UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20212022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-19437
ASENSUS SURGICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware | 11-2962080 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1 TW Alexander Drive, Suite 160, Durham, NC 27703
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (919) 765-8400
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| Accelerated Filer | ☐ | |
Non-accelerated filer |
| Smaller reporting company |
| |
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
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 | ASXC | NYSE American |
The number of shares outstanding of the registrant’s common stock, as of July 30, 2021August 5, 2022 was 234,323,983.236,718,923.
TABLE OF CONTENTS FOR FORM 10-Q
PART I. | ||
Item 1. | ||
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) | 2 | |
Condensed Consolidated Statements of | ||
Notes to Condensed Consolidated Financial Statements (unaudited) | ||
Item 2. |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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FORWARD-LOOKING STATEMENTS
In addition to historical financial information, this report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report, including statements regarding future events, our future financial performance, our future business strategy and the plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “in the event that,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. 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, including the impact of the coronavirus (COVID-19) pandemic on our operating results. Readers are urged to carefully review and consider the various disclosures made by us, which attempt to advise interested parties of the risks, uncertainties, and other factors that affect our business, operating results, financial condition and stock price, including without limitation the disclosures made under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Financial Statements,” “Notes to Condensed Consolidated Financial Statements “and “Risk Factors” in this report, as well as the disclosures made in the Asensus Surgical, Inc. Annual Report on Form 10-K for the year ended December 31, 20202021 (the “Fiscal 20202021 Form 10-K”), and other filings we make with the SEC. Furthermore, such forward-looking statements speak only as of the date of this report. We expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations except as required by applicable law. To the extent that our business is negatively impacted due to a variety of factors, including the impact of COVID-19 and other geopolitical factors on our operating results, we may implement longer-term cost reduction efforts in order to mitigate such impact. References in this report to “we,” “our,” “us,” or the “Company” refer to Asensus Surgical, Inc., including its subsidiaries Asensus Surgical US, Inc., SafeStitch LLC, Asensus International, Inc., Asensus Surgical Italia S.r.l., Asensus Surgical Europe S.à.r.l., Asensus Surgical Taiwan Ltd., Asensus Surgical Japan K.K., Asensus Surgical Israel Ltd., Asensus Surgical Netherlands B.V., and Asensus Surgical Canada, Inc.
Any disclosure in this report regarding the receipt of CE Mark or Section 510(k) clearance for any of the Company’s products does not mean or infer any endorsement of the Company’s products by any government agency including, without limitation, the U.S. Food and Drug Administration, or FDA.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands except per share amounts)
(Unaudited)
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||||
Product | $ | 696 | $ | 315 | $ | 2,400 | $ | 557 | $ | 254 | $ | 363 | $ | 601 | $ | 1,726 | ||||||||||||||||
Service | 406 | 340 | 785 | 698 | 424 | 406 | 732 | 785 | ||||||||||||||||||||||||
Lease | 316 | 333 | 727 | 674 | ||||||||||||||||||||||||||||
Total revenue | 1,102 | 655 | 3,185 | 1,255 | 994 | 1,102 | 2,060 | 3,185 | ||||||||||||||||||||||||
Cost of revenue: | ||||||||||||||||||||||||||||||||
Product | 1,478 | 720 | 3,858 | 1,633 | 883 | 1,003 | 1,259 | 2,678 | ||||||||||||||||||||||||
Service | 869 | 693 | 1,601 | 1,518 | 646 | 636 | 1,141 | 1,002 | ||||||||||||||||||||||||
Lease | 818 | 708 | 1,770 | 1,779 | ||||||||||||||||||||||||||||
Total cost of revenue | 2,347 | 1,413 | 5,459 | 3,151 | 2,347 | 2,347 | 4,170 | 5,459 | ||||||||||||||||||||||||
Gross loss | (1,245 | ) | (758 | ) | (2,274 | ) | (1,896 | ) | (1,353 | ) | (1,245 | ) | (2,110 | ) | (2,274 | ) | ||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||||||
Research and development | 4,089 | 4,257 | 8,304 | 8,191 | 7,253 | 4,089 | 13,681 | 8,304 | ||||||||||||||||||||||||
Sales and marketing | 3,562 | 2,901 | 6,615 | 7,154 | 3,602 | 3,562 | 7,321 | 6,615 | ||||||||||||||||||||||||
General and administrative | 3,848 | 3,619 | 7,840 | 6,968 | 4,992 | 3,848 | 10,525 | 7,840 | ||||||||||||||||||||||||
Amortization of intangible assets | 2,862 | 2,619 | 5,729 | 5,183 | 2,533 | 2,862 | 5,203 | 5,729 | ||||||||||||||||||||||||
Change in fair value of contingent consideration | 478 | 212 | 735 | 1,268 | (598 | ) | 478 | (752 | ) | 735 | ||||||||||||||||||||||
Restructuring and other charges | 0 | 0 | 0 | 858 | ||||||||||||||||||||||||||||
Property and equipment impairment | 432 | 0 | 432 | 0 | ||||||||||||||||||||||||||||
Total Operating Expenses | 14,839 | 13,608 | 29,223 | 29,622 | 18,214 | 14,839 | 36,410 | 29,223 | ||||||||||||||||||||||||
Operating Loss | (16,084 | ) | (14,366 | ) | (31,497 | ) | (31,518 | ) | (19,567 | ) | (16,084 | ) | (38,520 | ) | (31,497 | ) | ||||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||||||||||
Other Income (Expense), net | �� | |||||||||||||||||||||||||||||||
