (518,715) | $ | (440) | $ | 68,762 | |||||||||||||||||||||||||||||||||
Series A Convertible Preferred Stock | Series B Convertible Preferred Stock | Series C Convertible Preferred Stock | Series D Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2019 (unaudited) | 391,210 | $ | 3,059 | 3,088,444 | $ | 40,685 | 4,499,921 | $ | 74,575 | — | $ | — | 656,654 | $ | 1 | $ | 30,709 | $ | (176,690 | ) | $ | 7 | $ | (145,973 | ) | |||||||||||||||||||||||||||||||
Unrealized gain on marketable securities | — | — | — | — | — | — | — | — | — | — | — | — | 6 | 6 | ||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | — | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Series D convertible preferred stock for cash, net of issuance costs of $274 | — | — | — | — | — | — | 2,309,959 | 38,226 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Series D convertible preferred stock for 2018 Convertible Notes and 2019 Convertible Notes | — | — | — | — | — | — | 4,108,478 | 68,476 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | 6,837 | — | 803 | — | — | 803 | ||||||||||||||||||||||||||||||||||||||||||
Stock option exercises | — | — | — | — | — | — | — | — | 8,469 | — | 57 | — | — | 57 | ||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | — | (30,345 | ) | — | (30,345 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2019 (unaudited) | 391,210 | $ | 3,059 | 3,088,444 | $ | 40,685 | 4,499,921 | $ | 74,575 | 6,418,437 | $ | 106,702 | 671,960 | $ | 1 | $ | 31,569 | $ | (207,035 | ) | $ | 15 | $ | (175,450 | ) | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Acutus Medical, Inc. and Subsidiaries
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ DeficitCash Flows
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | (unaudited) | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net loss | $ | (16,315) | $ | (40,017) | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation expense | 1,297 | 1,567 | |||||||||
| Amortization of intangible assets | 50 | 160 | |||||||||
| Non-cash stock-based compensation expense | 1,904 | 3,032 | |||||||||
| (Accretion of discounts) amortization of premiums on marketable securities, net | (527) | 173 | |||||||||
| Amortization of debt issuance costs | 104 | 378 | |||||||||
| Amortization of operating lease right-of-use assets | 164 | 160 | |||||||||
| Goodwill impairment | — | 12,026 | |||||||||
| Gain on sale of business, net | (1,207) | — | |||||||||
| Change in fair value of warrant liability | (1,446) | — | |||||||||
| Loss on disposal of property and equipment | 38 | — | |||||||||
| Change in fair value of contingent consideration | 200 | 7 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (11) | 655 | |||||||||
| Inventory | (1,611) | (1,212) | |||||||||
| Employer retention credit receivable | 2,141 | — | |||||||||
| Prepaid expenses and other current assets | 391 | (3,487) | |||||||||
| Other assets | 75 | 120 | |||||||||
| Accounts payable | 873 | (2,641) | |||||||||
| Accrued liabilities | (2,433) | 1,532 | |||||||||
| Operating lease liabilities | (201) | (14) | |||||||||
| Other long-term liabilities | (1) | (48) | |||||||||
| Net cash used in operating activities | (16,515) | (27,609) | |||||||||
| Cash flows from investing activities | |||||||||||
| Proceeds from sale of business | 17,000 | — | |||||||||
| Purchases of available-for-sale marketable securities | (28,019) | — | |||||||||
| Sales of available-for-sale marketable securities | — | 2,500 | |||||||||
| Maturities of available-for-sale marketable securities | 26,500 | 14,587 | |||||||||
| Purchases of property and equipment | (232) | (1,088) | |||||||||
| Net cash provided by investing activities | 15,249 | 15,999 | |||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from the exercise of stock options | 4 | 66 | |||||||||
| Repurchase of common shares to pay employee withholding taxes | (217) | — | |||||||||
| Proceeds from employee stock purchase plan | — | 182 | |||||||||
| Payment of contingent consideration | — | (290) | |||||||||
| Net cash used in financing activities | (213) | (42) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 8 | (100) | |||||||||
| Net change in cash, cash equivalents and restricted cash | (1,471) | (11,752) | |||||||||
| Cash, cash equivalents and restricted cash, at the beginning of the period | 31,348 | 24,221 | |||||||||
| Cash, cash equivalents and restricted cash, at the end of the period | $ | 29,877 | $ | 12,469 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest | $ | 1,207 | $ | 1,025 | |||||||
| Supplemental disclosure of noncash investing and financing activities: | |||||||||||
| Accounts receivable from sale of business | $ | 1,244 | $ | — | |||||||
| Change in unrealized (gain) loss on marketable securities | $ | (12) | $ | 57 | |||||||
| Change in unpaid purchases of property and equipment | $ | (25) | $ | (97) | |||||||
| Contingent consideration escrow release | $ | — | $ | 17 | |||||||
Series A | Series B | Series C | Series D | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Preferred Stock | Convertible Preferred Stock | Convertible Preferred Stock | Convertible Preferred Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2019 | 391,210 | $ | 3,059 | 3,088,444 | $ | 40,685 | 4,499,921 | $ | 74,575 | 8,200,297 | $ | 135,039 | 695,902 | $ | 1 | $ | 33,252 | $ | (259,034) | $ | (30) | $ | (225,811) | |||||||||||||||||||||||||||||||||
Unrealized loss on marketable securities | — | — | — | — | — | — | — | — | — | — | — | — | (41 | ) | (41 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | — | 69 | 69 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Series D convertible preferred stock for the Biotronik Asset Purchase | — | — | — | — | — | — | 273,070 | 5,000 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Series D convertible preferred stock for the contingent consideration related to the Rhythm Xience Acquisition | — | — | — | — | — | — | 119,993 | 2,197 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Stock option exercises | — | — | — | — | — | — | — | — | 64,562 | — | 205 | — | — | 205 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | 14,939 | — | 2,898 | — | — | 2,898 | ||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | — | (41,291 | ) | — | (41,291 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2020 (unaudited) | 391,210 | $ | 3,059 | 3,088,444 | $ | 40,685 | 4,499,921 | $ | 74,575 | 8,593,360 | $ | 142,236 | 775,403 | $ | 1 | $ | 36,355 | $ | (300,325) | $ | (2) | $ | (263,971 | ) | ||||||||||||||||||||||||||||||||
Series A Convertible Preferred Stock | Series B Convertible Preferred Stock | Series C Convertible Preferred Stock | Series D Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2018 | 388,558 | $ | 3,059 | 3,088,444 | $ | 40,685 | 4,499,921 | $ | 74,575 | — | $ | — | 656,654 | $ | 1 | $ | 30,150 | $ | (161,995) | $ | 20 | $ | (131,824) | |||||||||||||||||||||||||||||||||
Unrealized gain on marketable securities | — | — | — | — | — | — | — | — | — | — | — | — | 7 | 7 | ||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | — | (12 | ) | (12 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance of Series A preferred stock for cashless warrant exercise | 2,652 | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Series D convertible preferred stock for cash, net of issuance costs of $274 | — | — | — | — | — | — | 2,309,959 | 38,226 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Series D convertible preferred stock for 2018 Convertible Notes and 2019 Convertible Notes | — | — | — | — | — | — | 4,108,478 | 68,476 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | 6,837 | — | 1,362 | — | — | 1,362 | ||||||||||||||||||||||||||||||||||||||||||
Stock option exercises | — | — | — | — | — | — | — | — | 8,469 | — | 57 | — | — | 57 | ||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | — | (45,040 | ) | — | (45,040 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2019 (unaudited) | 391,210 | $ | 3,059 | 3,088,444 | $ | 40,685 | 4,499,921 | $ | 74,575 | 6,418,437 | $ | 106,702 | 671,960 | $ | 1 | $ | 31,569 | $ | (207,035) | $ | 15 | $ | (175,450) | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Acutus Medical, Inc. and Subsidiaries
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (41,291 | ) | $ | (45,040 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation expense | 978 | 1,142 | ||||||
Amortization of intangible assets | 220 | — | ||||||
Stock-based compensation expense | 2,898 | 1,362 | ||||||
Accretion of discounts/(amortization of premiums) on marketable securities, net | 5 | (19 | ) | |||||
Amortization of debt issuance costs | 314 | 17,309 | ||||||
Amortization of right-of-use | 336 | 312 | ||||||
Loss on debt extinguishment | — | 1,398 | ||||||
Change in fair value of warrant liability and embedded derivative | 1,872 | 605 | ||||||
Change in fair value of contingent consideration | (1,584 | ) | — | |||||
Changes in operating assets and liabilities, net of effect from business combination: | ||||||||
Accounts receivable | (597 | ) | (280 | ) | ||||
Inventory | (3,616 | ) | (1,961 | ) | ||||
Prepaid expenses and other current assets | 666 | (43 | ) | |||||
Other assets | 8 | (12 | ) | |||||
Accounts payable | 5,286 | 1,682 | ||||||
Accrued liabilities | 155 | 1,810 | ||||||
Operating lease liabilities | (411 | ) | (349 | ) | ||||
Net cash used in operating activities | (34,761 | ) | (22,084 | ) | ||||
Cash flows from investing activities | ||||||||
Purchases of available-for-sale | — | (22,208 | ) | |||||
Sales of available-for-sale | 17,095 | — | ||||||
Maturities of available-for-sale | 40,000 | 8,100 | ||||||
Purchases of property and equipment | (4,445 | ) | (316 | ) | ||||
Cash paid, net of cash acquired for the Rhythm Xience Acquisition | — | (3,000 | ) | |||||
Net cash provided by (used in) investing activities | 52,650 | (17,424 | ) | |||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of debt and warrants | — | 77,000 | ||||||
Repayment of debt | — | (15,000 | ) | |||||
Payment of issuance and extinguishment costs related to debt | — | (2,332 | ) | |||||
Payment of contingent consideration | (2,619 | ) | — | |||||
Proceeds from issuance of convertible preferred stock, net of issuance costs | — | 38,226 | ||||||
Payment of deferred offering costs | (701 | ) | — | |||||
Proceeds from stock options exercises | 205 | 57 | ||||||
Net cash (used in) provided by financing activities | (3,115 | ) | 97,951 | |||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 69 | (12 | ) | |||||
Net change in cash, cash equivalents and restricted cash | 14,843 | 58,431 | ||||||
Cash, cash equivalents and restricted cash, at the beginning of the period | 9,602 | 9,775 | ||||||
Cash, cash equivalents and restricted cash, at the end of the period | $ | 24,445 | $ | 68,206 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for income taxes | $ | — | $ | — | ||||
Cash paid for interest | $ | 2,376 | $ | 1,168 | ||||
Supplemental disclosure of noncash investing and financing activities: | ||||||||
Issuance of Series D convertible preferred stock for 2018 Convertible Notes and 2019 Convertible Notes | $ | — | $ | 68,476 | ||||
Issuance of Series D convertible preferred stock for Biotronik asset purchase | $ | 5,000 | $ | — | ||||
Issuance of Series D convertible preferred stock for Rhythm Xience Acquisition | $ | 2,197 | $ | — | ||||
Change in unrealized (gain) loss on marketable securities | $ | 41 | $ | (7 | ) | |||
Warrants issued in conjunction with OrbiMed debt | $ | — | $ | 872 | ||||
Right-of-use | $ | — | $ | 2,978 | ||||
Unpaid purchases of property and equipment | $ | 55 | $ | 77 | ||||
| Unpaid deferred offering costs | $ | 1,805 | $ | — | ||||
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1—Organization and Description of Business
Acutus Medical, Inc. (the “Company”) is an arrhythmia management company focused on improving the way cardiac arrhythmias are diagnosed and treated. The Company designs, manufactures and markets a range of tools for catheter-based ablation procedures to treat various arrhythmias. The Company’s product portfolio includes novel access sheaths, transseptal crossing tools, diagnostic and mapping catheters, ablation catheters, mapping and imaging consoles and accessories, as well as supporting algorithms and software programs. The Company was incorporated in the state of Delaware on March 25, 2011, and is located in Carlsbad, California.
Liquidity, Capital Resources and Going Concern
for its stock-based compensation plans and for its ESPP. Additionally, in an
$14.00. The Company has limited revenue, has incurred operating losses since inceptionreceived gross proceeds of $88.6 million from the offering. Net of underwriting discounts and expects to continue to incur significant operating losses for at leastcommission and other offering expenses, the next several years and may never become profitable. AsCompany received proceeds of $82.7 million.
On June 30, 2020 and December 31, 2019,2022, Medtronic, Inc. (“Medtronic”) paid the Company had an accumulated deficit$50.0 million at the first closing (the "First Closing") of $300.3 million and $259.0 million, respectively, and working capital of $15.1 million and$50.5 million, respectively. The Company has historically funded its operations primarily through the sale of debt and equity securities, as well as other indebtedness.
Management believes the Company’s current cash, and cash equivalents and marketable securities are sufficient to fund operations for at least the next 12 months. However,months from the date of this filing. To ensure that the Company has sufficient resources to fund operations, management continues to review cost improvement opportunities and pathways to reduce expenses and cash burn, while preserving the resources to invest in future growth.
In the future, the Company may need to raise additional funds through one or more of the following: the issuance of additional debt and/or equity securities or both.otherwise. Until such time, if ever, that the Company can generate revenue sufficient to achieve profitability, the Company expects to finance its operations through equity or debt financings, which may not be available to the Company on the timing needed or on terms that the Company deems to be favorable. To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the ownership interest of its stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that
include covenants limiting or restricting the Company’s ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If the Company is unable to maintain sufficient financial resources, its business, financial condition, and results of operations will be materially and adversely affected. The Company may be required to delay, limit, reduce or terminate its product discovery and development activities or future commercialization efforts. There can be no assurance that the Company will be able to obtain the needed financing on acceptable terms or at all.
Note 2—Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form
10-Q
and Article 10 of RegulationS-X.
Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.Principles of Consolidation
The condensed consolidated financial statements include the accounts of Acutus Medical, Inc. and its wholly-owned subsidiary Acutus Medical NV (“Acutus NV”), which was incorporated under the laws of Belgium in August 2013.subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and disclosures of contingent assets and liabilities. The most significant estimates and assumptions in the Company’s condensed consolidated financial statements include, but are not limited to, revenue recognition, useful lives of intangible assets, assessment of impairment of goodwill, provisions for income taxes, measurement of operating lease liabilities, and the fair value of common stock, stock options, warrants, intangible assets, contingent consideration and goodwill. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual results could differ from those estimates.
Segments
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business inas one operating segment and reportable segment.
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. All of the Company’s cash equivalents have liquid markets and high credit ratings. The Company maintains its cash in bank deposits and other accounts, the balances of which, at times and as of June 30, 2020March 31, 2023 and December 31, 2019,2022, exceeded federally insured limits.
Restricted cash serves asconsists of (i) deposited cash collateral for the Company’s corporate credit card program. program and (ii) cash received for the sale of business to Medtronic held in an indemnity escrow account until certain terms of sale are met.
The following table reconciles cash, cash equivalents and restricted cash in the condensed consolidated balance sheets to the totals shown on the condensed consolidated statementstotal balances as of cash flowsMarch 31, 2023 and December 31, 2022 (in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Cash and cash equivalents | $ | 22,738 | $ | 25,584 | |||||||
| Restricted cash | 7,139 | 5,764 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 29,877 | $ | 31,348 | |||||||
June 30, 2020 | December 31, 2019 | |||||||
(unaudited) | ||||||||
Cash and cash equivalents | $ | 24,295 | $ | 9,452 | ||||
Restricted cash | 150 | 150 | ||||||
Total cash, cash equivalents and restricted cash | $ | 24,445 | $ | 9,602 | ||||
Marketable Securities
The Company’s marketable securities portfolio consists of investments in money market funds, commercial paper, U.S. treasury securities and Yankee debt securities.
The Company considers its debt securities to besecurities.securities are classified as cash equivalents or short-term or long-term marketable securities based on the maturity date at time of purchase and their availability
available-for-sale
Available-for-sale
7
to meet current operating requirements. Marketable securities that mature in three months or less from the date of purchase are classified as cash equivalents. Marketable securities, excluding cash equivalents, that mature in one year or less are classified as short-termsecurities and are reported as a component of current assets.
available-for-sale
Securities that are classified asare measured at fair value with temporary unrealized gains and losses reported in other comprehensive loss, and as a component of stockholders’ deficitequity until their disposition or maturity. See “Fair Value Measurements” below. The Company reviews allsecurities at each period end to determine if they remainbased on the Company’s current intent and ability to sell the security if it is required to do so. Realized gains and losses from the sale of marketable securities, if any, are calculated using the specific-identification method.
available-for-sale
available-for-sale
available-for-sale
Marketable securities are subject to a periodic impairment review. The Company may recognize an impairment charge when a decline in the fair value of investments below the cost basis is determined to be other-than-temporary. In determining whether a decline in market value is other-than-temporary, various factors are considered, including the cause, duration of time and severity of the impairment, any adverse changes in the investees’ financial condition and the Company’s intent and ability to hold the security for a period of time sufficient to allow for an anticipated recovery in market value. Declines in value judged to be other-than-temporary are included in the Company’s condensed consolidated statements of operations and comprehensive loss. The Company did not record any other-than-temporary impairments related to marketable securities in the Company’s condensed consolidated statements of operations and comprehensive loss for thesix-monthperiods three months ended June 30, 2020March 31, 2023 and 2019.2022.
Concentrations of Credit Risk and
Off-Balance
Sheet RiskFinancial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, restricted cash, accounts receivable and marketable securities. Cash and restricted cash are maintained in accounts with financial institutions which, at times, may exceed the Federalfederal depository insurance coverage of $0.25 million. The Company has not experienced losses on these accounts, and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant. The Company’s marketable securities portfolio consists primarily of investments in money market funds, commercial paper and short-term high credit quality corporate debt securities.
Revenue from Contracts with Customers
The Company accounts for revenue earned from contracts with customers under Accounting Standards Codification (“ASC”("ASC") 606,(“ (“ASC 606”), and ASC 842, Leases ("ASC 842"). The core principle of the revenue standardASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
Revenue from Contracts with Customers
•Step 1: Identify the contract with the customer.
•Step 2: Identify the performance obligations in the contract.
•Step 3: Determine the transaction price.
•Step 4: Allocate the transaction price to the performance obligations in the contract.
•Step 5: Recognize revenue when, or as, the company satisfies a performance obligation.
ASC 842 provides guidance on determining whether an agreement contains a lease. ASC 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.
Additionally, the Company sells the AcQMap System to customers along with software updates on a when-and-if-available basis, as well as the Qubic Force Device and a transseptal crossing line of products which can be used in a variety of heart procedures and does not need to be accompanied with an AcQMap System or Qubic Force Device. Included in the transseptal
8
crossing line of products are primarily the AcQRef Introducer Sheath, the AcQGuide Sheaths and the AcQCross Transseptal Dilator/Needle.
The following table sets forthCompany also enters into deferred equipment agreements that are generally structured such that the Company’s revenue for disposables and systems/serviceCompany agrees to provide an AcQMap System at no up-front charge, with title of the device transferring to the customer at the end of the contract term, in exchange for the threecustomer’s commitment to purchase disposables at a specified price over the term of the agreement, which generally ranges from two to four years. The Company has determined that such deferred equipment agreements include an embedded sales-type lease. The Company allocates contract consideration under deferred equipment agreements containing fixed annual disposable purchase commitments to the underlying lease and six months ended June 30, 2020non-lease components at contract inception. The Company expenses the cost of the device at the inception of the agreement and 2019 (in thousands):records a financial lease asset equal to the gross consideration allocated to the lease. The lease asset is reduced by payments for minimum disposable purchases that are allocated to the lease.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Disposables | $ | 1,122 | $ | 730 | $ | 2,179 | $ | 1,512 | ||||||||
Systems | — | — | $ | 520 | — | |||||||||||
Service/Other | 12 | 4 | 18 | 9 | ||||||||||||
Total | $ | 1,134 | $ | 734 | $ | 2,717 | $ | 1,521 | ||||||||
Lastly, the Company enters into short-term operating leases for the rental of the AcQMap System after an evaluation. These lease agreements impose no requirement on the customer to purchase the equipment, and the equipment is not transferred to the customer at the end of the lease term. The short-term nature of the lease agreements does not result in lease payments accumulating to an amount that equals the value of the equipment nor is the lease term reflective of the economic life of the equipment.
The Company’s contracts onlyprimarily include fixed consideration. ThereGenerally, there are no discounts, rebates, returns or other forms of variable consideration. Customers are generally required to pay within 30 to 60 days.
The delivery of disposable products are performance obligations satisfied at a point in time. The disposable products are shipped Free on Board (“FOB”) shipping point or FOB destination. For disposable products that are shipped FOB shipping point, the customer has the significant risks and rewards of ownership and legal title to the assets when the disposable products leave the Company’s shipping facilities, and thus the customer obtains control and revenue is recognized at that point in time. Revenue is recognized on delivery for disposable products shipped via FOB destination.
The Company allocates the transaction price to each performance obligation identified in the contract based on the relative standalone selling price (“SSP”). The Company determines SSP for the purposes of allocating the transaction price to each performance obligation based on the adjusted market assessment approach that maximizes the use of observable inputs, which includes,include, but isare not limited to, sales transactions where the specific performance obligations are sold separately, Company list prices and specific offers to customers.
In May 2020, the Company entered intowith Biotronik SE & Co. KG (“Biotronik”) (the“Bi-Lateral “Bi-Lateral Distribution Agreements”). with Biotronik. Pursuant to thenon-exclusive non-exclusive license to distribute a range of Biotronik’s products and accessories in the United States, Canada, China, Hong Kong and multiple Western European countries under the Company’s private label. Moreover, if an investigational device exemption or IDE,(“IDE”) clinical trial is required for these products to obtain regulatory approval in the United States, or a clinical trial is required for these products to obtain regulatory approval in China, the Company will obtain an exclusive distribution right in such territories for a term of up to five years commencing on the date of regulatory approval if the Company covers the cost of the IDE or other clinical trial and the Company conducts such study within a specified period. Biotronik also agreed to distribute the Company’s products and accessories in Germany, Japan, Mexico, Switzerland and multiple countries in Asia-Pacific, Eastern Europe, the Middle East and South America. The Company also granted Biotronik a coexclusiveco-exclusive right to distribute these products in Hong Kong. Each party will pay to the other party a specified transfer pricesprice on the sale of the other party’s products and, accordingly, will earn a distribution margin on the sale of the other party’s products.
bi-lateral
distribution agreements Bi-Lateral
Distribution Agreements, the Company obtained a9
In 2022, the Company sold the left-heart access transseptal crossing business to Medtronic. In connection with the sale, the Company entered into a distribution agreement (the "Distribution Agreement") with Medtronic, pursuant to which the Company acts as the original equipment manufacturer ("OEM") supplier of these products. The Company will produce and sell the products to Medtronic for a period of up to four years. Revenue is recognized when the title to the products are transferred to Medtronic, which occurs when the products are shipped from our facility (or FOB shipping point).
The following table sets forth the Company’s revenue for disposables, systems and service/other for the three months ended March 31, 2023 and 2022 (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (unaudited) | |||||||||||
| Disposables | $ | 3,426 | $ | 3,211 | |||||||
| Systems | — | — | |||||||||
| Service/Other | 744 | 470 | |||||||||
| Total revenue | $ | 4,170 | $ | 3,681 | |||||||
The following table provides revenue by geographic location for the three and six months ended June 30, 2020March 31, 2023 and 20192022 (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (unaudited) | |||||||||||
| United States | $ | 2,248 | $ | 2,023 | |||||||
| Outside the United States | 1,922 | 1,658 | |||||||||
| Total revenue | $ | 4,170 | $ | 3,681 | |||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
United States | $ | 559 | $ | 221 | $ | 1,328 | $ | 456 | ||||||||
Europe | 575 | 513 | 1,389 | 1,065 | ||||||||||||
Total Revenue | $ | 1,134 | $ | 734 | $ | 2,717 | $ | 1,521 | ||||||||
Inventory
Inventory is comprised of raw materials, direct labor and manufacturing overhead and is stated at the lower of cost(first-in,comparedcomparisons to estimated future usage and sales, observed shelf-life and assumptions about the likelihood of obsolescence of $0.1 million and $0.1 million, for the three months ended June 30, 2020 and 2019, respectively, and $0.1 million and $0.2 million, for the six months ended June 30, 2020 and 2019, respectively.obsolescence.
(first-in, first-out
basis) or net realizable value. The Company recorded write-downs for excess and obsolete inventory of $0.3 million and $1.0 million for the three months ended March 31, 2023 and 2022, respectively, based on management’s review of inventories on hand, Accounts Receivable
Trade accounts receivable are recorded net of allowances for uncollectible accounts. The Company evaluates the collectability of its accounts receivable based on various factors including historical experience, the length of time the receivables are past due and the financial health of the customer. The Company reserves specific receivables if collectability is no longer reasonably assured. Based upon the assessment of these factors, the Company did not record an allowance for uncollectible accounts as of June 30, 2020March 31, 2023 or December 31, 2022.
Pursuant to the Asset Purchase Agreement with Medtronic, the Company was eligible to receive the Transfer Earnout, a contingent cash consideration of $17.0 million upon the Company’s initial submission for CE Mark certification. The Company met this condition as of December 31, 2022 and recorded a receivable on the consolidated balance sheets for the year then ended. Medtronic provided full payment in January 2023. See Note 3 - Sale of Business.
In addition, beginning in February 2023, following Medtronic's first commercial sale of the left-heart access products after the Company's achievement of the OEM Earnout (as defined in Note 3 - Sale of Business, below), the Company became eligible to earn amounts equal to 100%, 75%, 50% and 50%, respectively, of quarterly Net Sales (as defined in the Asset Purchase Agreement) from sales of the left-heart access products achieved by Medtronic each year over four years. During the three months ended March 31, 2023, the Company earned $1.2 million in contingent consideration based on Medtronic's left-heart access products sales and recorded a receivable on the condensed consolidated balance sheets for the period then ended.
Accounts receivable recorded on the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2019.2022 consists of the following (in thousands):
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| March 31, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Trade accounts receivable | $ | 4,096 | $ | 4,085 | |||||||
| Earnouts receivable from Medtronic | 1,244 | 17,000 | |||||||||
| Total accounts receivable | $ | 5,340 | $ | 21,085 | |||||||
Employee Retention Credit Receivable
The Employee Retention Credit is a refundable U.S. tax credit separate from tax based on income for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020 to December 31, 2021. The Company is an eligible employer qualifying under the program and applied for the tax credit in 2022. As of March 31, 2023, $4.2 million has been refunded to the Company, of which $2.1 million was received during the three months ended March 31, 2023. The Company expects receipt of the remaining $2.6 million receivable in 2023.
Property and Equipment, Net
Property and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, generally three to five years, or, in the case of leasehold improvements, over the lesser of the useful life of the related asset or the lease term.
Intangible Assets
in-process
technology Goodwill
Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed, and it is presented as goodwill in the accompanying condensed consolidated balance sheets. Under ASC 350,(“ (“ASC 350”), goodwill is not amortized but is subject to periodic impairment testing. ASC 350 requires that an entity assign its goodwill to reporting units and test each reporting unit’s goodwill for impairment at least on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In the evaluation of goodwill for impairment, which is performed annually during the fourth quarter, the Company first assesses qualitative factors to determine whether the existence of events or circumstances led to a determination that it was more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company is required to perform the quantitative goodwill impairment test. The Company has one reporting unit. ForDuring the sixthree months ended June 30, 2020,March 31, 2022, the qualitative testing did not indicate any impairment for the carrying amountCompany fully impaired its goodwill balance of goodwill.$12.0 million.
Intangibles
– Goodwill and Other
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss is recognized when the asset’s carrying value exceeds the total undiscounted cash flows expected from its use and eventual disposition. The amount of the impairment loss is determined as the excess of the carrying value of the asset over its fair value. For the three and six months ended June 30, 2020March 31, 2023 and 2019,2022, the Company determined that there was no impairment of property and equipment or intangible assets.
Foreign Currency Translation and Transactions
11
The assets, liabilities and results of operations of Acutus NVMedical N.V. and Acutus Medical UK Limited are measured using their functional currency, the Euro and British Pound Sterling, respectively, which is the currency of the primary foreign economic environment in which this subsidiary operates.the subsidiaries operate. Upon consolidating this entitythese entities with the Company, itstheir assets and liabilities are translated to U.S. dollars at currency exchange rates as of the balance sheet date and itstheir revenues and expenses are translated at the weighted-averageweighted average currency exchange rates during the applicable reporting periods. Translation adjustments resulting from the process of translating this entity’sthe entities’ financial statements are reported in accumulated other comprehensive loss in the condensed consolidated balance sheets and foreign currency translation adjustment in the condensed consolidated statements of operations and comprehensive loss.
Lease Property
right-of-use
right-of-use
right-of-use
In calculating theasset and lease liability, the Company electselected to combine lease andexcludesadopted the policy election to exclude short-term leases having initial terms of 12twelve months or less from the new guidance as an accounting policy election.initial recognition provisions of ASC 842. See Note 12 - Operating leases for additional details.
right-of-use
non-lease
components. The Company Cost of Products Sold
Cost of products sold includes raw materials, direct labor, manufacturing overhead, shipping and receiving costs and other less significant indirect costs related to the production of the Company’s products.
Research and Development
The Company is actively engaged in new product research and development efforts. Research and development expenses consist primarily of salaries and employee-related costs (including stock-based compensation) for personnel directly engaged in research and development activities, clinical trial expenses, equipment costs, material costs, allocated rent and facilities costs and depreciation. Research and development expenses also include payments for the asset acquisition from Biotronik and VascoMed GmbH (collectively, the “Biotronik Parties”) for certain licenses of patents, technology,know-howrights and equipment (the “Biotronik Asset Acquisition”).
Research and development expenses relating to possible future products are expensed as incurred. The Company also accrues and expenses costs for activities associated with clinical trials performed by third parties as incurred. All other costs relative to setting up clinical trial sites are expensed as incurred. Clinical trial site costs related to patient enrollment are accrued as patients are entered into the trials.
Selling, General and Administrative
Fair Value Measurements
Financial Instruments
Fair value measurements are based on the premise that fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the following three-tier fair value hierarchy has beenis used in determining the inputs used infor measuring fair value:
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Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activity and that areconsist of financial instruments whose values are determinedvalued using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed or initial amounts
recorded may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange. There were no transfers made among the three levels in the fair value hierarchy for the three and six months ended June 30, 2020March 31, 2023 and 2019.2022.
As of June 30, 2020March 31, 2023 and December 31, 2019,2022, the Company’s cash (excluding cash equivalents which are recorded at fair value on a recurring basis), restricted cash, accounts receivable, accounts payable and accrued expenses were carried at cost, which approximates the fair values due to the short-term nature of the instruments.
each instrument. The carrying amount of the Company’s long-term debt approximates fair value due to its variable market interest rate and management’s opinion that current rates and terms that would be available to the Company with the same maturity and security structure would be essentially equivalent to that of the Company’s long-term debt.
The following tables classify the Company’s financial assets and liabilities measured at fair value on a recurring basis into the fair value hierarchy as of June 30, 2020March 31, 2023 and December 31, 20192022 (in thousands):
| Fair Value Measurements as of March 31, 2023 | |||||||||||||||||||||||||||||||||||||||
Fair Value Measured at June 30, 2020 (unaudited) | (unaudited) | ||||||||||||||||||||||||||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value at June 30, 2020 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||||||||||||||
Assets included in: | Assets included in: | ||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | Cash and cash equivalents | ||||||||||||||||||||||||||||||||||||||
Money market securities | $ | 21,544 | $ | — | $ | — | $ | 21,544 | Money market securities | $ | 20,211 | $ | — | $ | — | $ | 20,211 | ||||||||||||||||||||||
Marketable securities at fair value | Marketable securities at fair value | ||||||||||||||||||||||||||||||||||||||
U.S. treasury securities | — | 5,037 | — | 5,037 | U.S. treasury securities | — | 21,814 | — | 21,814 | ||||||||||||||||||||||||||||||
| Commercial paper | Commercial paper | — | 21,806 | — | 21,806 | ||||||||||||||||||||||||||||||||||
| Yankee debt securities | Yankee debt securities | — | 3,219 | — | 3,219 | ||||||||||||||||||||||||||||||||||
Total fair value | $ | 21,544 | $ | 5,037 | $ | — | $ | 26,581 | Total fair value | $ | 20,211 | $ | 46,839 | $ | — | $ | 67,050 | ||||||||||||||||||||||
Liabilities included in: | Liabilities included in: | ||||||||||||||||||||||||||||||||||||||
| Warrant liability | Warrant liability | $ | — | $ | — | $ | 1,900 | $ | 1,900 | ||||||||||||||||||||||||||||||
Contingent consideration | $ | — | $ | — | $ | 7,500 | $ | 7,500 | Contingent consideration | — | — | 2,000 | 2,000 | ||||||||||||||||||||||||||
Common and preferred stock warrant liability | — | — | 10,791 | 10,791 | |||||||||||||||||||||||||||||||||||
Total fair value | $ | — | $ | — | $ | 18,291 | $ | 18,291 | Total fair value | $ | — | $ | — | $ | 3,900 | $ | 3,900 | ||||||||||||||||||||||
Fair Value Measured at December 31, 2019 | |||||||||||||||||||||||||||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value at December 31, 2019 | ||||||||||||||||||||||||||||||||||||
Assets included in: | |||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | |||||||||||||||||||||||||||||||||||||||
Money market securities | $ | 8,901 | $ | — | $ | — | $ | 8,901 | |||||||||||||||||||||||||||||||
Marketable securities at fair value | |||||||||||||||||||||||||||||||||||||||
Corporate debt securities | — | 28,224 | — | 28,224 | |||||||||||||||||||||||||||||||||||
Asset-backed securities | — | 17,121 | — | 17,121 | |||||||||||||||||||||||||||||||||||
U.S. treasury securities | — | 5,032 | — | 5,032 | |||||||||||||||||||||||||||||||||||
Commercial paper | — | 11,974 | — | 11,974 | |||||||||||||||||||||||||||||||||||
Total fair value | $ | 8,901 | $ | 62,351 | $ | — | $ | 71,252 | |||||||||||||||||||||||||||||||
Liabilities included in: | |||||||||||||||||||||||||||||||||||||||
Contingent consideration | $ | — | $ | — | $ | 13,900 | $ | 13,900 | |||||||||||||||||||||||||||||||
Common and preferred stock warrant liability | — | — | 8,919 | 8,919 | |||||||||||||||||||||||||||||||||||
Total fair value | $ | — | $ | — | $ | 22,819 | $ | 22,819 | |||||||||||||||||||||||||||||||
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| Fair Value Measurements as of December 31, 2022 | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||
| Assets included in: | |||||||||||||||||||||||
| Cash and cash equivalents | |||||||||||||||||||||||
| Money market securities | $ | 22,700 | $ | — | $ | — | $ | 22,700 | |||||||||||||||
| Marketable securities at fair value | |||||||||||||||||||||||
| U.S. treasury securities | — | 26,897 | — | 26,897 | |||||||||||||||||||
| Commercial paper | — | 14,764 | — | 14,764 | |||||||||||||||||||
| Yankee debt securities | — | 3,202 | — | 3,202 | |||||||||||||||||||
| Total fair value | $ | 22,700 | $ | 44,863 | $ | — | $ | 67,563 | |||||||||||||||
| Liabilities included in: | |||||||||||||||||||||||
| Warrant liability | $ | — | $ | — | $ | 3,346 | $ | 3,346 | |||||||||||||||
| Contingent consideration | — | — | 1,800 | 1,800 | |||||||||||||||||||
| Total fair value | $ | — | $ | — | $ | 5,146 | $ | 5,146 | |||||||||||||||
The fair value of the Company’s money market fundssecurities is determined using quoted market prices in active markets for identical assets.