Gain on extinguishment of debt | 2,847 | 0 | 2,847 | 0 | 0 | 2,847 | 0 | 2,847 | ||||||||||||||||||||||||
Change in fair value of warrant liabilities | 0 | (114 | ) | (1,981 | ) | (269 | ) | 0 | 0 | 0 | (1,981 | ) | ||||||||||||||||||||
Interest income | 79 | 4 | 131 | 31 | 260 | 79 | 515 | 131 | ||||||||||||||||||||||||
Interest expense | (5 | ) | 0 | (12 | ) | 0 | (141 | ) | (5 | ) | (341 | ) | (12 | ) | ||||||||||||||||||
Other expense, net | (7 | ) | (55 | ) | (36 | ) | (70 | ) | (86 | ) | (7 | ) | (232 | ) | (36 | ) | ||||||||||||||||
Total Other Income (Expense), net | 2,914 | (165 | ) | 949 | (308 | ) | 33 | 2,914 | (58 | ) | 949 | |||||||||||||||||||||
Loss before income taxes | (13,170 | ) | (14,531 | ) | (30,548 | ) | (31,826 | ) | (19,534 | ) | (13,170 | ) | (38,578 | ) | (30,548 | ) | ||||||||||||||||
Income tax (expense) benefit | (2 | ) | 691 | 36 | 1,388 | (85 | ) | (2 | ) | (169 | ) | 36 | ||||||||||||||||||||
Net loss | (13,172 | ) | (13,840 | ) | (30,512 | ) | (30,438 | ) | (19,619 | ) | (13,172 | ) | (38,747 | ) | (30,512 | ) | ||||||||||||||||
Deemed dividend related to beneficial conversion feature of preferred stock | 0 | 0 | 0 | (412 | ) | |||||||||||||||||||||||||||
Deemed dividend related to conversion of preferred stock into common stock | (299 | ) | 0 | (299 | ) | |||||||||||||||||||||||||||
Net loss attributable to common stockholders | (13,172 | ) | (14,139 | ) | (30,512 | ) | (31,149 | ) | ||||||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||||||
Net loss | (13,172 | ) | (13,840 | ) | (30,512 | ) | (30,438 | ) | (19,619 | ) | (13,172 | ) | (38,747 | ) | (30,512 | ) | ||||||||||||||||
Foreign currency translation gain (loss) | 472 | 962 | (1,466 | ) | 90 | |||||||||||||||||||||||||||
Foreign currency translation (loss) gain | (1,713 | ) | 472 | (2,363 | ) | (1,466 | ) | |||||||||||||||||||||||||
Unrealized loss on available-for-sale investments | (144 | ) | 0 | (696 | ) | 0 | ||||||||||||||||||||||||||
Comprehensive loss | $ | (12,700 | ) | $ | (12,878 | ) | $ | (31,978 | ) | $ | (30,348 | ) | $ | (21,476 | ) | $ | (12,700 | ) | $ | (41,806 | ) | $ | (31,978 | ) | ||||||||
Net loss per common share attributable to common stockholders - basic and diluted | $ | (0.06 | ) | $ | (0.27 | ) | $ | (0.14 | ) | $ | (0.77 | ) | $ | (0.08 | ) | $ | (0.06 | ) | $ | (0.16 | ) | $ | (0.14 | ) | ||||||||
Weighted average number of shares used in computing net loss per common share - basic and diluted | 233,250 | 52,351 | 219,199 | 40,628 | 236,505 | 233,250 | 236,201 | 219,199 |
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
June 30, 2021 | December 31, 2020 | June 30, 2022 | December 31, 2021 | |||||||||||||
Assets | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 157,078 | $ | 16,363 | $ | 10,844 | $ | 18,129 | ||||||||
Short-term investments, available-for-sale | 83,360 | 80,262 | ||||||||||||||
Accounts receivable, net | 960 | 1,115 | 699 | 749 | ||||||||||||
Inventories | 12,523 | 10,034 | 8,451 | 8,634 | ||||||||||||
Prepaid expenses | 2,927 | 3,255 | ||||||||||||||
Employee retention tax credit receivable | 1,147 | 1,311 | ||||||||||||||
Other current assets | 3,446 | 6,501 | 1,134 | 957 | ||||||||||||
Total Current Assets | 174,007 | 34,013 | 108,562 | 113,297 | ||||||||||||
Restricted cash | 1,045 | 1,166 | 1,290 | 1,154 | ||||||||||||
Long-term investments, available-for-sale | 9,581 | 37,435 | ||||||||||||||
Inventories, net of current portion | 6,590 | 8,813 | 7,258 | 7,074 | ||||||||||||
Property and equipment, net | 9,876 | 10,342 | 9,389 | 10,971 | ||||||||||||
Intellectual property, net | 15,943 | 22,267 | 4,122 | 9,892 | ||||||||||||
Net deferred tax assets | 288 | 307 | 244 | 288 | ||||||||||||
Operating lease right-of-use assets, net | 4,099 | 1,164 | 4,747 | 5,348 | ||||||||||||
Other long term assets | 156 | 186 | ||||||||||||||
Other long-term assets | 2,157 | 1,014 | ||||||||||||||
Total Assets | $ | 212,004 | $ | 78,258 | $ | 147,350 | $ | 186,473 | ||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 2,653 | $ | 1,965 | $ | 3,849 | $ | 3,448 | ||||||||
Accrued expenses | 4,007 | 5,615 | ||||||||||||||
Accrued employee compensation and benefits | 3,127 | 3,559 | ||||||||||||||
Accrued expenses and other current liabilities | 1,617 | 1,617 | ||||||||||||||
Operating lease liabilities - current portion | 861 | 686 | 579 | 683 | ||||||||||||
Deferred revenue | 786 | 789 | 510 | 543 | ||||||||||||
Notes payable - current portion, net of debt discount | 0 | 1,228 | ||||||||||||||
Total Current Liabilities | 8,307 | 10,283 | 9,682 | 9,850 | ||||||||||||
Long Term Liabilities: | ||||||||||||||||
Long-Term Liabilities: | ||||||||||||||||
Contingent consideration | 4,671 | 3,936 | 1,619 | 2,371 | ||||||||||||
Noncurrent operating lease liabilities | 3,465 | 628 | 4,610 | 5,006 | ||||||||||||
Notes payable, less current portion | 0 | 1,587 | ||||||||||||||
Warrant liabilities | 0 | 255 | ||||||||||||||
Total Liabilities | 16,443 | 16,689 | 15,911 | 17,227 | ||||||||||||
Commitments and Contingencies (Note 10) | ||||||||||||||||
Commitments and Contingencies (Note 14) | ||||||||||||||||
Stockholders' Equity: | ||||||||||||||||
Common stock $0.001 par value, 750,000,000 shares authorized at June 30, 2021 and December 31, 2020; 234,231,132 and 116,231,072 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | 234 | 116 | ||||||||||||||
Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued and outstanding at June 30, 2021 and December 31, 2020 | 0 | 0 | ||||||||||||||
Common stock $0.001 par value, 750,000,000 shares authorized at June 30, 2022 and December 31, 2021; 236,620,415 and 235,218,552 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 237 | 235 | ||||||||||||||
Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued and outstanding at June 30, 2022 and December 31, 2021 | 0 | 0 | ||||||||||||||
Additional paid-in capital | 947,249 | 781,397 | 958,646 | 954,649 | ||||||||||||
Accumulated deficit | (753,424 | ) | (722,912 | ) | (824,121 | ) | (785,374 | ) | ||||||||
Accumulated other comprehensive income | 1,502 | 2,968 | ||||||||||||||
Accumulated other comprehensive loss | (3,323 | ) | (264 | ) | ||||||||||||
Total Stockholders' Equity | 195,561 | 61,569 | 131,439 | 169,246 | ||||||||||||
Total Liabilities and Stockholders' Equity | $ | 212,004 | $ | 78,258 | $ | 147,350 | $ | 186,473 |
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands)
(Unaudited)
Common Stock | Preferred Stock | Treasury Stock | Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Additional Paid -in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | 235,219 | $ | 235 | 0 | $ | 0 | $ | 954,649 | $ | (785,374 | ) | $ | (264 | ) | $ | 169,246 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | 0 | - | - | 2,245 | 0 | 0 | 2,245 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | 30 | 0 | 0 | 0 | 12 | 0 | 0 | 12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Award of restricted stock units | 1,166 | 1 | 0 | 0 | 0 | 0 | 0 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Return of common stock to pay withholding taxes on restricted stock | 0 | 0 | 436 | 0 | (349 | ) | 0 | 0 | (349 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of treasury stock | 0 | 0 | (436 | ) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | 0 | - | 0 | 0 | 0 | (1,202 | ) | (1,202 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | 0 | - | 0 | - | (19,128 | ) | 0 | (19,128 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | 236,415 | $ | 236 | 0 | $ | 0 | $ | 956,557 | $ | (804,502 | ) | $ | (1,466 | ) | $ | 150,825 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | 0 | - | - | 2,083 | 0 | 0 | 2,083 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | 13 | 0 | 0 | 0 | 6 | 0 | 0 | 6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Award of restricted stock units | 192 | 1 | 0 | 0 | 0 | 0 | 0 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | 0 | - | - | - | 0 | (1,857 | ) | (1,857 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | 0 | - | - | - | (19,619 | ) | 0 | (19,619 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 | 236,620 | $ | 237 | 0 | $ | 0 | $ | 958,646 | $ | (824,121 | ) | $ | (3,323 | ) | $ | 131,439 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | 116,231 | $ | 116 | 0 | $ | 0 | 0 | $ | 0 | $ | 781,397 | $ | (722,912 | ) | $ | 2,968 | $ | 61,569 | 116,231 | $ | 116 | 0 | $ | 0 | $ | 781,397 | $ | (722,912 | ) | $ | 2,968 | $ | 61,569 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | 0 | - | 0 | - | 0 | 1,786 | 0 | 0 | 1,786 | - | 0 | - | 0 | 1,786 | 0 | 0 | 1,786 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 70,666 | 71 | 0 | 0 | 0 | 0 | 129,251 | 0 | 0 | 129,322 | 70,666 | 71 | 0 | 0 | 129,251 | 0 | 0 | 129,322 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options and warrants | 45,114 | 45 | 0 | 0 | 0 | 0 | 32,687 | 0 | 0 | 32,732 | 45,114 | 45 | 0 | 0 | 32,687 | 0 | 0 | 32,732 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Award of restricted stock units | 706 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 706 | 1 | 0 | 0 | 0 | 0 | 0 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Return of common stock to pay withholding taxes on restricted stock | 0 | 0 | 0 | 0 | 67 | 0 | (214 | ) | 0 | 0 | (214 | ) | 0 | 0 | 67 | 0 | (214 | ) | 0 | 0 | (214 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of treasury stock | 0 | 0 | 0 | 0 | (67 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (67 | ) | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | 0 | - | 0 | - | 0 | 0 | 0 | (1,938 | ) | (1,938 | ) | - | 0 | - | 0 | 0 | 0 | (1,938 | ) | (1,938 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | 0 | - | 0 | - | 0 | 0 | (17,340 | ) | 0 | (17,340 | ) | - | 0 | - | 0 | 0 | (17,340 | ) | 0 | (17,340 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | 232,717 | 233 | 0 | 0 | 0 | 0 | 944,907 | (740,252 | ) | 1,030 | $ | 205,918 | 232,717 | $ | 233 | 0 | $ | 0 | $ | 944,907 | $ | (740,252 | ) | $ | 1,030 | $ | 205,918 | |||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | 0 | - | 0 | - | 0 | 1,842 | 0 | 0 | 1,842 | - | 0 | - | 0 | 1,842 | 0 | 0 | 1,842 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 332 | 0 | 0 | 0 | 0 | 0 | 992 | 0 | 0 | 992 | 332 | 0 | 0 | 0 | 992 | 0 | 0 | 992 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options and warrants | 508 | 0 | 0 | 0 | 0 | 0 | 337 | 0 | 0 | 337 | 508 | 0 | 0 | 0 | 337 | 0 | 0 | 337 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Award of restricted stock units | 674 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 674 | 1 | 0 | 0 | 0 | 0 | 0 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Return of common stock to pay withholding taxes on restricted stock | 0 | 0 | 0 | 0 | 246 | 0 | (829 | ) | 0 | 0 | (829 | ) | 0 | 0 | 246 | 0 | (829 | ) | 0 | 0 | (829 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of treasury stock | 0 | 0 | 0 | 0 | (246 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (246 | ) | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | 0 | - | 0 | - | 0 | 0 | 0 | 472 | 472 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive gain | - | 0 | - | 0 | 0 | 0 | 472 | 472 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | 0 | - | 0 | - | 0 | 0 | (13,172 | ) | 0 | (13,172 | ) | - | 0 | - | 0 | 0 | (13,172 | ) | 0 | (13,172 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | 234,231 | $ | 234 | 0 | $ | 0 | 0 | $ | 0 | $ | 947,249 | $ | (753,424 | ) | $ | 1,502 | $ | 195,561 | 234,231 | $ | 234 | 0 | $ | 0 | $ | 947,249 | $ | (753,424 | ) | $ | 1,502 | $ | 195,561 | |||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2019 | 20,691 | $ | 21 | 0 | $ | 0 | 0 | 0 | $ | 720,484 | $ | (663,600 | ) | $ | (1,370 | ) | $ | 55,535 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | 0 | - | �� | 0 | - | 0 | 1,923 | 0 | 0 | 1,923 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock, preferred stock and warrants under 2020 financing, net of issuance costs | 14,122 | 14 | 7,937 | 79 | 0 | 0 | 13,432 | 0 | 0 | 13,525 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 7,030 | 7 | 0 | 0 | 0 | 0 | 11,205 | 0 | 0 | 11,212 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock | 3,053 | 3 | (3,053 | ) | (30 | ) | 0 | 0 | 27 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange of shares for Series B Warrants | 2,041 | 2 | 0 | 0 | 0 | 0 | 2,468 | 0 | 0 | 2,470 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Award of restricted stock units | 141 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Return of common stock to pay withholding taxes on restricted stock | 0 | 0 | 0 | 0 | 28 | 0 | (33 | ) | 0 | 0 | (33 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of treasury stock | 0 | 0 | 0 | 0 | (28 | ) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | 0 | - | 0 | - | 0 | 0 | 0 | (872 | ) | (872 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | 0 | - | 0 | - | 0 | 0 | (16,598 | ) | 0 | (16,598 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2020 | 47,078 | 47 | 4,884 | 49 | 0 | 0 | 749,506 | (680,198 | ) | (2,242 | ) | $ | 67,162 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | 0 | - | 0 | - | 0 | 1,933 | 0 | 0 | 1,933 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of warrants | 4,913 | 5 | 0 | 0 | 0 | 0 | 3,335 | 0 | 0 | 3,340 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock | 4,884 | 5 | (4,884 | ) | (49 | ) | 0 | 0 | 44 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Award of restricted stock units | 28 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | 0 | - | 0 | - | 0 | 0 | 0 | 962 | 962 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | 0 | - | 0 | - | 0 | 0 | (13,840 | ) | 0 | (13,840 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2020 | 56,903 | $ | 57 | 0 | $ | 0 | 0 | $ | 0 | $ | 754,818 | $ | (694,038 | ) | $ | (1,280 | ) | $ | 59,557 |
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Operating Activities: | ||||||||||||||||
Net loss | $ | (30,512 | ) | $ | (30,438 | ) | $ | (38,747 | ) | $ | (30,512 | ) | ||||
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: | ||||||||||||||||
Depreciation | 1,585 | 1,162 | 1,720 | 1,585 | ||||||||||||
Amortization of intangible assets | 5,729 | 5,183 | 5,203 | 5,729 | ||||||||||||
Amortization of discounts and premiums on investments, net | 444 | 0 | ||||||||||||||
Stock-based compensation | 3,628 | 3,856 | 4,328 | 3,628 | ||||||||||||
Gain on extinguishment of debt | (2,847 | ) | 0 | 0 | (2,847 | ) | ||||||||||
Deferred tax benefit | (36 | ) | (1,388 | ) | ||||||||||||
Write down of inventory | 288 | 0 | ||||||||||||||
Deferred tax expense (benefit) | 169 | (36 | ) | |||||||||||||
Bad debt expense | 9 | 0 | ||||||||||||||
Change in inventory reserves | (567 | ) | 288 | |||||||||||||
Property and equipment impairment | 432 | 0 | ||||||||||||||
Loss on disposal of property and equipment | 97 | 0 | ||||||||||||||
Change in fair value of warrant liabilities | 1,981 | 269 | 0 | 1,981 | ||||||||||||
Change in fair value of contingent consideration | 735 | 1,268 | (752 | ) | 735 | |||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | 127 | (350 | ) | (8 | ) | 127 | ||||||||||
Inventories | (1,687 | ) | (2,332 | ) | (1,933 | ) | (1,687 | ) | ||||||||
Operating lease right-of-use assets | (2,970 | ) | 546 | 409 | (2,970 | ) | ||||||||||
Other current and long term assets | 3,177 | 281 | ||||||||||||||
Prepaid expenses | 189 | 517 | ||||||||||||||
Other current and long-term assets | (1,169 | ) | 2,660 | |||||||||||||
Accounts payable | 679 | (1,221 | ) | 524 | 679 | |||||||||||
Accrued expenses | (1,428 | ) | (1,451 | ) | (284 | ) | (1,428 | ) | ||||||||
Deferred revenue | 14 | 22 | (4 | ) | 14 | |||||||||||
Operating lease liabilities | 3,052 | (608 | ) | (290 | ) | 3,052 | ||||||||||
Other long term liabilities | 0 | 65 | ||||||||||||||
Net cash and cash equivalents used in operating activities | (18,485 | ) | (25,136 | ) | (30,230 | ) | (18,485 | ) | ||||||||
Investing Activities: | ||||||||||||||||
Purchase of available-for-sale investments | (17,792 | ) | 0 | |||||||||||||
Proceeds from maturities of available-for-sale investments | 41,408 | 0 | ||||||||||||||
Purchase of property and equipment | (700 | ) | (3 | ) | (443 | ) | (700 | ) | ||||||||
Net cash and cash equivalents used in investing activities | (700 | ) | (3 | ) | ||||||||||||
Net cash and cash equivalents provided by (used in) investing activities | 23,173 | (700 | ) | |||||||||||||
Financing Activities: | ||||||||||||||||
Proceeds from issuance of common stock, preferred stock and warrants under 2020 financing, net of issuance costs | 0 | 13,525 | ||||||||||||||
Proceeds from issuance of common stock, net of issuance costs | 130,314 | 11,212 | 0 | 130,314 | ||||||||||||
Proceeds from notes payable, net of issuance costs | 0 | 2,815 | ||||||||||||||
Taxes paid related to net share settlement of vesting of restricted stock units | (1,041 | ) | (33 | ) | (349 | ) | (1,041 | ) | ||||||||
Payment of contingent consideration | 0 | (74 | ) | |||||||||||||
Proceeds from exercise of stock options and warrants | 30,835 | 3,340 | 18 | 30,835 | ||||||||||||