available-for-sale
Financial Obligations
The following table presents changes in Level 3 liabilities measured at fair value for the sixthree months ended June 30, 2020March 31, 2023 (in thousands):
| Contingent Consideration | Warrant Liability | ||||||||||
| Balance, December 31, 2022 | $ | 1,800 | $ | 3,346 | |||||||
| Change in fair value | 200 | (1,446) | |||||||||
| Balance, March 31, 2023 (unaudited) | $ | 2,000 | $ | 1,900 | |||||||
Common and Preferred Stock Warrant Liability | Contingent Consideration | Total | |||||||||||
Balance, December 31, 2019 | $ | 8,919 | $ | 13,900 | $ | 22,819 | |||||||
Payment of contingent consideration | — | (2,619 | ) | (2,619 | ) | ||||||||
Issuance of preferred stock for contingent consideration | — | (2,197 | ) | (2,197 | ) | ||||||||
Change in fair value | 1,872 | (1,584 | ) | 288 | |||||||||
Balance, June 30, 2020 (unaudited) | $ | 10,791 | $ | 7,500 | $ | 18,291 | |||||||
Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
Contingent Consideration
The fair value of the contingent consideration from the acquisition of Rhythm Xience, Inc. ("Rhythm Xience") in June 2019 represents the estimated fair value of future payments due to the sellers of Rhythm Xience based on the achievement of certain milestones and revenue-based targets in certain years. The initial fair value of the revenue-based contingent consideration was calculated through the use of a Monte Carlo simulation using revenue projections for the respectivesales or earnings;sales; (iii) risk-free
earn-out
period, corresponding targets and approximate timing of payments as outlined in the purchase agreement. The analyses used the following assumptions: (i) expected term; (ii) risk-adjusted net interest rate; and (iv) expected volatility of earnings.net sales (see table below). Estimated payments, as determined through the respective model, were further discounted by a credit spread assumption to account for credit risk. The fair value of the milestones-based contingent consideration was determined by probability weighting and discounting to the respective valuation date at the Company’s cost of debt. The Company’s cost of debt was determined by performing a synthetic credit rating for the Company and selecting yields based on
14
companies with a similar credit rating. The contingent consideration is revalued to fair value each period on the condensed consolidated balance sheets, and any increase or decrease is recorded in operatingon the condensed consolidated statements of operations and comprehensive loss. The fair value of the contingent consideration may be impacted by certain unobservable inputs, most significantly with regard to discount rates, expected volatility and historical and projected performance. Significant changes to these inputs in isolation could result in a significantly different fair value measurement.
The weighted-averageweighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the contingent consideration from the acquisition of Rhythm Xience as of June 30, 2020March 31, 2023 and December 31, 20192022 were as follows:
June 30, 2020 | December 31, 2019 | |||
(unaudited) | ||||
Risk-free interest rate | 0.20% | 1.60% | ||
Expected term in years | 1.0 - 2.0 | 1.0 - 2.0 | ||
Expected volatility | 18.3% | 11.8% |
| March 31, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Risk-free interest rate | 5.00% | 4.80% | |||||||||
| Expected term in years | 1.0 - 2.0 | 1.0 - 2.0 | |||||||||
| Expected volatility | 23.4% | 28.0% | |||||||||
Warrants
As of March 31, 2023, the fair value of the common stock warrants was estimated using the Black-Scholes option pricing model. The fair value was estimated to be $0.5026 per warrant as of March 31, 2023 and the significant inputs used in the estimation of the fair value were as follows:
| March 31, 2023 | |||||
| (unaudited) | |||||
| Risk-free interest rate | 3.55% | ||||
| Expected term in years | 7.25 | ||||
| Expected volatility | 75.0% | ||||
Stock-Based Compensation
The Company accounts for all stock-based payments to employees andawards (“RSAs”units ("RSUs"), and restricted stock units withnon-marketperformance and service conditions (“PSUs”awards ("RSAs"), to be recognized in the condensed consolidated financial statements based on their respective grant date fair values. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. The RSAsRSUs and PSUsRSAs, are valued based on the fair value of the Company’s common stock on the date of grant. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The Company expenses stock-based compensation related to stock options, RSUs and RSAs over the requisite service period. As the PSUs have a performance condition, compensation expense is recognized for each vesting tranche over the respective requisite service period of each tranche if and when the Company’s management deems it probable that the performance conditions will be satisfied. The Company may recognize a cumulativetrue-upadjustment related to PSUs once a condition becomes probable of being satisfied if the related service period had commenced in a prior period. All stock-based compensation costs are recorded in cost of products sold, research and development expense or SG&A expense in the condensed consolidated statements of operations and comprehensive loss based upon the respective employee’s or“NoteNote 15—Stock-Based Compensation” below.Compensation for additional details.
non-employees,
including grants of stock options, restricted stock non-employee’s
roles within the Company. Forfeitures are recorded as they occur. See Income Taxes
Income taxes are recorded in accordance with ASC 740,(“ (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse, and net operating loss (“NOL”) carryforwards and research and development (“R&D”) tax credit carryforwards. Valuation allowances are provided if,,based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Income Taxes
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.
15
Warrant Liability
The Company accounts for certain common stock warrants and convertible preferred stock warrants outstanding as a liability at fair value, determined using the Black-Scholes option pricing model, on the consolidated balance sheets in accordance with ASC 815,(“ (“ASC 815”), at fair value. This. The liability is subject to until exercised, and any change in fair value is recognized in the condensed consolidated statements of operations and comprehensive loss.
Derivatives and Hedging
re-measurement
at each reporting periodadditional details.
Business Combinations
The Company accounts for business acquisitions using the acquisition method of accounting based on ASC 805,Business Combinations (“ASC 805”), which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition. Goodwill representsis calculated as the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s condensed consolidated statements of operations and comprehensive loss.
Recently Adopted Accounting Pronouncements to Be Adopted
In June 2016, ("ASU 2016-13"). The ASU 2016-13 sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost,debt securities and applies to certainThis ASU 2016-13 is effective for smaller reporting companies in calendar year 2023. The Company is currently assessingadopted the guidance in the first quarter of 2023 with no material impact on the condensed consolidated financial statements.
the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”)
ASU No. 2016-13,
Financial Instruments – Credit Losses (Topic 326)
available-for-sale
off-balance
sheet credit exposures. Note 3—Sale of Business
On June 30, 2022, the Company completed the First Closing in accordance with the Asset Purchase Agreement with Medtronic, pursuant to which the Company agreed to sell to Medtronic certain transseptal access and sheath assets which make up the Company's left-heart access portfolio (and which comprised the Rhythm Xience product line acquired as part of the adoptionRhythm Xience acquisition). The assets transferred to Medtronic upon the First Closing (the “Assets”) include patents, trademarks, patent and trademark applications, know-how, copyrights, prototypes and other intellectual property owned or licensed by the Company, business records and documents (including regulatory and clinical materials) and manufacturing equipment related to the AcQCross® line of this ASUsheath-compatible septal crossing devices, AcQGuide® MINI integrated crossing device and sheath, AcQGuide® FLEX Steerable Introducer with integrated transseptal dilator and needle, and AcQGuide® VUE steerable sheaths (the “Products”).
Pursuant to the Asset Purchase Agreement, Medtronic paid $50.0 million at the First Closing, of which $4.0 million was paid into an indemnity escrow account for a period of 18 months following the First Closing to secure indemnification obligations of the Company under the Asset Purchase Agreement, which the Company has recorded as restricted cash on its condensed consolidated financial statements.balance sheets.
(i) $20.0 million upon the Company acquiredCompany’s completion, to the reasonable satisfaction of Medtronic, of certain manufacturing equipment and obtained fromconditions set forth in the Biotronik Parties a license under certain patents and technology to develop, commercialize, distribute and manufacture the AcQBlate Force ablation catheters and Qubic Force device. In exchange for the rights grantedAsset Purchase Agreement relating to the Company becoming a qualified supplier of Medtronic for the Products, including demonstration of ISO 14971:2019 compliance, completion of certain test method validations and compliance with certain other reporting requirements (the “OEM Earnout”);
(ii) $17.0 million upon the earlier of (A) the Second Closing (as defined below) or (B) the Company’s initial submission for CE Mark certification of the Products under the European Union Medical Devices Regulation, to the reasonable satisfaction of a third-party regulatory consultant, subject to certain other conditions as set forth in the Asset Purchase Agreement (the “Transfer Earnout”); and
(iii) amounts equal to 100%, 75%, 50% and 50%, respectively, of quarterly Net Sales (as defined in the Asset Purchase Agreement) from sales of the Products achieved by Medtronic over each year of a four-year period beginning on the first full quarter after Medtronic’s first commercial sale of a Product and achievement of the OEM Earnout.
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The $20.0 million OEM Earnout was achieved in October 2022 and payment was received in November 2022, of which $1.6 million is held in escrow and recorded as restricted cash on the condensed consolidated balance sheets. The $17.0 million Transfer Earnout was achieved in December 2022 and payment was received in January 2023, of which $1.4 million is held in escrow and recorded as restricted cash on the condensed consolidated balance sheets. During the three months ended March 31, 2023, $1.2 million was earned under item (iii) and recorded as a receivable on the condensed consolidated balance sheet as of March 31, 2023.
With the achievement of the OEM Earnout Conditions (as defined in the Asset Purchase Agreement) and upon notice from Medtronic, Medtronic became the Company's exclusive distributor of the Products under the Distribution Agreement.
The Company made cash payments totaling $10.0recorded a net gain of $79.5 million during the year ended December 31, 2019,2022 related to the sale of business to Medtronic, calculated as the difference between the non-contingent consideration received, less direct transaction costs and issued 273,070 sharesthe net carrying amount of Series D convertible preferred stock with an implied value of $5.0 million during the sixassets sold.
The Company recorded the following amounts for the three months ended June 30, 2020. The implied valueMarch 31, 2023, resulting in a net gain of $5.0$1.2 million was recorded as an accrued liability as of December 31, 2019. In accordance with ASC 805, the Biotronik Asset Acquisitionwas accounted for as an asset acquisition as substantially all of the $15.0 million value transferred to Biotronik was allocated to intellectual property. On the acquisition date, the products licensed had not yet received regulatory approval and the intellectual property did not have an alternative use. Accordingly, the $15.0 million paid to Biotronik was immediately charged to research and development expense—licensed acquired in the condensed consolidated statement of operations and comprehensive
| Three Months Ended March 31, 2023 | |||||
| (unaudited) | |||||
| Percentage of Product Net Sales Earnout accrued as of March 31, 2023 | $ | 1,244 | |||
| Transaction costs | (37) | ||||
| Gain on sale of business, net | $ | 1,207 | |||
The net gain on sale will also make per unit royalty payments. The Company has determined that as of the acquisition date and as of June 30, 2020 and December 31, 2019,be adjusted in future periods by the contingent milestone and royalty payments are not probable and estimable and therefore have not been recorded as a liability. Upon regulatory approval of the Company’s force sensing ablation catheter in Europe, the milestone payments will be capitalized and amortized, and the royalty payments will be recorded as cost of products sold as sales of catheters are recognized.
Accounts receivable, net | $ | 3 | ||
Prepaid expenses and other current assets | 8 | |||
Property and equipment, net | 3 | |||
Intangible assets | 4,360 | |||
Goodwill | 12,026 | |||
Contingent consideration | (13,400 | ) | ||
Cash consideration | $ | 3,000 | ||
Note 4—Marketable Securities
Marketable securities consisted of the following as of June 30, 2020March 31, 2023 and December 31, 20192022 (in thousands):
| March 31, 2023 (unaudited) | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Available-for-sale securities - short-term: | |||||||||||||||||||||||
| U.S. treasury securities | $ | 21,809 | $ | 5 | $ | — | $ | 21,814 | |||||||||||||||
| Commercial paper | 21,806 | — | — | 21,806 | |||||||||||||||||||
| Yankee debt securities | 3,220 | — | (1) | 3,219 | |||||||||||||||||||
| Total available-for-sale securities - short-term | 46,835 | 5 | (1) | 46,839 | |||||||||||||||||||
| Total available-for-sale securities | $ | 46,835 | $ | 5 | $ | (1) | $ | 46,839 | |||||||||||||||
June 30, 2020 (unaudited) | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Available-for-sale securities - short-term : | ||||||||||||||||
U.S. treasury securities | $ | 5,033 | $ | 4 | $ | — | $ | 5,037 | ||||||||
Total available-for-sale | $ | 5,033 | $ | 4 | $ | — | $ | 5,037 | ||||||||
| December 31, 2019 | ||||||||||||||||
Amortized | Gross Gains | Gross Losses | Fair | |||||||||||||
Available-for-sale securities - short-term: | ||||||||||||||||
Corporate debt securities | $ | 28,204 | $ | 20 | $ | — | $ | 28,224 | ||||||||
Asset-backed securities | 17,108 | 13 | — | 17,121 | ||||||||||||
U.S. treasury securities | 5,020 | 12 | — | 5,032 | ||||||||||||
Commercial paper | 11,974 | — | — | 11,974 | ||||||||||||
Total available-for-sale | $ | 62,306 | $ | 45 | $ | — | $ | 62,351 | ||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Available-for-sale securities - short-term: | |||||||||||||||||||||||
| U.S. treasury securities | $ | 26,906 | $ | 3 | $ | (12) | $ | 26,897 | |||||||||||||||
| Commercial paper | 3,200 | 2 | — | 3,202 | |||||||||||||||||||
| Yankee debt securities | 14,764 | — | — | 14,764 | |||||||||||||||||||
| Total available-for-sale securities - short-term | 44,870 | 5 | (12) | 44,863 | |||||||||||||||||||
| Total available-for-sale securities | $ | 44,870 | $ | 5 | $ | (12) | $ | 44,863 | |||||||||||||||
As of June 30, 2020March 31, 2023, the Company’s available-for-sale securities classified as short-term of $46.8 million mature in 1 year or less and there were none held long-term. As of December 31, 2019, all2022, the Company’s available-for-sale securities classified as short-term of the Company’savailable-for-salesecurities$44.9 million mature in one1 year or less.less and there were none held long-term.
Note 5—Inventory
Inventory as of June 30, 2020March 31, 2023 and December 31, 20192022 consisted of the following (in thousands):
June 30, 2020 | December 31, 2019 | March 31, 2023 | December 31, 2022 | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Raw materials | $ | 6,468 | $ | 5,492 | Raw materials | $ | 10,253 | $ | 9,179 | ||||||||||
Work in process | 1,353 | 1,605 | Work in process | 1,843 | 2,025 | ||||||||||||||
Finish goods | 4,445 | 1,327 | |||||||||||||||||
| Finished goods | Finished goods | 2,842 | 2,123 | ||||||||||||||||
Total inventory | $ | 12,266 | $ | 8,424 | Total inventory | $ | 14,938 | $ | 13,327 | ||||||||||
Note 6—Lessor Sales-Type Leases
The Company recognizes revenue and costs, as well as a lease receivable, at the commencement of embedded sales-type leases within its deferred equipment agreements. There was no lease revenue related to sales-type leases for both the three months ended March 31, 2023 and 2022. Costs related to embedded leases within the Company’s deferred equipment agreements are included in cost of products sold in the condensed consolidated statements of operations and comprehensive loss.
As of March 31, 2023 and December 31, 2022, a balance of $0.6 million for both periods for short-term leases receivable is recorded in prepaid expenses and other current assets on the condensed consolidated balance sheets, and a balance of $0.4 million and $0.5 million, respectively, for long-term leases receivable is recorded in other assets related to sales-type leases.
The following table is an estimation of maturities of customer sales-type lease receivables for each of the following years as of March 31, 2023 (in thousands):
| Total Maturities | |||||
| Nine months ending December 31, 2023 | $ | 527 | |||
| Year ending December 31, 2024 | 393 | ||||
| Year ending December 31, 2025 | 133 | ||||
| Total maturities of customer sales-type leases | $ | 1,053 | |||
Note 6—7—Property and Equipment, Net
The Company’s property and equipment, net, consisted of the following as of June 30, 2020March 31, 2023 and December 31, 20192022 (in thousands):
18
June 30, 2020 | December 31, 2019 | |||||||
(unaudited) | ||||||||
Medical diagnostic equipment | $ | 7,180 | $ | 5,492 | ||||
Furniture and fixtures | 388 | 159 | ||||||
Office equipment | 1,377 | 1,321 | ||||||
Laboratory equipment and software | 3,380 | 2,807 | ||||||
Leasehold improvements | 595 | 507 | ||||||
Construction in process | 102 | 306 | ||||||
Total property and equipment | 13,022 | 10,592 | ||||||
Less: accumulated depreciation | (5,438 | ) | (6,165 | ) | ||||
Property and equipment, net | $ | 7,584 | $ | 4,427 | ||||
| March 31, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Medical diagnostic equipment | $ | 15,042 | $ | 14,826 | |||||||
| Furniture and fixtures | 400 | 432 | |||||||||
| Office equipment | 1,556 | 1,556 | |||||||||
| Laboratory equipment and software | 5,226 | 5,148 | |||||||||
| Leasehold improvements | 608 | 580 | |||||||||
| Construction in process | 2,008 | 2,166 | |||||||||
| Total property and equipment | 24,840 | 24,708 | |||||||||
| Less: accumulated depreciation | (16,695) | (15,487) | |||||||||
| Property and equipment, net | $ | 8,145 | $ | 9,221 | |||||||
Property and equipment includes certain medical diagnostic equipment and AcQMap Systems located at customer premises. The Company retains the ownership of the equipment and has the right to remove the equipment if it is not being used according to expectations. The Company records the cost of equipment to cost of sales on the condensed consolidated statements of operations and comprehensive loss when it is subsequently sold or the Company enters into a sales-type lease agreement. See Note 6 - Lessor Sales-Type Leases for additional details.
Depreciation expense was $0.6$1.3 million and $0.5$1.6 million for the three months ended June 30, 2020March 31, 2023 and 2019, respectively, and $1.0 million and $1.1 million2022, respectively.
Note 8—Intangible Assets
The following table presents intangible assets activity for the sixthree months ended June 30, 2020 and 2019, respectively.
March 31, 2023 (in thousands):| Intangible Assets | |||||
| Balance, December 31, 2022 | $ | 1,583 | |||
| Amortization expense | (50) | ||||
| Balance, March 31, 2023 (unaudited) | $ | 1,533 | |||
The tabletables below summarizes goodwill andpresent the details of intangible assets activities as of June 30, 2020March 31, 2023 and December 31, 2019 (in2022 (dollars in thousands):
| March 31, 2023 | Estimated Useful Life (in years) | Weighted Average Remaining Life (in years) | Intangible Assets | Accumulated Amortization | Balance | ||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||
| Licensed intangibles | 10.0 | 7.7 | $ | 2,000 | $ | (467) | $ | 1,533 | |||||||||||||||||||||
| Total intangible assets | $ | 2,000 | $ | (467) | $ | 1,533 | |||||||||||||||||||||||
Goodwill | Intangible Assets | |||||||
Balance at December 31, 2019 | $ | 12,026 | $ | 4,110 | ||||
Amortization expense | — | (220 | ) | |||||
Balance at June 30, 2020 (unaudited) | $ | 12,026 | $ | 3,890 | ||||
| December 31, 2022 | Estimated Useful Life (in years) | Weighted Average Remaining Life (in years) | Intangible Assets | Accumulated Amortization | Balance | ||||||||||||||||||||||||
| Licensed intangibles | 10.0 | 7.9 | 2,000 | (417) | 1,583 | ||||||||||||||||||||||||
| Total intangible assets | $ | 2,000 | Rx | $ | (417) | $ | 1,583 | ||||||||||||||||||||||
Estimated Useful Life (in years) | Weighted Average Remaining Life (in years) | Intangible Assets | Accumulated Amortization | June 30, 2020 | ||||||||||||
(unaudited) | ||||||||||||||||
Developed technology | 10 | 9.1 | $ | 4,200 | $ | (390 | ) | $ | 3,810 | |||||||
Trademarks and trade names | 0.5 | — | 60 | (60 | ) | — | ||||||||||
Customer-related intangible | 5 | 4 | 100 | (20 | ) | 80 | ||||||||||
Total | $ | 4,360 | $ | (470 | ) | $ | 3,890 | |||||||||
Estimated Useful Life (in years) | Weighted Average Remaining Life (in years) | Intangible Assets | Accumulated Amortization | December 31, 2019 | ||||||||||||||||
Developed technology | 10 | 9.5 | $ | 3,600 | $ | (180 | ) | $ | 3,420 | |||||||||||
In-process technology | indefinite | 600 | — | 600 | ||||||||||||||||
Trademarks and trade names | 0.5 | — | 60 | (60 | ) | — | ||||||||||||||
Customer-related intangible | 5 | 4.5 | 100 | (10 | ) | 90 | ||||||||||||||
Total | $ | 4,360 | $ | (250 | ) | $ | 4,110 | |||||||||||||
19
The following table showspresents the remainingfuture amortization expense associated with amortizable intangible assets as of June 30, 2020March 31, 2023 (in thousands):
| Total Amortization | |||||||||||||||||||||||
| Nine months ending December 31, 2023 | $ | 150 | |||||||||||||||||||||
| Year ending December 31, 2024 | 200 | ||||||||||||||||||||||
| Year ending December 31, 2025 | 200 | ||||||||||||||||||||||
| Year ending December 31, 2026 | 200 | ||||||||||||||||||||||
| Year ending December 31, 2027 | 200 | ||||||||||||||||||||||
| Thereafter | 583 | ||||||||||||||||||||||
| Total future amortization | $ | 1,533 | |||||||||||||||||||||
Developed Technology | Customer-Related Intangible | Total Amortization | |||||||||||
Six months ending December 31, 2020 | $ | 210 | $ | 10 | $ | 220 | |||||||
Year ending December 31, 2021 | 420 | 20 | 440 | ||||||||||
Year ending December 31, 2022 | 420 | 20 | 440 | ||||||||||
Year ending December 31, 2023 | 420 | 20 | 440 | ||||||||||
Year ending December 31, 2024 | 420 | 10 | 430 | ||||||||||
Thereafter | 1,920 | 0 | 1,920 | ||||||||||
Total | $ | 3,810 | $ | 80 | $ | 3,890 | |||||||
Note 8—9—Accrued Liabilities
Accrued liabilities consisted of the following as of June 30, 2020March 31, 2023 and December 31, 20192022 (in thousands):
June 30, 2020 | December 31, 2019 | March 31, 2023 | December 31, 2022 | ||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Biotronik Asset Acquisition - accrued purchase price | $ | — | $ | 5,000 | |||||||||||||||
Payroll and related expenses | 3,869 | 3,785 | |||||||||||||||||
| Compensation and related expenses | Compensation and related expenses | $ | 4,988 | $ | 6,919 | ||||||||||||||
Professional fees | 1,850 | 188 | Professional fees | 169 | 126 | ||||||||||||||
Deferred revenue | 88 | 311 | Deferred revenue | 297 | 326 | ||||||||||||||
| Sales and use tax | Sales and use tax | 724 | 639 | ||||||||||||||||
| Clinical studies | Clinical studies | 252 | 390 | ||||||||||||||||
| Clinician Council payable | Clinician Council payable | 191 | 216 | ||||||||||||||||
| Accrued royalties | Accrued royalties | 223 | 159 | ||||||||||||||||
| Accrued restructuring | Accrued restructuring | 19 | 45 | ||||||||||||||||
Other | 1,229 | 792 | Other | 439 | 866 | ||||||||||||||
Total accrued liabilities | $ | 7,036 | $ | 10,076 | Total accrued liabilities | $ | 7,302 | $ | 9,686 | ||||||||||
Note 9—10—Debt
Outstanding debt as of June 30, 2020March 31, 2023 and December 31, 20192022 consisted of the following (in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
2022 Credit Agreement(1) | $ | 36,750 | $ | 36,776 | |||||||
| Total outstanding debt, gross | 36,750 | 36,776 | |||||||||
| Less: Unamortized debt discount and fees | (2,224) | (2,342) | |||||||||
| Total outstanding debt, long-term | $ | 34,526 | $ | 34,434 | |||||||
June 30, 2020 | December 31, 2019 | |||||||
(unaudited) | ||||||||
2019 Credit Agreement (1) | $ | 44,550 | $ | 44,550 | ||||
Total debt, gross | 44,550 | 44,550 | ||||||
Less: Unamortized debt discount and fees | (5,992 | ) | (6,306 | ) | ||||
Total long-term debt | $ | 38,558 | $ | 38,244 | ||||
2022 Amended and Restated Credit Agreement
On May 20, 2019,June 30, 2022, the Company entered into aamended and restated its prior debt facility. The amended and restated credit agreement (the "2022 Credit Agreement (the “2019 Credit Agreement”Agreement"). The 2019 Credit Agreement provided the is with new lenders consisting of certain affiliates of Deerfield Management Company with a senior term loan facility in(collectively referred to as “Deerfield”) and is for an aggregate principal amount of $70.0$35.0 million and has a 5-year term. Proceeds from the 2022 Credit Agreement, along with cash on hand, were used to repay the prior debt facility and to pay related fees and expenses.
20
Table of which the Company borrowed $40.0 million upon closing. Of the remaining amount of the facility, $10.0 million was available for borrowing by the Company on or prior to June 30, 2020 and $20.0 million is available for borrowing by the Company on or prior to December 31, 2020, in each case subject to the achievement of specified trailing revenue levels. Contents
The Company did not achieve the trailing revenue levels to draw the $10.0 million by June 30, 2020 but the $20.0 million remains available for borrowing on or prior to December 31, 2020 if the specified trailing revenue levels are met. The 20192022 Credit Agreement bears an annual interest per annum at 7.75%of 9% plus LIBOR for such interest period andthe one-month adjusted term Secured Overnight Financing Rate (applying a 2.5% minimum rate). From date of closing, amortization payments are due as follows:
•15% of the principal amountdue at the end of term loans outstanding undermonth 36;
•15% of the 2019principal due at the end of month 48; and
•70% due at the end of month 60.
The 2022 Credit Agreement is due on May 20, 2024.subject to prepayment penalties. The 20192022 Credit Agreement provides for final payment fees of an additional $4.6$1.8 million that are due upon prepayment, or on the maturity date or upon acceleration.
The 2022 Credit Agreement is secured by a first-priority perfected lien on and security interest in substantially all of the Company’s existing and after-acquired tangible and intangible assets, subject to certain exceptions noted in the 2022 Credit Agreement.
In connection with entering into the 2022 Credit Agreement, the Company entered into a warrant purchase agreement (the "2022 Warrant Purchase Agreement") with Deerfield, pursuant to which the Company issued $37.0 million into Deerfield warrants to purchase up to an aggregate principal amount3,779,018 shares of convertible promissory notes (the “2019 Convertible Notes”). The 2019 Convertible Notes bore interest at 13% per annum and were due on December 31, 2019. The 2019 Convertible Notes, including accrued interest, automatically convert into preferredcommon stock at an exercise price of $1.1114 per warrant share for a period of eight years following issuance (the "2022 Warrants").
The 2022 Warrants represent a freestanding financial instrument and are conditionally puttable at the lowest price per share paid by a cash investor in a qualified equity financing of at least $23.0 million (excluding the principal of any debtholder’s option upon an event that is cancelled or converted into preferred stock inoutside of the equity financing), which occurred on June 12, 2019. In accordance withCompany’s control. Therefore, the 2022 Warrants are classified as liability pursuant to ASC 480, the 2019 Convertible Notes were recorded as share-settled debtinitially and subsequently recognized at fair value. As the 2019 Convertible Notes converted to Series D convertible preferred stock on June 12, 2019, the initial proceeds of $37.0 million is thevalue, with changes in fair value recognized in the statement of operations and the settlement valuecomprehensive loss. Refer to Fair Value Measurements in Note 2 - Summary of the 2019 Convertible Notes.Significant Accounting Policies and Note 13 - Warrants for more information.
, Distinguishing Liabilities from Equity
Note 10—11—Operating Leases
The Company leases approximately 50,800 square feet of office space for its corporate headquarters and manufacturing facility in Carlsbad, California under a noncancelablenon-cancelable operating lease that expires on December 31, 2022.2027. The lease is subject to variable charges for common area maintenance and other costs that are determined annually based on actual costs. The base rent is subject to an annual increase each year. The Company has a renewal option for an additional five-year term upon the expiration date of the lease, which has been excluded from the calculation of theasset as it is not reasonably certain to be exercised.
right-of-use
The following table summarizes quantitative information about the Company’s operating leases for the sixthree months ended June 30, 2020March 31, 2023 and 20192022 (dollars in thousands):
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Operating cash flows used in operating leases | $ | 507 | $ | 477 | ||||
Right-of-use | $ | — | $ | 2,978 | ||||
Weighted-average remaining lease term – operating leases | 1.8 years | 2.3 years | ||||||
Weighted-average discount rate – operating leases | 7.0 | % | 7.0 | % | ||||
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (unaudited) | |||||||||||
| Operating cash flows from operating leases | $ | 281 | $ | 98 | |||||||
| Weighted average remaining lease term – operating leases (in years) | 4.7 | 3.4 | |||||||||
| Weighted average discount rate – operating leases | 7.0 | % | 7.0 | % | |||||||
The following table provides the components of the Company’s operating lease costexpense for the three months ended March 31, 2023 and 2022 (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Operating leases | ||||||||||||||||
Operating lease cost | $ | 216 | $ | 216 | $ | 432 | $ | 432 | ||||||||
Variable lease cost | 92 | 40 | 165 | 104 | ||||||||||||
Total rent expense | $ | 308 | $ | 256 | $ | 597 | $ | 536 | ||||||||
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (unaudited) | |||||||||||
| Operating leases | |||||||||||
| Operating lease cost | $ | 251 | $ | 247 | |||||||
| Variable lease cost | 81 | 77 | |||||||||
| Total operating lease expense | $ | 332 | $ | 324 | |||||||
As of June 30, 2020,March 31, 2023, future minimum payments under the
non-cancelable
operating leases under ASC 842 were as follows (in thousands):Six months ending December 31, 2020 | $ | 507 | ||
Year ending December 31, 2021 | 1,044 | |||
Year ending December 31, 2022 | 1,074 | |||
Year ending December 31, 2023 | 51 | |||
Year ending December 31, 2024 | 51 | |||
Total | 2,727 | |||
Less: present value discount | (251 | ) | ||
Operating lease liabilities | $ | 2,476 | ||
| Nine months ending December 31, 2023 | $ | 330 | |||
| Year ending December 31, 2024 | 1,159 | ||||
| Year ending December 31, 2025 | 1,151 | ||||
| Year ending December 31, 2026 | 1,185 | ||||
| Year ending December 31, 2027 | 1,221 | ||||
| Total | 5,046 | ||||
| Less: present value discount | (824) | ||||
| Operating lease liabilities | $ | 4,222 | |||
Note 11—12—Commitments and Contingencies
The Company and certain of its current and former officers have been named as defendants in two putative securities class action lawsuits filed in the United States District Court for the Southern District of California on February 14, 2022 and March 23, 2022. On July 19, 2022, the court consolidated the two actions, appointed a lead plaintiff and appointed lead counsel for the proposed class. On September 16, 2022, the lead plaintiff filed a consolidated amended complaint. The defendant thereafter filed a motion to dismiss. Due to the complex nature of the legal and factual issues involved in these class action matters, the outcome is not a party topresently determinable and any material legal proceedings andloss is not aware of any pending or threatened claims. From time to time however, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities.
neither probable nor reasonably estimable.22
As of June 30, 2020March 31, 2023 and December 31, 2019,2022, the outstanding warrants to purchase the Company’s common stock were comprisedconsisted of the following:
| Exercise Price | Expiration Date | March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||||
| Warrants issued in 2015 | $ | 5.25 | 1/30/25 | 3,808 | 3,808 | |||||||||||||||||||||
| Warrants issued with 2018 Convertible Notes | $ | 0.10 | 6/7/28 | 346,689 | 346,689 | |||||||||||||||||||||
| Warrants issued with 2018 Term Loan | $ | 16.67 | 7/31/28 | 26,998 | 26,998 | |||||||||||||||||||||
| Warrants issued with 2019 Credit Agreement | $ | 16.67 | 5/20/29 | 419,992 | 419,992 | |||||||||||||||||||||
| Warrants issued with 2022 Credit Agreement | $ | 1.11 | 6/30/30 | 3,779,018 | 3,779,018 | |||||||||||||||||||||
| Total Warrants | 4,576,505 | 4,576,505 | ||||||||||||||||||||||||
Equity Upon Exercise | Exercise | Expiration | June 30, 2020 | December 31, 2019 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
Warrants issued in 2015 | Common Stock | $ | 5.25 | 1/30/25 | 7,616 | 7,616 | ||||||||||||||
Warrants issued with 2018 Convertible Notes | Common Stock | $ | 0.10 | 6/7/28 | 501,946 | 501,946 | ||||||||||||||
Warrants issued with 2018 Term Loan | Series D convertible preferred | | $ | 16.67 | 7/31/28 | 26,998 | 26,998 | |||||||||||||
Warrants issued with 2019 Credit Agreement | Series D convertible preferred | | $ | 16.67 | 5/20/29 | 419,992 | 419,992 | |||||||||||||
Total Warrants | 956,552 | 956,552 | ||||||||||||||||||
The Company’s warrants provide the holder the option to purchase a specified number of shares for a specified price.price within a specified duration or upon the occurrence of a specific event. The holder may exercise the warrant ineither by cash payment or by exercise pursuant to a cashless exercise whereby a calculated number of shares are withheld upon exercise to satisfy the exercise price. The warrants do not provide the holder any voting rights until the warrants are exercised. In the event of conversion of the Company’s convertible preferred stock into common shares, the warrants become exercisable into common shares of the Company’s stock, subject to certain adjustments.
In accordance with ASC 815, other than480, the warrants issued in 2015, the warrants2022 Warrants are recorded as liabilities at fair value aton the issuance date.condensed consolidated balance sheets as a warrant liability. Changes in the fair value are recognized inas a change in fair value of warrant liability and embedded derivative in the condensed consolidated statements of operations and comprehensive loss atloss. For the endthree months ended March 31, 2023, a favorable fair value change of each reporting period.
$1.4 million was recognized.In accordance with ASC 815, the warrants issued in 2015 do not meet the definition of a derivative and are classified in stockholders’ deficit in the condensed consolidated balance sheets.