Net cash and cash equivalents provided by financing activities | 160,108 | 30,785 | ||||||||||||||
Net cash and cash equivalents (used in) provided by financing activities | (331 | ) | 160,108 | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (329 | ) | 17 | 239 | (329 | ) | ||||||||||
Net increase in cash, cash equivalents and restricted cash | 140,594 | 5,663 | ||||||||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | (7,149 | ) | 140,594 | |||||||||||||
Cash, cash equivalents and restricted cash, beginning of period | 17,529 | 10,567 | 19,283 | 17,529 | ||||||||||||
Cash, cash equivalents and restricted cash, end of period | $ | 158,123 | $ | 16,230 | $ | 12,134 | $ | 158,123 | ||||||||
Supplemental Disclosure for Cash Flow Information | ||||||||||||||||
Cash paid for leases | $ | 549 | $ | 539 | ||||||||||||
Cash paid for taxes | $ | 65 | $ | 50 | ||||||||||||
Supplemental Schedule of Non-cash Investing and Financing Activities: | ||||||||||||||||
Transfer of inventories to property and equipment | $ | 1,243 | $ | 3,403 | $ | 724 | $ | 1,243 | ||||||||
Acquisition of property and equipment in accounts payable | $ | 67 | $ | 0 | $ | 0 | $ | 67 | ||||||||
Reclass of warrant liability to common stock and additional paid-in-capital | $ | 2,236 | $ | 0 | $ | 0 | $ | 2,236 | ||||||||
Lease liabilities arising from obtaining right-of-use assets | $ | 3,461 | $ | 0 | $ | 0 | $ | 3,461 | ||||||||
Exchange of common stock for Series B Warrants | $ | 0 | $ | 2,470 | ||||||||||||
Transfer of in-process research and development to intellectual property | $ | 0 | $ | 2,425 | ||||||||||||
Conversion of preferred stock to common stock | $ | 0 | $ | 79 |
See accompanying notes to unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. |
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Asensus Surgical, Inc. (formerly known as TransEnterix, Inc.) (the "Company") is a medical device company that is digitizing the interface between the surgeon and the patient to pioneer a new era of Performance-Guided Surgery™ by unlocking clinical intelligence for surgeons to enable consistently superior outcomes and a new standard of surgery. The Company is focused on the market development for and commercialization of the Senhance® Surgical System, which digitizes laparoscopic minimally invasive surgery, or MIS. The Senhance System is the first and only digital, multi-port laparoscopic platform designed to maintain laparoscopic MIS standards while providing digital benefits such as haptic feedback, robotic precision, comfortable ergonomics, advanced instrumentation including 33mm mm microlaparoscopic instruments, 5mm articulating instruments, eye-sensing camera control and fully-reusable standard instruments to help maintain per-procedure costs similar to traditional laparoscopy.
The Senhance System is available for sale in Europe, the United States, Japan, Taiwan, Russia and select other countries.
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In 2020, the Company obtained regulatory clearance for the Senhance ultrasonic system in Taiwan and Japan. On February 12, 2020, the Company expanded its claims in the EU for the Senhance System to include pediatric patients, allowing accessibility to more surgeons and patients, as well as expanding its potential market to include pediatric hospitals in Europe. The Company anticipates the robotic precision provided by the Senhance System, coupled with the already available 3 mm diameter instruments, will prove to be an effective tool in surgery with smaller patients. On March 13, 2020 the Company announced that it received FDA clearance for the Intelligent Surgical Unit™ (ISU™) for use with the Senhance System. The Company believes it is the first such FDA submission seeking clearance for machine vision technology in abdominal robotic surgery. On September 23, 2020, the Company announced the first surgical procedures successfully completed using the ISU.
On January 19, 2021, the Company announced that it received CE Mark for the ISU. Finally, on July 28, 2021, the Company announced that it received FDA clearance for 5 mm diameter articulating instruments, offering better access to difficult-to-reach areas of the anatomy by providing two additional degrees of freedom. These instruments have previously received CE Mark for use in the EU.
On October 31, 2018, the Company acquired the assets, intellectual property and highly experienced multidisciplinary personnel of MST Medical Surgical Technologies, Inc., or MST, an Israeli-based medical technology company. Through this acquisition the Company acquired MST’s AutoLap™ assets and technology, one of the only image-guided robotic scope positioning systems with FDA clearance and CE Mark. The Company believes MST’s image analytics technology will accelerate and drive meaningful Senhance System developments and allow the Company to expand the Senhance System to add augmented, intelligent vision capability. The Company sold the AutoLap assets in October 2019, while retaining the core technology.
At-the-Market Offering
On May 19, 2021, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), Robert W. Baird & Co. Incorporated (“Baird”) and Oppenheimer & Co. Inc. (“Oppenheimer”). Each of Cantor, Baird and Oppenheimer are individually an “Agent” and collectively are the “Agents” under the Agreement. Also on May 19, 2021, the Company filed a prospectus supplement relating to an at-the-market offering (the “2021 ATM Offering”) by the Company of up to an aggregate of $100,000,000 of shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), which shares of Common Stock are registered under the Registration Statement on Form S-3 ASR (File No.333-256284) and automatically effective on May 19, 2021.
2. | Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company and its direct and indirect wholly owned subsidiaries. The Company has prepared the accompanying unaudited interim condensed consolidated financial statementsAll inter-company accounts and transactions have been eliminated in accordance with the instructions to Form 10-Q and the standards of accounting measurement set forth in the Interim Reporting Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Consequently, the Company has not necessarily included in this Form 10-Q all information and footnotes required for audited financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements in this Form 10-Q contain all adjustments, consisting only of normal recurring adjustments, except as otherwise indicated, necessary for a fair statement of its financial position, results of operations, and cash flows of the Company for all periods presented.consolidation. The results reported in these unaudited interim condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for any subsequent period or for the entire year. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Fiscal 20202021 Form 10-K. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”)GAAP have been condensed or omitted in the accompanying interim condensed consolidated financial statements. The year-endIn the opinion of the Company’s management, the accompanying unaudited condensed consolidated balance sheet data was derived from audited financial statements but does not includecontain all disclosures required by U.S. GAAP.adjustments, consisting only of normal recurring adjustments, except as otherwise indicated, necessary for a fair statement of its financial position, results of operations, and cash flows of the Company for all periods presented.
LiquidityPrinciples of Consolidation
The Company had an accumulated deficitaccompanying condensed consolidated financial statements include the accounts of $753.4 million and working capital of $165.7 million as of June 30, 2021. The Company has not established sufficient sales revenues to cover its operating costs and believes it may require additional capital in the future to proceed with its operating plan.
The Company believes the COVID-19 pandemic will continue to negatively impact its operations and ability to implement its market development efforts, which will have a negative effect on its financial condition.
In the first quarter of 2021, the Company raised additional capital through equity offerings, including raising net proceeds of $73.4 millionand its direct and indirect wholly owned subsidiaries, Asensus Surgical US, Inc., Asensus International, Inc., Asensus Surgical Italia S.r.l., Asensus Surgical Europe S.à.r.l., Asensus Surgical Taiwan Ltd., Asensus Surgical Japan K.K., Asensus Surgical Israel Ltd., Asensus Surgical Netherlands B.V., and Asensus Surgical Canada, Inc. All inter-company accounts and transactions have been eliminated in a January 2021 public offering, $28.6 million in a January 2021 registered direct offering, and $27.3 million in an at-the-market offering launched in 2020 (the “2020 ATM Offering”). Also, outstanding Series B, C and D warrants were exercised in the six months ended June 30, 2021 for aggregate proceeds to the Company of $30.6 million.consolidation.
In the second quarter of 2021, the Company launched the 2021 ATM Offering and raised proceeds, net of legal costs and commissions, of $1.0 million under this offering in the three months ended June 30, 2021.
As of June 30, 2021, the Company had cash and cash equivalents, excluding restricted cash, of approximately $157.1 million.
While the Company believes that its existing cash and cash equivalents as of June 30, 2021 will be sufficient to sustain operations for at least the next 12 months from the issuance of these financial statements, the Company believes it may need to obtain additional financing in the future to proceed with its business plan. Management's plan to obtain additional resources for the Company may include additional sales of equity under the 2021 ATM Offering or otherwise, traditional financing, such as loans, entry into a strategic collaboration, entry into an out-licensing arrangement or provision of additional distribution rights in some or all of our markets. However, management cannot provide any assurance that the Company will be successful in accomplishing any or all of its plans.
Risk and Uncertainties
The Company is subject to risks similar to other similarly sized companies in the medical device industry. These risks include, without limitation: potential negative impacts on the Company's operations caused by the COVID-19 pandemic;pandemic and other geopolitical factors; the historical lack of profitability; the Company’s ability to raise additional capital; the success of its market development efforts, the liquidity and capital resources of its partners;efforts; its ability to successfully develop, clinically test and commercialize its products; the timing and outcome of the regulatory review process for its products; changes in the health care and regulatory environments of the United States, the United Kingdom, the European Union, Japan, Taiwan, and other countries in which the Company operates or intends to operate; its ability to attract and retain key management, marketing and scientific personnel; its ability to successfully prepare, file, prosecute, maintain, defend and enforce patent claims and other intellectual property rights; its ability to successfully transition from a research and development company to a marketing, sales and distribution concern;company; competition in the market for robotic surgical devices; and its ability to identify and pursue development of additional products.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include impairment considerations for long- term intangiblelong-lived assets, fair value estimates related to contingent consideration, warrant liabilities, stock compensation expense, revenue recognition, accounts receivable reserves, short-term and long-term investments, excess and obsolete inventory reserves, inventory classification between current and non-current, measurement of lease liabilities and corresponding ROUright-of-use (“ROU”) assets, and deferred tax asset valuation allowances.
The COVID-
Significant Accounting Policies
There have been imposedno new or material changes to the significant accounting policies discussed in the United States and abroad, which has resulted in significant volatility in the global economy and led to reduced economic activity. In the preparation of theseCompany’s audited financial statements and related disclosures, the Company has assessed the impact that COVID-19 has had on its estimates, assumptions, forecasts, and accounting policies. The Company continues to monitor closely the COVID-19 pandemic impact on its estimates, assumptions and forecasts usednotes thereto included in the preparation of its financial statements. AsAnnual Report on Form 10-K for the COVID-fiscal year ended 19December 31, 2021. situation is unprecedented and ever evolving, future events and effects related to COVID-
19 cannot be determined with precision, and actual results could significantly differ from estimates or forecasts.