Note 14—Stockholders’ Equity
Series A convertible preferred stock, $1.07 per annum for each share of Series B convertible preferred stock and $1.36 per annum for each share of Series C convertible preferred stock and Series D convertible preferred stock, as adjusted. The dividend rightswerenot cumulative.
In August 2021, the Company entered into exchange agreements (the “Exchange Agreements”) with four investors pursuant to receive a liquidation preference prior to any distribution towhich the holders of common stock, after payment of the Series D Liquidation Preference, in the amount of the applicable original issue price plus declared but unpaid dividends on such shares.
Series | Conversion Price | |||
Series A convertible preferred stock | $ | 8.295 | ||
Series B convertible preferred stock | $ | 13.370 | ||
Series C convertible preferred stock | $ | 16.667 | ||
Series D convertible preferred stock | $ | 16.667 | ||
Upon election, each holder may convert each share of Preferred Stock into 1,000 shares of common stock, except to 260,000,000 and authorizedthe extent that following such conversion the number of shares of undesignated preferredcommon stock held by such holder, its affiliates and any other persons whose beneficial ownership of common stock would be aggregated with such holder’s for purposes of Section 13(d) of the Exchange Act including shares held by any “group” (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and applicable regulations of the Securities and Exchange Commission ("SEC")) of which such holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to 5,000,000.acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth in the Series A Certificate of Designation, exceeds 4.9% (or, at the election of the holders, OrbiMed Private Investments IV, LP or OrbiMed
23
Royalty Opportunities II, LP, made by delivering at least 61 days advance written notice to the Company of its intention to increase the beneficial ownership cap applicable to such holder, 9.9%) of the total number of shares of common stock then issued and outstanding.
Common Stock
During the sixthree months ended June 30, 2020March 31, 2023 and 2019,2022, stock options to acquire 64,5623,218 shares and 8,46935,478 shares, respectively, were exercised for shares of the Company's common stock. The Company received approximately $0.2stock with proceeds of less than $0.1 million and $0.1million, forrespectively. Additionally in conjunction with the exercise price of2020 Employee Stock Purchase Plan (the "2020 ESPP"), during the stock options for the sixthree months ended June 30,March 31, 2022, 94,226 shares of common stock were issued for consideration of $0.2 million. No shares were issued related to the 2020 ESPP during the three months ended March 31, 2023. During the three months ended March 31, 2023 and 2019, respectively.
2022, the Company issued 336,206 shares and 192,138 shares, respectively, of common stock upon vesting of RSUs.Note 15—Stock-Based Compensation
2022 Inducement Equity Incentive Plan
The 2022 Inducement Equity Incentive Plan (the “2022 Plan”), which permits the granting of nonstatutory stock options, RSUs, RSAs, stock appreciation rights, performance share units ("PSUs"), performance shares and other equity-based awards to employees, directors and consultants, became effective on March 30, 2022. As of March 31, 2023, 6,000,000 shares of common stock were authorized for issuance under the 2022 Plan, of which 5,887,500 remain available for issuance under the 2022 Plan.
2020 Equity Incentive Plan
The 2020 Equity Incentive Plan (the “2020 Plan”), which permits the granting of nonstatutory stock options, RSAs, RSUs, stock appreciation rights, PSUs, performance shares and other equity-based awards to employees, directors and consultants became effective on August 5, 2020. As of March 31, 2023, 5,573,491 shares of common stock were authorized for issuance under the 2020 Plan, including 1,142,186 additional shares that were authorized on January 1, 2023. As of March 31, 2023, 1,332,061 shares remain available for issuance under the 2020 Plan.
2011 Equity Incentive Plan
The Company’s 2011 Equity Incentive Plan (the “2011 Plan”) permits the granting of incentive stock options,restricted stock, restricted stock unitsRSAs, RSUs and other stock-based awards to employees, directors, officers and consultants. As of June 30, 2020, 3,858,099March 31, 2023, 1,318,865 shares of common stock were authorized for issuance under the 2011 Plan and 390,912no shares remain available for issuance under the 2011 Plan. No additional awards will be granted under the 2011 Plan. Shares that become available for issuance from the outstanding awards under the 2011 Plan due to forfeiture, or otherwise, will become available for issuance from future awards under the 2020 Plan.
non-statutory
stock options, Stock Options
ten-year
contractual term. The fair value of each employee andnon-employee
stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The 24
The following assumptions were used to estimate the fair value of stock optionoptions for the sixthree months ended June 30, 2020March 31, 2023 and 2019:
2022:| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (unaudited) | |||||||||||
| Risk-free interest rate | 4.27% | 1.76% | |||||||||
| Expected dividend yield | — | — | |||||||||
| Expected term in years | 5.6 | 6.0 | |||||||||
| Expected volatility | 75% | 75% | |||||||||
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Risk-free interest rate | 0.90% | 2.0% - 2.1 % | ||||||
Expected dividend yield | — | — | ||||||
Expected term in years | 7.0 | 6.38 - 10.00 | ||||||
Expected volatility | 70.0% | 80.0% | ||||||
The following table summarizesCompany's stock option activity duringfor the sixthree months ended June 30, 2020:
Stock Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic (in | |||||||||||||
Outstanding as of December 31, 2019 | 2,041,205 | $ | 9.52 | 7.7 | $ | 7,857 | ||||||||||
Options granted | 867,031 | 14.81 | ||||||||||||||
Option exercised | (111,936 | ) | 7.73 | |||||||||||||
Options forfeited | (200,213 | ) | 12.01 | |||||||||||||
Outstanding as of June 30, 2020 (unaudited) | 2,596,087 | $ | 11.17 | 7.8 | $ | 17,816 | ||||||||||
Options vested and exercisable as of June 30, 2020 (unaud i ted) | 1,138,429 | $ | 8.34 | 6.1 | $ | 11,037 | ||||||||||
| Stock Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding as of December 31, 2022 | 2,898,821 | $ | 6.83 | 6.9 | $ | 79 | |||||||||||||||||
| Options granted | 592,500 | 1.41 | |||||||||||||||||||||
| Options exercised | (3,218) | 1.34 | $ | 1 | |||||||||||||||||||
| Options forfeited | (35,224) | 2.10 | |||||||||||||||||||||
| Outstanding as of March 31, 2023 (unaudited) | 3,452,879 | $ | 5.96 | 7.2 | $ | 29 | |||||||||||||||||
| Options vested and exercisable as of March 31, 2023 (unaudited) | 2,019,014 | $ | 7.88 | 5.9 | $ | — | |||||||||||||||||
on the last day of the fiscal period, which was $0.75 and $1.15 as of June 30, 2020
March 31, 2023 and December 31, 2022, respectively, and the exercise priceprice. The aggregate intrinsic value for options exercised in the above table represents the product of the number of options exercised multiplied by the difference between the per share fair value of the Company’s stock options.on the date of exercise and the exercise price. The weighted-averageweighted average grant date fair value per share for the stock option awards granted during the sixthree months ended June 30, 2020March 31, 2023 was $14.81.$0.94. As of June 30, 2020,March 31, 2023, the total unrecognized compensation related to unvested stock option awards granted was $13.8$5.8 million, which the Company expects to recognize over a weighted-average period of approximately 2.81.5 years.
Restricted Stock Units (RSUs)
The Company’s RSARSU activity for the sixthree months ended June 30, 2020March 31, 2023 was as follows:
| Number of Shares | Weighted Average Grant Price | ||||||||||
| Unvested as of December 31, 2022 | 1,659,898 | $ | 4.17 | ||||||||
| Granted | 1,525,000 | 1.41 | |||||||||
| Forfeited | (77,720) | 5.53 | |||||||||
| Vested | (453,549) | 2.11 | |||||||||
| Unvested as of March 31, 2023 (unaudited) | 2,653,629 | $ | 2.90 | ||||||||
As of March 31, 2023, there was $6.1 million of unrecognized compensation related to unvested RSUs, which the Company expects to recognize over a weighted-average period of approximately 1.8 years.
Employee Stock Purchase Plan
The 2020 ESPP permits individual employees to purchase shares of the Company’s common stock from amounts accumulated under payroll deductions. The ESPP became effective on August 5, 2020 wherein 645,105 shares of common stock were authorized. Additional shares of common stock are allocated to the 2020 ESPP by the determination of the Compensation
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Number of Shares | Weighted Average Grant Price | |||||||
Unvested as of December 31, 2019 | — | $ | — | |||||
Granted | 14,945 | 14.81 | ||||||
Vested | (14,945 | ) | 14.81 | |||||
Unvested as of June 30, 2020 (unaudited) | — | $ | — | |||||
Committee of the Company’s Board of Directors, in its sole discretion, and by evergreen provisions in the plan authorization.Automatically authorized in 2023 were 252,042 shares under the plan's evergreen provision. As of March 31, 2023, 714,179 shares are available for purchase under the Company's 2020 ESPP.
The 2020 ESPP is implemented in consecutive offering periods with a new offering period commencing on the first trading day on or after May 15 and November 15 of each year and terminating on the last trading day on or before November 14 and May 14, respectively. On each purchase date, which falls on the last date of each offering period, 2020 ESPP participants will purchase shares of common stock at a price per share equal to 85% of the lesser of (1) the fair market value per share of the common stock on the offering date or (2) the fair market value of the common stock on the purchase date. The occurrence and duration of offering periods under the 2020 ESPP are subject to the determinations of the Compensation Committee of the Company’s Board of Directors, in its sole discretion.
The fair value of the 2020 ESPP shares used in determining compensation expense is estimated using the Black-Scholes option pricing model.
Total Stock-Based Compensation
The following table summarizes the total stock-based compensation expense for the stock options, PSUs, RSUs, RSAs and RSAsESPP expense recorded in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020March 31, 2023 and 20192022 (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (unaudited) | |||||||||||
| Cost of products sold | $ | 74 | $ | 226 | |||||||
| Research and development | 346 | 514 | |||||||||
| Selling, general and administrative | 1,484 | 2,292 | |||||||||
| Total stock-based compensation | $ | 1,904 | $ | 3,032 | |||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Cost of products sold | $ | 58 | $ | 54 | $ | 166 | $ | 106 | ||||||||
Research and development | 167 | 150 | 378 | 292 | ||||||||||||
Selling, general and administrative | 932 | 599 | 2,354 | 964 | ||||||||||||
Total stock-based compensation | $ | 1,157 | $ | 803 | $ | 2,898 | $ | 1,362 | ||||||||
Note 16—Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per common share excludes the potential impact of the Company’s convertible preferred stock, common stock options, RSUs, RSAs, intended ESPP purchases and warrants because their effectthe Company's net losses would cause such shares to be anti-dilutive due to the Company’s net loss. Sinceanti-dilutive. Therefore, as the Company had arecorded net losslosses in the periods presented, basic and diluted net loss per common share are the same.
The table below provides potentially dilutive securities not included in the calculation of the diluted net loss per common share because to do so would be anti-dilutive:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| Shares issuable upon: | |||||||||||||||||||||||
| Conversion of Series A Common Equivalent Preferred Stock | 6,665,841 | 6,665,841 | |||||||||||||||||||||
| Exercise of common stock warrants | 4,576,505 | 797,487 | |||||||||||||||||||||
| Exercise of stock options | 2,019,014 | 4,021,359 | |||||||||||||||||||||
| Vesting of RSUs and RSAs | 2,653,629 | 1,718,351 | |||||||||||||||||||||
| Issuance of shares under 2020 ESPP | 51,730 | — | |||||||||||||||||||||
| Total potentially dilutive securities | 15,966,719 | 13,203,038 | |||||||||||||||||||||
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Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Shares issuable upon conversion of Series A Preferred Stock | 391,210 | 391,210 | ||||||
Shares issuable upon conversion of Series B Preferred Stock | 3,088,444 | 3,088,444 | ||||||
Shares issuable upon conversion of Series C Preferred Stock | 4,499,921 | 4,499,921 | ||||||
Shares issuable upon conversion of Series D Preferred Stock | 8,593,360 | 6,418,437 | ||||||
Shares issuable upon exercise of stock options | 2,596,087 | 1,751,616 | ||||||
Shares issuable upon exercise of common stock warrants | 509,562 | 509,562 | ||||||
Shares issuable upon exercise of preferred stock warrants | 446,990 | 446,990 | ||||||
Total | 20,125,574 | 17,106,180 | ||||||
Note 17—401(k) Retirement Plan
The Company has a 401(k) retirement savings plan that provides retirement benefits to substantially all full-time U.S. employees. Eligible employees may contribute a percentage of their annual compensation, subject to Internal Revenue Service limitations. The Company did 0t provide anyprovided no contributions to the 401(k) retirement savings plan for the sixthree months ended June 30, 2020March 31, 2023 and 2019.
2022.Note 18—Related Party Transactions
Consulting Agreement
The Company has a consulting agreement with a director andthe chairman of the Company’s boardBoard of directors.Directors. The Company recorded $47,000 and $74,000less than $0.1 million of expense related to the agreement for both the three months ended June 30, 2020March 31, 2023 and 2019, respectively, and $0.1 million and $0.2 million for the six months ended June 30, 2020 and 2019, respectively, in SG&A expense in the condensed consolidated statements of operations and comprehensive loss, for the consulting services.
2022.Credit Agreements
The Company had a consultingCompany's prior credit agreement with an officer of(the "2019 Credit Agreement") was between the Company in the prior year. The Company recorded $94,000 for the three months ended June 30, 2019, and $0.2 million for the six months ended June 30, 2019 in SG&A expense in the condensed consolidated statements of operations and comprehensive loss, for the consulting services.
The liability for the loan balance related to the 2022 Credit Agreement and the 2019 for a total of $70.0Credit Agreement recorded on the Company's consolidated balance sheets was $34.4 million with $40.0and $40.4 million being drawn as of June 30, 2020.December 31, 2022 and 2021, respectively. The Company recorded $1.3 million and $0.6 million for the three months ended June 30, 2020 and 2019, respectively, and $2.7 million and $0.6 million for the six months ended June 30, 2020 and 2019, respectively, in interest expense related to thesethe debt agreements.
on the consolidated statement of operations and comprehensive loss of $5.1 million and $5.7 million for the years ended December 31, 2022 and 2021, respectively.Registration Rights Agreement
Note 19—Subsequent Events
On August 10, 2020, options to purchase 850,217 shares of common stock, 211,251 restricted stock units and 17,976 restricted stock awards underMay 1, 2023, the 2020 Plan were awarded to certain employees and consultants ofCompany received a notice from The Nasdaq Stock Market (“Nasdaq”) that the Company.
The Company has 180 calendar days, or until October 30, 2023, to regain compliance with the minimum bid price requirement. To regain compliance, the minimum bid price of the Company’s common stock must meet or exceed $1.00 per share for sale undera minimum of ten consecutive business days during this 180-calendar day grace period. In the 2020 ESPP.event the Company does not regain compliance with the minimum bid price requirement by October 30, 2023, the Company may be eligible for an additional 180-calendar day compliance period if it elects to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that market. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the bid price
27
deficiency during the second compliance period. The Company’s failure to regain compliance during this period could result in delisting.
The Company intends to actively monitor the bid price of its common stock and will consider available options to regain compliance with the listing requirements. There can be no assurance that the Company will be able to regain compliance with Nasdaq’s Listing Rule 5450(a)(1) or will otherwise be in compliance with other Nasdaq listing criteria.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes and other financial information included elsewhere in this FormSecurities Exchange Act of 1934, as amended (the “Exchange Act”).Act. In some cases, you can identify these statements by forward-looking words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,”“estimate” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Form10-Q. 10-Q and in the section titled "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. The forward-looking statements in this Form
10-Q.
Some of the information contained in this discussion and analysis or set forth elsewhere in this Form10-Q,
including information with respect to our plans and strategy for our business, includes “forward-looking statements” within the meaning of Section 21E of the 10-Q
represent our views as of the date of this Form10-Q.
Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Form10-Q.
Overview
We are an arrhythmia management company focused on improving the way cardiac arrhythmias are diagnosed and treated. Despite several decades of effort by the incumbents in this field, the clinical and economic challenges associated with arrhythmia treatment continue to be a huge burden for patients, providers and payors. We are committed to advancing the field of electrophysiology with a unique array of products and technologies which will enable more physicians to treat more patients more effectively and efficiently. Through internal product development, acquisitions and global partnerships, we have established a global sales presence delivering a broad portfolio of highly differentiated electrophysiology products. Our goal is to provide our customers with a complete solution for catheter-based treatment of cardiac arrhythmias in each of our geographic markets.
Our product portfolio includes novel access catheters,sheaths, diagnostic and mapping catheters, conventional and contact force ablation catheters (currently available only in our European markets), mapping and imaging consoles and accessories, as well as supporting algorithms and software programs. Our foundational and most highly differentiated product is our AcQMap imaging and mapping system. Our paradigm-shifting AcQMap Systemsystem, which offers a novelparadigm-shifting approach to mapping the drivers and maintainers of arrhythmias with unmatched speed and precision. With the ability to rapidly and accurately identify ablation targets and to confirm both ablation success and procedural completion, we believe our AcQMap System addresses thea significant primary unmet need in electrophysiology procedures today.
We were incorporated in the Statestate of Delaware on March 25, 2011 and are headquartered in Carlsbad, California. Early versions of our AcQMap System and certain related accessory products have been used in the United States since May 2018 and Western Europe since July 2016 in a limited, pilot launch capacity, where our focus was on optimizing workflow and validating our value proposition. We fully commenced the launch of our commercial-grade console and software products in the first quarter of 2020. Critical to our launch wereand future market adoption are a series of recent strategic transactions, and regulatory approvals, including: FDAand clinical trial milestones including the following: ongoing development and expansion of our Bi-Lateral Distribution Agreement with Biotronik, Food and Drug Administration (the “FDA”) 510(k) clearance and CE Mark of our second-generation AcQMap console and SuperMap software suite; the addition of an integrated family of transseptal crossing and steerable introducer systems to our product portfolio through our acquisition of Rhythm Xience, Inc., or Rhythm Xience; and the acquisitioncompletion of enrollment in our U.S. clinical study for the AcQBlate Force sensing ablation catheter and system.