Reclassifications
Principles of Consolidation and Foreign Currency Considerations
The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries, Asensus Surgical US, Inc., SafeStitch LLC, Asensus International, Inc., Asensus Surgical Italia S.r.l., Asensus Surgical Europe S.à.r.l., Asensus Surgical Taiwan Ltd., Asensus Surgical Japan K.K., Asensus Surgical Israel Ltd., Asensus Surgical Netherlands B.V., and Asensus Surgical Canada, Inc. All inter-company accounts and transactionsCertain amounts reported previously have been eliminated in consolidation.
The functional currencyreclassified to conform to current year presentation, with no effect on stockholders’ equity or net loss as previously reported. These reclassifications relate to revenue and cost of the Company’s operational foreign subsidiaries is predominantly the Euro. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period. The cumulative translation effectrevenue for a subsidiary using a functional currency other than the U.S. dollar isleases which historically were included in accumulated other comprehensive income or loss as a separate componentproduct and service revenue and corresponding cost of stockholders’ equity.
The Company’s intercompany accounts are denominated in the functional currency of the foreign subsidiary. Gains and losses resulting from the remeasurement of intercompany receivables that the Company considers to be of a long-term investment nature are recorded as a cumulative translation adjustment in accumulated other comprehensive income or loss as a separate component of stockholders’ equity, while gains and losses resulting from the remeasurement of intercompany receivables from a foreign subsidiary for which the Company anticipates settlement in the foreseeable future are recorded in the condensed consolidated statements of operations and comprehensive loss. The net gains and losses included in net loss inrevenue on the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2021 2021.and 2020 were not significant.
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with original maturities of 90 days or less at the time of purchase to be cash equivalents.
Restricted cash as of June 30, 2021 and December 31,2020 includes $1.0 million and $1.2 million, respectively, in cash accounts held as collateral primarily under the terms of an office operating lease, credit cards, and automobile leases.
Concentrations and Credit Risk
The Company’s principal financial instruments subject to potential concentration of credit risk are cash and cash equivalents, including amounts held in money market accounts. The Company places cash deposits with a federally insured financial institution. The Company maintains its cash at banks and financial institutions it considers to be of high credit quality; however, the Company’s domestic cash deposits may at times exceed the Federal Deposit Insurance Corporation’s insured limit. Balances in excess of federally insured limitations may not be insured. The Company has not experienced losses on these accounts, and management believes that the Company is not exposed to significant risks on such accounts.
The Company’s accounts receivable are derived from sales and leases to customers located throughout the world. The Company evaluates its customers’ financial condition and, generally, requires no collateral from its customers. The Company provided reserves for potential credit losses and recorded no bad debt charges during the three and six months ended June 30, 2021 and 2020. The Company had 4 customers who constituted 59% of the Company’s net accounts receivable as of June 30, 2021. The Company had seven customers who constituted 68% of the Company’s net accounts receivable at December 31,2020. The Company had 5 customers who accounted for 39% of revenue in the three months ended June 30, 2021 and 7 customers who accounted for 60% of revenue in the three months ended June 30, 2020. The Company had 4 customers who accounted for 54% of revenue in the six months ended June 30, 2021 and 9 customers who accounted for 65% of revenue in the six months ended June 30, 2020.
Impact of Recently Issued Accounting Standards
Accounts Receivable
Accounts receivable are recordedIn June 2016, the Financial Accounting Standards Board (“FASB”), issued ASU 2016-13,Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is designed to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at net realizable value, which includes an allowance for estimated uncollectible accounts.each reporting date. The allowance for uncollectible accounts was determined on a customer specific basis based on deemed collectability. The allowance for doubtful accounts was $1.7 million and $1.8 millionCompany adopted ASU 2016-13 as of June 30, 2021January 1, 2022, andon a modified retrospective basis. The cumulative-effect adjustment related to the adoption was December 31, 2020, notrespectively. material.
Inventories
Inventories are stated at In August 2020, the lower of cost (determinedFASB issued ASU 2020-06,Debt – Debt with Conversion and Other Options(Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) guidance on the accounting for convertible debt instruments and contracts in an entity’s own equity. The guidance simplifies the accounting for convertible instruments by reducing the various accounting models that can require the instrument to be separated into a first-in, first-out basis)debt component and equity component or net realizable value. Inventory costs include direct materials, direct labor, and normal manufacturing overhead.derivative component. The Company records reserves, when necessary, to reduce the carrying valueadopted ASU 2020-06 as of inventory to its net realizable value. Management considers forecast demand in relationJanuary 1, 2022. The adoption did not have a material impact to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining excess and obsolescence and net realizable value adjustments. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Any inventory on hand at the measurement date in excess of the Company's current requirements based on anticipated levels of sales is classified as long-term on the Company's condensed consolidated balance sheets. The Company's classification of long-term inventory requires it to estimate the portion of on hand inventory that can be realized over the upcoming twelve months.
Intellectual Property
Intellectual property consists of purchased patent rights and developed technology acquired as part of previous business acquisitions. Amortization of the patent rights is recorded using the straight-line method over the estimated useful life of the patents of 10 years. Amortization of the developed technology is recorded using the straight-line method over the estimated useful life of 5 to 7 years.financial statements.
The Company periodically evaluates intellectual property for impairment whenever events or changes in circumstances indicate that the carrying amount may has evaluated all other issued and ASUs not be recoverable. To determineyet adopted and believes the recoverability, the Company evaluates the probability that future estimated undiscounted net cash flowsadoption of these standards will be less than the carrying amount of the assets. If such estimated cash flows are less than the carrying amount of the assets, then such assets are written down to their fair value. NaN impairment of intellectual property was identified during the three and six months ended June 30, 2021 and 2020.
Property and Equipment
Property and equipment consists primarily of operating lease Senhance System assets, machinery, manufacturing equipment, demonstration equipment, computer equipment, furniture, and leasehold improvements, which are recorded at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets as follows:
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Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred.
The Company reviews its property and equipment assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine the recoverability, the Company evaluates the probability that future estimated undiscounted net cash flows will be less than the carrying amount of the assets. If such estimated cash flows are less than the carrying amount of the assets, then such assets are written down to their fair value. The Company did not identify any impairment during the three and six months ended June 30, 2021 and 2020.