In June 2022, we completed the first closing of the sale of our left-heart access portfolio to Medtronic as described further below. On November 3, 2022, we announced our achievement of the OEM Earnout Conditions (as defined in the Asset Purchase Agreement) set forth in the Asset Purchase Agreement. Further on December 1, 2022, Medtronic qualified us as an OEM, and accordingly, we will manufacture this product line from Biotronik SE & Co. KG, or Biotronik. Since our full launch,exclusively for Medtronic for a period of up to four years until such time that Medtronic transfers the Products to a dedicated manufacturing facility and becomes the manufacturer of record. Additionally, on December 21, 2022, we have continuedachieved a $17.0 million Transfer Earnout as set forth in the Asset Purchase Agreement. See Contingent Consideration Relating to enhance our product portfolio and global presence by entering intobi-lateraldistribution agreements with Biotronik in May 2020, which added a full suiteSale of diagnostic and ablation catheters to our product portfolio and significantly expanded our international distribution and market development capabilities.Left-heart Access Portfolio, below.
We market our electrophysiology products worldwide to hospitals and electrophysiologists that treat patients with arrhythmias. We have strategically developed a direct selling presence in the United States and select markets in Western Europe where cardiac ablation is a standard of care and third-party reimbursement is well-established. In these markets, we install our AcQMap console and workstation with customer accounts and then sell our disposable products to those accounts for use with our system. In other international markets, we leverage our partnership with Biotronik to install our AcQMap console and
29
workstation with customer accounts and then to sell our disposable products to those accounts. Once an AcQMap console and workstation is established in a customer account, our revenue from that account becomes predominantly recurring in nature and derived from the sale of our portfolio of disposable products used with our system. Our currently marketed disposable products include access sheaths, transseptal crossing tools, diagnostic and mapping catheters, ablation catheters and accessories. We plan to leverage the geographically concentrated nature of procedure volumes and the recurring nature of our sales to drive an increasingly efficient commercial model.
For the three months ended March 31, 2023 and 2022, we generated revenue of $4.2 million and $3.7 million, respectively, of which 46% and 45%, respectively, was from customers located outside of the United States. Since our inception, we have generated significant losses. Our net loss was $16.3 million and $40.0 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023 and December 31, 2022, we had an accumulated deficit of $534.6 million and $518.3 million, respectively, and working capital of $84.7 million and $98.0 million, respectively.
Restructuring
In 2022, we completed an organizational workforce reduction and implemented additional cost reduction measures to reduce our operating expenses and optimize our cash resources. The restructuring was the result of a detailed review of our strategic priorities, the external environment, and cost structure and is intended to sharpen our focus and strengthen our financial position. As part of the restructuring, we intend to prioritize maximizing console utilization and procedure volume growth in targeted geographic regions, as well as a more focused scope of product development initiatives.
Contingent Consideration Relating to Sale of Left-heart Access Portfolio
On June 30, 2020,2022, we completed the first closing in accordance with the Asset Purchase Agreement with Medtronic, pursuant to which we agreed to sell to Medtronic certain transseptal access and sheath assets which make up our left-heart access portfolio (and which comprised the Rhythm Xience product line as part of the acquisition of Rhythm Xience). Pursuant to the Asset Purchase Agreement, Medtronic paid $50.0 million at the First Closing, of which $4.0 million was paid into an indemnity escrow account for a period of 18 months following the First Closing to secure our indemnification obligations under the Asset Purchase Agreement, which we recorded as restricted cash on our condensed consolidated balance sheets.
The Company is also eligible to receive the following contingent cash consideration pursuant to the Asset Purchase Agreement:
(i) OEM Earnout: $20.0 million upon the Company’s completion, to the reasonable satisfaction of Medtronic, of certain conditions set forth in the Asset Purchase Agreement relating to the Company becoming a qualified supplier of Medtronic for the Products, including demonstration of ISO 14971:2019 compliance, completion of certain test method validations and compliance with certain other reporting requirements;
(ii) Transfer Earnout: $17.0 million upon the earlier of (A) the Second Closing or (B) the Company’s initial submission for CE Mark certification of the Products under the European Union Medical Devices Regulation, to the reasonable satisfaction of a third-party regulatory consultant, subject to certain other conditions as set forth in the Asset Purchase Agreement; and
(iii) Net Sales Earnouts: Amounts equal to 100%, 75%, 50% and 50%, respectively, of quarterly Net Sales (as defined in the Asset Purchase Agreement) from sales of the Products achieved by Medtronic over each year of a four-year period beginning on the first full quarter after Medtronic’s first commercial organization consistedsale of 60 individuals with substantial applicable medical device, salesa Product and clinical experience,achievement of the OEM Earnout.
The $20.0 million OEM Earnout was achieved in October 2022 and payment was received in November 2022, of which $1.6 million is held in escrow and recorded as restricted cash on the condensed consolidated balance sheets. The $17.0 million Transfer Earnout was achieved in December 2022 and payment was received in January 2023, of which $1.4 million is held in escrow and recorded as restricted cash on the condensed consolidated balance sheets. During the three months ended March 31, 2023, $1.2 million was earned under item (iii) and recorded as a receivable on the condensed consolidated balance sheet as of March 31, 2023.
With the achievement of the OEM Earnout Conditions (as defined in the Asset Purchase Agreement) and upon notice from Medtronic, Medtronic became the Company's exclusive distributor of the Products under the Distribution Agreement.
A second closing would occur on a date determined by Medtronic, but no later than the fourth anniversary of the First Closing, subject to the satisfaction of customary closing conditions. Upon the Second Closing, Medtronic will acquire certain additional
30
assets relating to the Products, primarily supplier agreements and permits and design and specification files required for Medtronic to become the manufacturer of record of the Products.
Key Business Metrics
We regularly review a number of operating and financial metrics, including sales managers, sales representativesthe following key business metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and mappers. Over time,make strategic decisions. We believe that the following metrics are representative of our current business. However, we plan to selectively add highly qualified personnel toanticipate these metrics may change or may be substituted for additional or different metrics as our commercial organization with a strategic mix of sales representativesbusiness grows and mappers to cover the concentrated group of hospitalsas we introduce new products.
Installed Base
Our mapping and therapy platform is enabled by our AcQMap console that we install at customer sites globally. We believe perform the majority of the cardiac ablation procedures in our direct markets.
| As of March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (unaudited) | |||||||||||
| Acutus | |||||||||||
| U.S. | 28 | 39 | |||||||||
| Outside the U.S. | 49 | 38 | |||||||||
| Total Acutus net system placements | 77 | 77 | |||||||||
Procedure Volumes
Once an AcQMap console and workstation is established in a customer account, our revenue from that account becomes predominantly recurring in nature and derived from the sale of our portfolio of disposable products used with our system. We believe our installed base is oneProcedure volumes and the utilization of the key indicators of our ability to drive customer adoption of our products. We define our installed base as the cumulative number of AcQMap consoles and workstations placed into service at customer sites. Beginning in late 2019, we began to install our second-generation AcQMap console and workstation with customers under evaluation contracts. Under these evaluation contracts, we place our AcQMap console and workstation with customers for no upfront fee towill be the customer during the applicable evaluation period and seek to reach agreement with the customer for purchase of the console and workstation in the form of a contractual commitment to purchase a minimum amountprimary driver of our disposable products or a cash purchase. business over the long-term.
Our total installed base as of June 30, 2020procedure volumes for the three months ended March 31, 2023 and 2019 is2022 are set forth in the table below:
As of June 30, | ||||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Acutus Direct | ||||||||
US | 20 | 8 | ||||||
Europe | 18 | 18 | ||||||
Total Acutus Direct | 38 | 26 | ||||||
Biotronik | — | — | ||||||
Total net system placements | 38 | 26 | ||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| Procedure volumes | 451 | 465 | |||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Acutus Direct | ||||||||||||||||
US | 7 | 1 | 10 | 3 | ||||||||||||
Europe | — | 2 | 1 | 2 | ||||||||||||
Total Acutus Direct | 7 | 3 | 11 | 5 | ||||||||||||
Biotronik | — | — | — | — | ||||||||||||
Total net system placements | 7 | 3 | 11 | 5 | ||||||||||||
Factors Affecting Our Performance
There are a number of factors that have impacted, and we believe will continue to impact, or that we expect to impact, our results of operations and growth. These factors include:
Market Acceptance.
The growth of our business will depend substantially on our ability to increase our installed base. Once an AcQMap console and workstation is established in a customer account, our revenue from that account becomes predominantly recurring in nature and derived from the sale of our portfolio of disposable products used with our system.
Our ability to increase our installed base will depend on our ability to gain broader acceptance of our AcQMap System by continuing to make physicians and other hospital staff aware of the benefits of the AcQMap System, thereby generating increased demand for system installations and the frequency of use of our disposable products. Although we are attempting to
31
increase our installed base through our established relationships and focused sales efforts, we cannot provide assurance that our efforts will be successful.
Commercial Organization Size and Effectiveness
As of June 30, 2020,March 31, 2023, our commercial organization consisted of 6049 individuals with substantial applicable medical device, sales and clinical experience, includingwhich is comprised of sales representatives, sales managers, sales representativesmappers and mappers.marketing personnel. We intend to continue to make significant investments in our commercial organization by increasing the number of ourin training, developing, continuing education, and targeted increases in sales representatives, sales managers and mappers as well as by expanding our global marketing and training programs, to help facilitate further adoption of our products among existing and new customer accounts. The rate ateffectiveness with which we growmanage our commercial organization, and the speed at which newly hired personnel become effectivecontribute to business performance, and the impact of turnover can impact our revenue growth or our costs incurred in anticipation of such growth.
Strategic Partnerships and Acquisitions
We have in the past, and may in the future, enter into strategic partnerships and acquire complementary businesses, products or technologies. For example, we have entered into strategic partnerships with Innovative Healthacquired our AcQBlate Force Sensing Ablation System from Biotronik in July 2019 and Stereotaxis and, most recently, we entered into our Global Alliance for Electrophysiology with Biotronik in May 2020. In addition, as part of the Asset Purchase Agreement with Medtronic, we added an integrated familywill be their OEM supplier of transseptal crossing and steerable introducer systemsthe Products for up to our product portfolio through our acquisition of Rhythm Xience in June 2019 and acquired our AcQBlate Force sensing product line from Biotronik in July 2019. the next four years.
Our strategic partnerships and acquisitions have helped us establish a global sales presence delivering a broad portfolio of highly differentiated electrophysiology products. Our ability to grow our revenue will depend substantially on our ability to leverage our strategic partnerships and acquisitions to achieve distribution at a global scale, broaden our product portfolio and enable and accelerate global connectivity.
Continued Investment in Innovation
Our business strategy relies significantly on innovation to develop and introduce new products and to differentiate our products from our competitors.
We expect our investments in 2019, our research and development team released five new disposable products, two hardware products, including a major generational update to our AcQMap System, and 15 software updates. We expect our research and development expenditures to increasedecrease as we make additional investments to support our growth strategies.have a focused scope on key product development initiatives. We plan to increase our research and development expenditures with internal initiatives, as well as potentially licensing or acquiring technology from third parties. We also expect expenditures associated with our manufacturing organization to grow over time as production volume increases and we bring new products to market. Our internal and external investments will be focused on initiatives that we believe will offer the greatest opportunity for growth and profitability. With a significant investment in research and development, a strong focus on innovation and a well-managed innovation process, we believe we can continue to innovate and grow.
Introducing additional, innovative products is also expected to help support our existing installed base and help drive demand for additional installations of our system. If, however, our future innovations are not successful in meeting customers’ needs or prove to be too costly relative to their perceived benefit, we may not be successful. Moreover, as cost of products sold, operating expenses and capital expenditures fluctuate over time, we may experience short-term, negative impacts to our results of operations and cash flows, but we are undertaking such investments in the belief that they will contribute to long-term growth.
Product and Geographic Mix;Mix and Timing
Our financial results, including our gross margins, may fluctuate from period to period due to a variety of factors, including: average selling prices; production volumes; the cost of direct materials; the timing of customer orders or medical procedures and the timing and number of system installations; the number of available selling days in a particular period, which can be impacted by a number of factors such as holidays or days of severe inclement weather in a particular geography; the mix of products sold and the geographic mix of where products are sold; the level of reimbursement available for our products; discounting practices; manufacturing costs; product yields;
Future selling prices and gross margins for our products may fluctuate due to a variety of other factors, including the introduction by others of competing products or the attempted integration by third parties of capabilities similar to ours into
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their existing products. We aim to mitigate downward pressure on our selling prices by increasing the value proposition offered by our products through innovation. While we have not yet experienced significant seasonality in our results, it is not uncommon in our industry to experience seasonally weaker revenue during the summer months andholiday season.
end-of-year
Regulatory Approvals/Approvals / Clearances and Timing and Efficiency of New Product Introductions
In May 2022, we completed enrollment in our U.S. IDE study for the AcQBlate Force Sensing Ablation System for use in right atrial flutters. We
In May 2021, we received FDA clearance andapproval to initialize an atrial fibrillation IDE trial in the United States with the AcQBlate Force Sensing Ablation System. Additionally, we received CE Mark approval for a broad suite of electrophysiology products that includes the next-generation AcQGuide MAX and AcQGuide VUE large bore delivery sheaths and the next-generation AcQMap Mapping Catheter in May 2021. Further, we received CE Mark in December 2020 in Europe for the use of our AcQBlate Force ablation cathetersSensing Ablation System and Qubic Force deviceare seeking FDA PMA for this system in the United States, and Europe, as well as regulatory clearance or approval of our other pipeline products in the United States and in international markets.
Our ability to grow our revenue will depend on our obtaining necessary regulatory approvals or clearances for our products. In addition, as we introduce new products, we expect to build our inventory of components and finished goods in advance of sales, which may cause quarterly and annual fluctuations in our results of operations.
Competition
COVID-19 Pandemic
The markets we serve could see continued impacts from COVID-19
COVID-19
pandemic on our productivity, results of operations and financial position, and its disruption to our business and our clinical programs and timelines, will depend, in part, on the length and severity of Global Supply Chain Disruption
Variability in Operating Results
In addition, we may experience meaningful variability in our quarterlyyearly revenue and gross profit/loss as a result of a number of factors, including, but not limited to: inventory write-offs and write-downs; costs, benefits and timing of new product introductions; the availability and cost of components and raw materials; and fluctuations in foreign currency exchange rates.rates, inflation rates and interest rates; and our ability to realize the benefits of our recent corporate restructuring. Additionally, we may experience quarters in which our costs and operating expenses, in particular our research and development expenses, fluctuate depending on the stage and timing of product development.
Revenue
Our revenue consists of: (i) revenue from the sale of our disposable products; (ii) revenue from the sale, rental, or leasing of systems; and (ii) systems and service(iii) service/other revenue. In the United States and select markets in Western Europe where we have developed a direct selling presence, we install our AcQMap console and workstation with our customer accounts and then generate revenue from the sale of our disposable products to these accounts for use with our system. We also generate revenue from the direct sale of our AcQMap console into hospital accounts as well as revenue through long-term customer commitments on disposable purchases. In addition, we generate revenue under our Distribution Agreement with Medtronic, as Medtronic’s exclusive OEM supplier of the left-heart access products sold to Medtronic under the Asset Purchase Agreement. In other international markets, we leverage our partnership with Biotronik to install our AcQMap console and workstation with customer accounts and then generate revenue from Biotronik’s sale of our disposable products to these accounts for use with our system. Our currently marketed disposable products include access sheaths, transseptal crossing tools, diagnostic and mapping catheters, ablation catheters and accessories.
Costs and Operating Expenses
Cost of Products Sold
Cost of products sold consist primarily of raw materials, direct labor, manufacturing overhead associated with the production and sale of our disposable products and, to a more limited extent, production and depreciation of our AcQMap console and workstation that we install with our customer accounts. We depreciate equipment over a three-year period. Cost of products sold also includes expenditures for warranty, field service, freight, royalties and inventory reserve provisions. We expect cost of products sold to increase in absolute dollars in future periods as our revenue increases.
Research and Development Expenses
Research and development expenses consist primarily of salaries and employee-related costs (including stock-based compensation) for personnel directly engaged in research and development activities, clinical trial expenses, equipment costs, materials costs, allocated rent and facilities costs and depreciation.
Research and development expenses related to possible future products are expensed as incurred. We also accrue and expense costs for activities associated with clinical trials performed by third parties as incurred. All other costs relative to setting up clinical trial sites are expensed as incurred. Clinical trial site costs related to patient enrollment are accrued as patients are entered into the trials.
Selling, General and Administrative Expenses
Goodwill Impairment
During the year ended December 31, 2022, our management assessed qualitative factors and determined it was more likely than not that the fair value of the goodwill was less than its carrying amount. In performing a quantitative impairment test, we determined that goodwill was fully impaired. Consequently, a one-time expense was recorded to goodwill impairment reflecting the elimination of goodwill from the consolidated balance sheets.
34
Restructuring Expenses
In 2022 we undertook an organizational workforce reduction and have implemented additional cost reduction measures. Our restructuring expenses consist of severance expenses related to employees affected by the organizational workforce reduction.
Change in Fair Value of Contingent Consideration
The change in fair value of contingent consideration relates to our June 2019 acquisition of Rhythm Xience. The acquisition included potential earn-out considerations based on the achievement of certain regulatory and revenue milestones. The value of such contingencies is estimated and recorded on the consolidated balance sheets and are adjusted to fair value each period with increases and decreases of in the estimated fair value of the contingent consideration earn-out recognized in the statement of operations and comprehensive loss.
Gain on Sale of Business
Gain on sale of business consists of the value of consideration received by us in excess of the book value of assets transferred to period asthe buyer and net of direct selling costs. In 2022, we completed the First Closing of the sale of certain assets to Medtronic whereby the value received was in excess of the book value of the assets transferred, resulting in a recognized gain of $79.5 million. Gain on sale of business also consists of consideration contingent upon the satisfaction of certain contractual conditions. Associated with the sale and included in the above recognized gain, in 2022, we achieved both an OEM Earnout entitling us to $20.0 million in contingent consideration and a Transfer Earnout entitling us to $17.0 million.
Additionally, over the next four years, we expect to receive a percentage of revenue, as we expand our sale force and increase the numberMedtronic's quarterly commercial sales of our mappers, increase our professional education and physician training, as well asproduct related to support our expanded infrastructure and incur increased costs associated with operating as a public company. These increases are expectedthe sale of business, ranging from 100% in the first year to include increased costs50% in the fourth year. In 2023, we have recognized an estimated gain of $1.2 million related to the net sales earn-outs. Refer to Note 3 - Sale of Business for fees to members of our board of directors, increased employee-related expenses, and increased director and officer insurance premiums, audit and legal fees, investor relations fees and expenses for compliance with public company reporting requirements under the Exchange Act and rules implemented by the SEC, as well as stock exchange rules.more information.
Other Income (Expense)
Change in Fair Value of Warrant Liability
Under the terms of our convertible notes2022 Credit Agreement effective June 30, 2022, we issued in 2018, orwarrants meeting the 2018 Convertible Notes (which were converted into sharesconditions for treatment as a liability. The recorded fair value of our Series D convertible preferred stock in 2019), that were determinedthe liability associated with such warrants is adjusted each reporting period with an entry to be an embedded derivative requiring bifurcation and separate accounting at fair value. The warrants and embedded derivative were subjectto re-measurement ateach balance sheet date with gains and losses reported in ourthe condensed consolidated statements of operations and comprehensive loss.
Interest Income
Interest income consists primarily of interest earned on our cash, cash equivalents and marketable securities.
Interest Expense
Interest expense for the three months ended March 31, 2023 primarily relates to our: (i)interest paid on our 2022 Credit Agreement with Orbimed Royalty Opportunities II, LP and Deerfield Private Design Fund II, L.P., or the 2019 Credit Agreement; (ii) 2018 Term Loan, which was repaid during 2019; (iii) 2018 Convertible Notes; and (iv) convertible notes issued in 2019, or the 2019 Convertible Notes. Our 2018 Convertible Notes and our 2019 Convertible Notes were converted into shares of our Series D convertible preferred stock during 2019.
Results of Operations for the Three Months Ended June 30, 2020March 31, 2023 and 2019
The results of operations presented below should be reviewed in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report on FormJune 30, 2020March 31, 2023 and 2019:2022:
10-Q.
The following table sets forth our results of operations for the three months ended Three Months Ended June 30, | Change | Three Months Ended March 31, | Change | ||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2020 | 2019 | $ | % | (dollars in thousands) | 2023 | 2022 | $ | % | ||||||||||||||||||||||||||||||
(Unaudited) | (unaudited) | ||||||||||||||||||||||||||||||||||||||
Revenue | $ | 1,134 | $ | 734 | $ | 400 | 54 | % | $ | 4,170 | $ | 3,681 | $ | 489 | 13 | % | |||||||||||||||||||||||
Costs of products sold(2) | Costs of products sold(2) | 6,790 | 6,941 | (151) | (2) | % | |||||||||||||||||||||||||||||||||
| Gross profit | Gross profit | (2,620) | (3,260) | 640 | (20) | % | |||||||||||||||||||||||||||||||||
Costs and operating expenses: | |||||||||||||||||||||||||||||||||||||||
Costs of products sold (1) | 2,663 | 2,435 | 228 | 9 | % | ||||||||||||||||||||||||||||||||||
Research and development (1) | 8,176 | 5,247 | 2,929 | 56 | % | ||||||||||||||||||||||||||||||||||
Selling, general and administrative (1) | 9,125 | 6,927 | 2,198 | 32 | % | ||||||||||||||||||||||||||||||||||
| Operating (income) expenses: | Operating (income) expenses: | ||||||||||||||||||||||||||||||||||||||
Research and development(2) | Research and development(2) | 6,117 | 8,003 | (1,886) | (24) | % | |||||||||||||||||||||||||||||||||
Selling, general and administrative(2) | Selling, general and administrative(2) | 9,565 | 14,385 | (4,820) | (34) | % | |||||||||||||||||||||||||||||||||
| Goodwill impairment | Goodwill impairment | — | 12,026 | (12,026) | (100) | % | |||||||||||||||||||||||||||||||||
| Restructuring | Restructuring | 12 | 949 | (937) | (99) | % | |||||||||||||||||||||||||||||||||
Change in fair value of contingent consideration | 635 | — | 635 | NM | Change in fair value of contingent consideration | 200 | 7 | 193 | 2757 | % | |||||||||||||||||||||||||||||
Total operating expenses | 20,599 | 14,609 | 5,990 | 41 | % | ||||||||||||||||||||||||||||||||||
| Gain on sale of business | Gain on sale of business | (1,207) | — | (1,207) | 100% | ||||||||||||||||||||||||||||||||||
| Operating (income) expenses | Operating (income) expenses | 14,687 | 35,370 | (20,683) | (58) | % | |||||||||||||||||||||||||||||||||
Loss from operations | (19,465 | ) | (13,875 | ) | (5,590 | ) | 40 | % | Loss from operations | (17,307) | (38,630) | 21,323 | (55) | % | |||||||||||||||||||||||||
Other income (expense): | Other income (expense): | ||||||||||||||||||||||||||||||||||||||
Change in fair value of warrant liability and embedded derivative | (2,453 | ) | (1,446 | ) | (1,007 | ) | 70 | % | |||||||||||||||||||||||||||||||
Loss on debt extinguishment | — | (1,398 | ) | 1,398 | (100 | %) | |||||||||||||||||||||||||||||||||
| Change in fair value of warrant liability | Change in fair value of warrant liability | 1,446 | — | 1,446 | 100% | ||||||||||||||||||||||||||||||||||
Interest income | 95 | 143 | (48 | ) | (34 | %) | Interest income | 853 | 24 | 829 | 3454 | % | |||||||||||||||||||||||||||
Interest expense | (1,370 | ) | (13,769 | ) | 12,399 | (90 | %) | Interest expense | (1,307) | (1,411) | 104 | (7) | % | ||||||||||||||||||||||||||
Total other expense, net | (3,728 | ) | (16,470 | ) | 12,742 | (77 | %) | ||||||||||||||||||||||||||||||||
| Total other income (expense), net | Total other income (expense), net | 992 | (1,387) | 2,379 | (172) | % | |||||||||||||||||||||||||||||||||
| Loss before income taxes | Loss before income taxes | $ | (16,315) | $ | (40,017) | $ | 23,702 | (59) | % | ||||||||||||||||||||||||||||||
| Income tax benefit | Income tax benefit | $ | — | $ | — | $ | — | * | |||||||||||||||||||||||||||||||
Net loss | $ | (23,193 | ) | $ | (30,345 | ) | $ | 7,152 | (24 | %) | Net loss | $ | (16,315) | $ | (40,017) | $ | 23,702 | (59) | % | ||||||||||||||||||||
Other comprehensive income (loss) | Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||
Unrealized gain (loss) on marketable securities | (14 | ) | 6 | (20 | ) | NM | Unrealized gain (loss) on marketable securities | 12 | (57) | 69 | (121) | % | |||||||||||||||||||||||||||
Foreign currency translation adjustment | 96 | 2 | 94 | NM | Foreign currency translation adjustment | 59 | (166) | 225 | (136) | % | |||||||||||||||||||||||||||||
Comprehensive loss | $ | (23,111 | ) | $ | (30,337 | ) | $ | 7,226 | (24 | %) | Comprehensive loss | $ | (16,244) | $ | (40,240) | $ | 23,996 | (60) | % | ||||||||||||||||||||
(1) The following table sets forth our revenue for disposables, systems, and service/other for the three months ended March 31, 2023 and 2022 (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (unaudited) | |||||||||||
| Disposables | $ | 3,426 | $ | 3,211 | |||||||
| Systems | — | — | |||||||||
| Service/Other | 744 | 470 | |||||||||
| Total revenue | $ | 4,170 | $ | 3,681 | |||||||
Three Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Cost of products sold | $ | 58 | $ | 54 | ||||
Research and development | 167 | 150 | ||||||
Selling, general and administrative | 932 | 599 | ||||||
Total stock-based compensation | $ | 1,157 | $ | 803 | ||||
The following table provides revenue by geographic location for the three months ended March 31, 2023 and 2022 (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (unaudited) | |||||||||||
| United States | $ | 2,248 | $ | 2,023 | |||||||
| Outside the United States | 1,922 | 1,658 | |||||||||
| Total revenue | $ | 4,170 | $ | 3,681 | |||||||
(2)The following table sets forth the stock-based compensation expense included in our results of operations for the three months ended March 31, 2023 and 2022 (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (unaudited) | |||||||||||
| Cost of products sold | $ | 74 | $ | 226 | |||||||
| Research and development | 346 | 514 | |||||||||
| Selling, general and administrative | 1,484 | 2,292 | |||||||||
| Total stock-based compensation | $ | 1,904 | $ | 3,032 | |||||||
Three Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
(Unaudited) | ||||||||
Acutus Direct | ||||||||
Disposables | $ | 899 | $ | 705 | ||||
Systems | — | — | ||||||
Service/Other | 12 | 4 | ||||||
Total Acutus direct revenue | 911 | 709 | ||||||
Distribution agreements | 223 | 25 | ||||||
Total revenue | $ | 1,134 | $ | 734 | ||||
Three Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
(Unaudited) | ||||||||
Acutus Direct | ||||||||
United States | $ | 544 | $ | 221 | ||||
Europe | 367 | 488 | ||||||
Total Acutus direct revenue | 911 | 709 | ||||||
Distribution Agreements | ||||||||
United States | 15 | — | ||||||
Europe | 208 | 25 | ||||||
Total revenue through distribution | 223 | 25 | ||||||
Total revenue | $ | 1,134 | $ | 734 | ||||
Revenue
Revenue was $1.1$4.2 million for the three months ended June 30, 2020,March 31, 2023, compared to $0.7$3.7 million for the three months ended June 30, 2019.March 31, 2022. This increase of $0.4$0.5 million, or 54%13%, was primarily attributable to a $0.4 millionan increase in purchasethe volume of disposable sales outside of the U.S. and sales from left-heart access products through our disposable products used in electrophysiology procedures as a result of a higher installed base, as well as slightly higher average selling prices on certain of our disposable products.partner Medtronic.
Costs and Operating Expenses
Cost of Products Sold
Cost of products sold was $2.7$6.8 million for the three months ended June 30, 2020, compared to $2.4 million for the three months ended June 30, 2019. This increase of $0.2 million, or 9%, was primarily attributable to a $0.2 million increase in warranty and field service expense to support the higher installed base. Gross margin was negative 135% for the three months ended June 30, 2020 compared to negative 232% for the three months ended June 30, 2019. This improvement in gross margin was primarily attributable to increased sales volume of our disposable products.
Research and Development Expenses
Research and development expenses were $6.1 million for the three months ended March 31, 2023, compared to $8.0 million for the three months ended March 31, 2022. This decrease of $1.9 million, or 24%, was primarily attributable to the decrease in increasedproject related spend and compensation and related costs dueas a result of an organizational realignment and reduction in workforce completed in 2022.
Selling, General and Administrative Expenses
SG&A expenses were $9.6 million for the three months ended March 31, 2023, as compared to our investment$14.4 million for the three months ended March 31, 2022. This decrease of $4.8 million, or 34%, was primarily attributable to a decrease in our commercial organizationcompensation and related costs as a result of the reduction in supportworkforce completed in 2022.
Goodwill Impairment
Goodwill impairment expense was $12.0 million for the three months ended March 31, 2022, which consisted of a full impairment of our full commercial launch ingoodwill balance.
Restructuring
Restructuringexpenseswere less than $0.1 million for the United States inthree months ended March 31, 2023, as compared to $0.9 million for the first quarterthree months ended March 31, 2022. This decrease of 2020. However,$0.9 million is entirely due to theCOVID-19pandemic, the increase reduction in workforce which was offset by a $0.2 million decreasecompleted in consulting expenses and $0.5 million decrease in general marketing expenses.2022.
Change in Fair Value of Contingent Consideration
For the three months ended June 30, 2020,March 31, 2023 and 2022, we recorded a change in fair valuean increase of contingent consideration of $0.6$0.2 million and less than $0.1 million, respectively, for the increasechange in the fair value of the contingent consideration for the acquisition of Rhythm Xience.
The increase in change in fair value recorded during the three months ended March 31, 2023 was primarily attributable to an increase in the expected term of the contingent considerations.Gain on Sale of Business
During the three months ended March 31, 2023, the Company recognized an estimated gain on sale of $1.2 million related to Medtronic's left-heart access net sales earn-outs.
Change in Fair Value of Warrant Liability
For the three months ended March 31, 2023 the fair value decreased by $1.4 million. The change in fair value of the warrants is primarily due to a reduction of the Company's share price as of March 31, 2023.
Other Income (Expense), Net
Other expense,income, net was $3.7$1.0 million for the three months ended June 30, 2020,March 31, 2023, compared to $16.5other expense, net of $1.4 million for the three months ended June 30, 2019.March 31, 2022. This decreaseincrease of $12.7$2.4 million or 77%, was primarily attributable to a decrease of $12.4 million in interest expense primarily related to the 2019 Credit Agreement and 2018 Convertible Notes.
Six Months Ended June 30, | Change | |||||||||||||||
2020 | 2019 | $ | % | |||||||||||||
(Unaudited) | ||||||||||||||||
Revenue (2) | $ | 2,717 | $ | 1,521 | $ | 1,196 | 79 | % | ||||||||
Costs and operating expenses: | ||||||||||||||||
Costs of products sold (1) | 5,857 | 4,611 | 1,246 | 27 | % | |||||||||||
Research and development (1) | 16,149 | 9,624 | 6,525 | 68 | % | |||||||||||
Selling, general and administrative (1) | 19,360 | 11,020 | 8,340 | 76 | % | |||||||||||
Change in fair value of contingent consideration | (1,584 | ) | — | (1,584 | ) | NM | ||||||||||
Total operating expenses | 39,782 | 25,255 | 14,527 | 58 | % | |||||||||||
Loss from operations | (37,065 | ) | (23,734 | ) | (13,331 | ) | 56 | % | ||||||||
Other income (expense): | ||||||||||||||||
Change in fair value of warrant liability and embedded derivative | (1,872 | ) | (605 | ) | (1,267 | ) | 209 | % | ||||||||
Loss on debt extinguishment | — | (1,398 | ) | 1,398 | (100 | %) | ||||||||||
Interest income | 370 | 208 | 162 | 78 | % | |||||||||||
Interest expense | (2,724 | ) | (19,511 | ) | 16,787 | (86 | %) | |||||||||
Total other expense, net | (4,226 | ) | (21,306 | ) | 17,080 | (80 | %) | |||||||||
Net loss | $ | (41,291 | ) | $ | (45,040 | ) | $ | 3,749 | (8 | %) | ||||||
Other comprehensive income (loss) | ||||||||||||||||
Unrealized gain (loss) on marketable securities | (41 | ) | 7 | (48 | ) | NM | ||||||||||
Foreign currency translation adjustment | 69 | (12 | ) | 81 | NM | |||||||||||
Comprehensive loss | $ | (41,263 | ) | $ | (45,045 | ) | $ | 3,782 | (8 | %) | ||||||
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Cost of products sold | $ | 166 | $ | 106 | ||||
Research and development | 378 | 292 | ||||||
Selling, general and administrative | 2,354 | 964 | ||||||
Total stock-based compensation | $ | 2,898 | $ | 1,362 | ||||
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Acutus Direct | ||||||||
Disposables | $ | 1,919 | $ | 1,487 | ||||
Systems | 520 | — | ||||||
Service/Other | 18 | 9 | ||||||
Total Acutus direct revenue | 2,457 | 1,496 | ||||||
Distribution agreements | 260 | 25 | ||||||
Total revenue | $ | 2,717 | $ | 1,521 | ||||
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Acutus Direct | ||||||||
United States | $ | 1,313 | $ | 456 | ||||
Europe | 1,144 | 1,040 | ||||||
Total Acutus direct revenue | 2,457 | 1,496 | ||||||
Distribution Agreements | ||||||||
United States | 15 | — | ||||||
Europe | 245 | 25 | ||||||
Total revenue through distribution | 260 | 25 | ||||||
Total revenue | $ | 2,717 | $ | 1,521 | ||||
We have limited revenue, have incurred significant operating losses and negative cash flows from operations since our inception, and we anticipate that we will incur significant losses for at least the next several years. As of June 30, 2020March 31, 2023, and December 31, 2019,2022, we had cash, and cash equivalents, restricted cash and marketable securities of $29.3$76.7 million and $71.8$76.2 million, respectively. For the sixthree months ended June 30, 2020March 31, 2023 and the years ended December 31, 2019 and 2018, our2022, net losses were $41.3 million, $97.0$16.3 million and $47.9$40.0 million, respectively, and our netnet cash used in operating activities was $35.5 million, $56.0$16.5 million and $33.8$27.6 million, respectively. WeAs of March 31, 2023, and December 31, 2022, we had an accumulated deficit of $300.3$534.6 million and $259.0$518.3 million, asrespectively, and working capital of June 30, 2020$84.7 million and December 31, 2019,$98.0 million, respectively.
On June 30, 2022, Medtronic paid us $50.0 million at the First Closing of the sale of our revenue growth;
left-heart access portfolio to Medtronic, of which $4.0 million was paid into an indemnity escrow account for a period of 18 months following the First Closing to secure our research and development efforts;
In the future, we may need to raise additional funds through one or more of the following: issuance of additional debt and/or equity securities or both.otherwise. Until such time, if ever, that we can generate revenue sufficient to achieve profitability, we expect to finance our operations through equity or debt financings, which may not be available to us on the timing needed or on terms that we deem to be favorable. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we are unable to maintain sufficient financial resources, our
38
business, financial condition, and results of operations will be materially and adversely affected. We may be required to delay, limit, reduce or terminate our product discovery and development activities or future commercialization efforts. There
Our future liquidity and capital funding requirements will depend on numerous factors, including:
•our revenue growth;
•our research and development efforts;
•our sales and marketing activities;
•our success in leveraging our strategic partnerships, including with Biotronik, as well as entrance into any other strategic partnerships or strategic transactions in the future;
•Medtronic’s success in selling Products following the achievement of the OEM Earnout;
•our ability to raise additional funds to finance our operations;
•the outcome, costs and timing of any clinical trial results for our current or future products;
•the emergence and effect of competing or complementary products;
•the availability and amount of reimbursement for procedures using our products;
•our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
•our ability to retain our current employees and the need and ability to hire additional management and sales, scientific and medical personnel;
•the terms and timing of any collaboration, licensing or other arrangements that we have or may establish;
•debt service requirements;
•the extent to which we acquire or invest in businesses, products or technologies; and
•the impact of the COVID-19 pandemic.
Our primary uses of capital are, and we expect will continue to be, investment in our commercial organization and related expenses, clinical research and development services, laboratory and related supplies, legal and other regulatory expenses, general administrative costs and working capital. In addition, we have acquired, and may in the future seek to acquire or invest in, additional businesses, products or technologies that we believe could complement or expand our portfolio, enhance our technical capabilities or otherwise offer growth opportunities. For example, in June 2019, we acquired Rhythm Xience, a medical device company specializing in the design and manufacture of transseptal crossing and steerable introducer systems, for $3.0 million in cash. The cash payment did not include a potential $17.0 million in earn out consideration to be paid based on the achievement of certain regulatory and revenue milestones. In February 2020, we issued to the former owners of Rhythm Xience 119,993 shares of our Series D convertible preferred stock and paid them $2.5 million in the first quarter of 2020, and an additional $3.4 million and $1.3 million in 2021 and 2022, respectively, in connection with the regulatory and revenue milestones earned to date. No payments were made to Rhythm Xience during the three months ended March 31, 2023. In addition, pursuant to a license agreement with Biotronik, we paid Biotronik a $3.0 million upfront fee at the time the agreement was signed, as well as a technology transfer fee consisting of $7.0 million in cash in December 2019 and $5.0 million in shares of our Series D convertible preferred stock in February 2020. We are required to pay Biotronik and VascoMed GmbH (the “Biotronik Parties”) up to $10.0 million, of which $2.0 million has been paid as of March 31, 2023, upon the achievement of various regulatory and sales-related milestones, as well as unit-based royalties on any sales of Force Sensing Catheters. We also incur costs as a public company that we have not previously incurred or have previously incurred at lower rates. In addition, our recent corporate restructuring is intended to reduce our operating expensesandoptimizeourcashresources.BasedonthetimingofnotificationsundertheWARNAct,westartedrealizingthe benefits of our restructuring plan beginning late in the first quarter of 2022; however, there can be no assurance that we will be able to obtainrealize the needed financingbenefits of the restructuring on acceptable termsthe anticipated timeline, or at all.
Under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern, we have the responsibility to evaluate whether conditions and/or events could raise substantial doubt about our ability to meet our future financial obligations as they become due within one year after the date that the financial statements are issued. Going concern matters are more fully discussed in Note 1, “Organization and Description of Business – Liquidity, Capital Resources and Going Concern” of our condensed consolidated financial statements.
39
Debt Obligations
On May 20, 2019,June 30, 2022, we entered into the 20192022 Credit Agreement.Agreement with related parties Deerfield Private Design Fund III, L.P. and Deerfield Partners, L.P. The 20192022 Credit Agreement provided us with a senior term loan facility in an aggregate principal amount of $70.0 million, of which we borrowed $40.0 million upon closing. Of the remaining $30.0 million, $10.0 million is no longer available for borrowing and $20.0 million is available for borrowing by us on or prior to December 31, 2020, subject to our achievement of specified trailing revenue levels.$35.0 million. The 20192022 Credit Agreement bears interest at the one-month adjusted term Secured Overnight Financing Rate, with a floor of 2.50% per annum, at 7.75% plus LIBOR for such interest period, and the9.00% per annum. The principal amount of the term loans outstanding underloan will be paid in installments with the 2019 Credit Agreement isfinal principal payment due on May 20, 2024.June 30, 2027. The 20192022 Credit Agreement can be prepaid but is subject to prepayment penalties. The 20192022 Credit Agreement provides for final payment fees of an additional $4.6$1.8 million that are due upon prepayment, on the maturity date or upon acceleration.
Proceeds from the 2022 Credit Agreement, along with cash on hand, were used to repay the 2019 Credit Agreement and to pay related fees and expenses and for working capital purposes.The 2022 Credit Agreement contains certain customary negative covenants, including, but not limited to, restrictions on our ability and that of our subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, pay dividends or make other restricted payments, sell or otherwise transfer assets or enter into transactions with affiliates. The 2022 Credit Agreement provides that, upon the occurrence of certain events of default, our obligations thereunder may be accelerated. Such events of default include payment defaults to the lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to certain other indebtedness, voluntary and involuntary bankruptcy proceedings, certain money judgments, change of control events and other customary events of default. Our obligations under the 20192022 Credit Agreement are secured by substantially all of our assets, including our intellectual property, and is guaranteed by our subsidiary. The 2019 Credit Agreement contains customary affirmative and restrictive covenants, includingproperty.
In connection with our entryentering into the 20192022 Credit Agreement, we entered into the 2022 Warrant Purchase Agreement with Deerfield, pursuant to which we issued liability-classified warrants with a fair value of $0.9 million to purchase 419,992 shares of our Series C convertible preferred stock at $16.67 per share. These warrants were subsequently automatically converted intoDeerfield warrants to purchase up to an equal number of shares of our Series D convertible preferred stock at a price of $16.67 per share. Upon closing of our IPO, these warrants were automatically converted into warrants to purchase an equal number ofaggregate 3,779,018 shares of our common stock, par value $0.001 per share common stock, at aan exercise price of $16.67$1.1114 per share.warrant share for a period of eight years following the issuance thereof.
Cash Flows
The following table shows a summary of our cash flows for the sixthree months ended June 30, 2020March 31, 2023 and 20192022 (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (unaudited) | |||||||||||
| Net cash used in operating activities | $ | (16,515) | $ | (27,609) | |||||||
| Net cash provided by investing activities | 15,249 | 15,999 | |||||||||
| Net cash used in financing activities | (213) | (42) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 8 | (100) | |||||||||
| Net change in cash, cash equivalents and restricted cash | $ | (1,471) | $ | (11,752) | |||||||
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
(Unaudited) | ||||||||
Net cash used in operating activities | $ | (34,761 | ) | $ | (22,084 | ) | ||
Net cash provided by (used in) investing activities | 52,650 | (17,424 | ) | |||||
Net cash (used in) provided by financing activities | (3,115 | ) | 97,951 | |||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 69 | (12 | ) | |||||
Net change in cash, cash equivalents and restricted cash | $ | 14,843 | $ | 58,431 | ||||
Operating Activities
During the sixthree months ended June 30, 2020,March 31, 2023, operating activities used $34.8$16.5 million of cash, an decrease of $11.1 million from the three months ended March 31, 2022.This increase was attributable to favorable changes in operating assets and liabilities of $4.3 million and lower net losses of $23.7 million, offset by a decrease in non-cash items and reclasses of $16.9 million. The favorable changes in operating assets and liabilities was primarily due to the $2.1 million Employee Retention Credit receivable refunded in March 2023. The changes in non-cash items and reclasses compared to the prior period were primarily due to the gain on sale of business of $1.2 million, reduced stock-based compensation expense of $1.1 million, and a decrease in the change in fair value of contingent consideration of $1.4 million in the current period, offset by the goodwill impairment charge of $12.0 million recognized during the three months ended March 31, 2022.
Investing Activities
During the three months ended March 31, 2023, investing activities provided $15.2 million of cash, a decrease of $0.8 million from the three months ended March 31, 2022. This decrease was attributable to an increase in purchases of marketable securities of $28.0 million compared to the prior period and a decrease in the sales of marketable securities of $2.5 million compared to the prior period. This decrease was offset by the $17.0 million Transfer Earnout payment received from Medtronic in January 2023, an increase in the maturities of marketable securities of $11.9 million compared to the prior period and a decrease in purchase of property and equipment of $0.9 million compared to the prior period.
40
Financing Activities
During the three months ended March 31, 2023, financing activities used $0.2 million of cash, an increase of $12.7$0.2 million from the sixthree months ended June 30, 2019.March 31, 2022. This increase wasis primarily drivenattributable to a 100% decrease in proceeds from the 2020 ESPP compared to the prior period because the Company amended its ESPP offering periods for those beginning after the January 31, 2022 purchase. As a result, the first purchase date of 2023 will occur on May 14, 2023.
Contractual Obligations and Commitments
We enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for preclinical trials and other services and products for operating purposes which are cancellable at any time by a decreaseus, generally upon 30 days prior written notice.
Further, the agreement to acquire Rhythm Xience requires us to pay the former owners of Rhythm Xience up to $17.0 million in amortization of debt issuance costs, a decrease of $1.6 million in the fair value of the contingentearn-out consideration and a decrease of $1.4 million of lossbased on debt extinguishment. This increase was partially offset by a $3.7 million decrease in the net loss, a $1.5 million increase of stock-based compensation expense and $1.3 million increase in the fair value of warrant liability and embedded derivative.
Off-Balance
Sheet ArrangementsAs of June 30, 2020March 31, 2023 and December 31, 2019,2022, we did not have, and we do not currently have, any
off-balance
sheet arrangements, as defined in the SEC rules and regulations.Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue and expenses. Our estimates are based on our historical experience and on various other factors 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 apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.
During the sixthree months ended June 30, 2020,March 31, 2023, there have been no material changes to our critical accounting policies and estimates from those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Prospectus that forms a part of the Company’s Registration Statementsour annual report on FormS-1(FileNo. 333-239873), 10-K for the year ended December 31, 2022, as filed with the SEC pursuant to Rule 424(b)(4) promulgated under the Securities Act of 1933, as amended.on March 24, 2023.
Our significant accounting policies are described in the Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements.
Recent Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements for a description of recent accounting pronouncements applicable to our condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulationthe Company is we are not required to provide the information required by this item.
S-K,
41
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined inSecurities Exchange Act, of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange CommissionSEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our PrincipalChief Financial Officer, to allow timely decisions regarding required disclosure.
Rules 13a-15(e)
and15d-15(e)
under the The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
With respect to the quarter ended June 30, 2020,March 31, 2023, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operationsoperation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and PrincipalChief Financial Officer havehas concluded that our disclosure controls and procedures are effective. Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systemssystem are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
Changes in Internal Control over Financial Reporting:
There were no changes in our internal control over financial reporting (as defined in RulesJune 30, 2020March 31, 2023 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
13a-15(f)
and15d-15(f)
under the Exchange Act) that occurred during the quarter ended Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are involved in various legal proceedings, including litigation arising from the normal course of our business activities. We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows, or financial condition. We havealso received, and may from time to time receive, letters from third parties alleging patent infringement, violation of employment practices or trademark infringement, and we may in the future participate in litigation to defend ourselves. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Other than the matters listed below, we are not currently party to any pending legal proceedings that we believe would, individually or in the aggregate, have a material adverse effect on our financial condition, cash flows or results of operations.We and certain of our current and former officers have been named as defendants in two putative securities class action lawsuits filed by stockholders in the United States District Court for the Southern District of California on February 15, 2022 and March 23, 2022. Plaintiffs allege violations of Section 10(b) of the Exchange Act and Rule 10b-5, and Section 20(a) of the Exchange Act. The complaints allege that the defendants made false and misleading statements about our business, prospects and operations. The putative claims are based upon statements made in filings made by us with the SEC, press releases and on earnings calls between May 13, 2021 and November 11, 2021. The lawsuits seek, among other relief, a determination that the alleged claims may be asserted on a class-wide basis, unspecified compensatory damages, attorney’s fees, other expenses and costs. On July 19, 2022, the court consolidated the two actions, appointed a lead plaintiff and appointed lead counsel for the proposed class. On September 16, 2022, the lead plaintiff filed a consolidated amended complaint. We thereafter filed a motion to dismiss.
Due to the complex nature of the legal and factual issues involved in these class action matters, the outcome is not presently determinable. If these matters were to proceed beyond the pleading stage, we could be required to incur substantial costs and expenses to defend these matters and/or be required to pay substantial damages or settlement costs, which could materially adversely affect our business, financial condition and results of operations.
Item 1A. Risk Factors
As of the date of this Quarterly Report on FormProspectusannual report on Form 10-K for the year ended December 31, 2022, as filed by us with the SEC pursuant to Rule 424(b)(4) under the Securities Act, relating to our registration statement on FormS-1(File No. 333-239873).March 24, 2023. Any of these factors could result in a significant or material adverse effect on our result of operations or financial conditions. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
10-Q,
there have been no material changes from the risk factors disclosed in our Item 2. Recent Sales of Unregistered Securities.
2022, in connection with entering into the 2022 Credit Agreement, we entered into the 2022 Warrant Purchase Agreement with the lenders under the 2022 Credit Agreement (the “Lenders”), pursuant to which we issued to the Lenders warrants to purchase up to an aggregate 3,779,018 shares (the “2022 Warrant Shares”) of our common stock, par value $0.001 per share, at an exercise price of $1.1114 per 2022 Warrant Share for a period of eight years following the issuance thereof, on and soldsubject to the terms and conditions set forth in the warrants evidencing such rights.
The 2022 Warrants are exercisable on a cash or cashless (net exercise) basis, and are subject to a 4.9% beneficial ownership limitation, as well as certain other customary anti-dilution adjustments upon the occurrence of certain events such as stock splits, subdivisions, reclassifications or combinations of common stock. Upon the consummation of a “Major Transaction” (as defined in the 2022 Warrants), holders of the 2022 Warrants may elect to (i) have their 2022 Warrants redeemed by us for an amount equal to the Black-Scholes value of such warrant, in cash or, if applicable, in the form of the consideration paid to our current and former officers and employees an aggregatestockholders in a Major Transaction (i.e. securities or other property of 64,562 sharesthe buyer), or (ii) have such 2022 Warrants be assumed by the successor to us in a Major Transaction, if applicable. Holders of the 2022 Warrants are also entitled to participate in any dividends or distributions to holders of common stock uponat the exercise of options under our equity compensation plans at exercise prices ranging from $0.54time such dividends or distributions are paid to $1.06 per share, for an aggregate amount of $0.2 million.
The Warrant Purchase Agreement contains customary representations, warranties, and covenants made by us and the Lenders. Pursuant to the Warrant Purchase Agreement, we have agreed to indemnify the Lenders for losses arising from certain breaches
43
of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients ofWarrant Purchase Agreement, the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.
Item 6. Exhibits
| Incorporated by Reference | ||||||||||||||||||||||||||||||||||||||
| Exhibit No. | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed Herewith | ||||||||||||||||||||||||||||||||
| 3.1 | 8-K | 001-39430 | 3.1 | August 10, 2020 | ||||||||||||||||||||||||||||||||||
| 3.2 | 8-K | 001-39430 | 3.2 | August 10, 2020 | ||||||||||||||||||||||||||||||||||
| 3.3 | 8-K | 001-39430 | 3.1 | August 23, 2021 | ||||||||||||||||||||||||||||||||||
| 10.1+ | X | |||||||||||||||||||||||||||||||||||||
| 10.2+ | X | |||||||||||||||||||||||||||||||||||||
| 10.3+ | X | |||||||||||||||||||||||||||||||||||||
| 31.1 | X | |||||||||||||||||||||||||||||||||||||
| 31.2 | X | |||||||||||||||||||||||||||||||||||||
| 32.1** | X | |||||||||||||||||||||||||||||||||||||
| 32.2** | X | |||||||||||||||||||||||||||||||||||||
| 101 | The following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2023, formatted in Inline Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements (filed herewith). | |||||||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |||||||||||||||||||||||||||||||||||||
** The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act, except to the extent that the registrant specifically incorporates them by reference.
+ Indicates management contract or compensatory plan.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Acutus Medical, Inc. | |||||||||||||
(Registrant) | |||||||||||||
| Date: | By: | /s/ | |||||||||||
| David H. Roman President, | |||||||||||||
| and Director (Principal Executive Officer) | |||||||||||||
| Date: | By: | /s/ | |||||||||||
| Takeo Mukai Senior Vice President and Chief Financial Officer | |||||||||||||
(Principal Financial and Accounting Officer) | |||||||||||||