Notes Payable – Payroll Protection Program
The Company’s policy is to account for forgivable loans received through the U.S. Small Business Administration (the “SBA”) under the CARES Act Payroll Protection Program (“PPP”), as debt in accordance with ASC 470, Debt, and other related accounting pronouncements. The forgiveness of debt, in whole or part, is recognized once the debt is extinguished, which occurs when the Company is legally released from the liability by the SBA. Any portion of debt forgiven, adjusted for accrued interest forgiven and unamortized debt issuance costs, is recorded ashave a gainmaterial impact on extinguishment of debt, and presented in theits condensed consolidated statements of operations and comprehensive loss. On June 10, 2021, the Company received notification from the SBA that the principal amount of its PPP loan of $2.8 million and related interest had been forgiven.
Contingent Consideration
Contingent consideration is recorded as a liability and is the estimate of the fair value of potential milestone payments related to business acquisitions. Contingent consideration is measured at fair value using a discounted cash flow model utilizing significant unobservable inputs including the probability of achieving each of the potential milestones, future Euro-to-USD exchange rates, and an estimated discount rate associated with the risks of the expected cash flows attributable to the various milestones. Significant increasesloss, balance sheets, or decreases in any of the probabilities of success or changes in expected achievement of any of these milestones would result in a significantly higher or lower fair value of these milestones, respectively, and commensurate changes to the associated liability. The contingent consideration is revalued at each reporting period and changes in fair value are recognized in the condensed consolidated statements of operations and comprehensive loss.cash flows.
On September 21,2015, the Company completed the strategic acquisition, through its wholly owned subsidiary TransEnterix International, from Sofar, of all of the assets, employees and contracts related to the advanced robotic system for minimally invasive laparoscopic surgery now known as the Senhance System. Under the terms of the Purchase Agreement, as amended in 2016, as of June 30, 2021 the Company has accrued $4.7 million of estimated fair value of remaining contingent consideration which shall be payable upon achievement of trailing revenues from sales or services contracts of the Senhance System of at least €25.0 million over a calendar quarter.
Warrant Liabilities
The Company’s Series B Warrants (see Note 8) were measured at fair value using a simulation model which took into account, as of the valuation date, factors including the current exercise price, the expected life of the warrant, the current price of the underlying stock, its expected volatility, holding cost and the risk-free interest rate for the term of the warrant (see Note 3). The warrant liability was revalued at each reporting period and changes in fair value were recognized in the condensed consolidated statements of operations and comprehensive loss. The selection of the appropriate valuation model and the inputs and assumptions that are required to determine the valuation requires significant judgment and requires management to make estimates and assumptions that affect the reported amount of the related liability and reported amounts of the change in fair value. Actual results could differ from those estimates, and changes in these estimates are recorded when known. All remaining outstanding Series B Warrants were exercised in the first quarter 2021.
Revenue Recognition
The Company’s revenue consists of product revenue resulting from the sale and lease of Systems, System components, instruments and accessories, and service revenue. The Company accounts for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. The Company's revenues are measured based on consideration specified in the contract with each customer, net of any sales incentives and taxes collected from customers that are remitted to government authorities. The Company’s System sale arrangements generally include a five-year service period; the first year of service is generally free and included in the System sale arrangement and the remaining four years are generally included at a stated service price.
The Company’s System sale arrangements generally contain multiple products and services. For these consolidated sale arrangements, the Company accounts for individual products and services as separate performance obligations if they are distinct, which is if a product or service is separately identifiable from other items in the consolidated package, and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company’s System sale arrangements may include a combination of the following performance obligations: system(s), system components, instruments, accessories, and system services.
For arrangements that contain multiple performance obligations, revenue is allocated to each performance obligation based on its relative estimated standalone selling price. When available, standalone selling prices are based on observable prices at which the Company separately sells the products or services; however due to limited sales to date, standalone selling prices generally are not directly observable. The Company estimates the standalone selling price using the market assessment approach considering market conditions and entity-specific factors including, but not limited to, features and functionality of the products and services, geographies, type of customer, and market conditions. The Company regularly reviews estimated standalone selling prices and updates these estimates if necessary.
The Company recognizes revenues as the performance obligations are satisfied by transferring control of the product or service to a customer. The Company generally recognizes revenue for the performance obligations as follows:
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The following table presents revenue disaggregated by type and geography:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
U.S. | ||||||||||||||||
Systems | $ | 91 | $ | 45 | $ | 184 | $ | 75 | ||||||||
Instruments and accessories | 79 | 7 | 141 | 67 | ||||||||||||
Services | 104 | 103 | 202 | 171 | ||||||||||||
Total U.S. revenue | 274 | 155 | 527 | 313 | ||||||||||||
Outside of U.S. ("OUS") | ||||||||||||||||
Systems | 258 | 117 | 1,430 | 127 | ||||||||||||
Instruments and accessories | 268 | 146 | 645 | 288 | ||||||||||||
Services | 302 | 237 | 583 | 527 | ||||||||||||
Total OUS revenue | 828 | 500 | 2,658 | 942 | ||||||||||||
Total | ||||||||||||||||
Systems | 349 | 162 | 1,614 | 202 | ||||||||||||
Instruments and accessories | 347 | 153 | 786 | 355 | ||||||||||||
Services | 406 | 340 | 785 | 698 | ||||||||||||
Total revenue | $ | 1,102 | $ | 655 | $ | 3,185 | $ | 1,255 |
The Company recognizes sales by geographic area based on the country in which the customer is based. Operating lease revenue from Senhance System Leasing is included as Systems in the above table and was approximately $0.3 million and $0.1 million in the three months ended June 30, 2021 and 2020, respectively, and $0.7 million and $0.2 million in the six months ended June 30, 2021 and 2020, respectively.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
U.S. | ||||||||||||||||
Systems | $ | 0 | $ | 0 | $ | 0 | $ | 3 | ||||||||
Instruments and accessories | 18 | 79 | 82 | 141 | ||||||||||||
Services | 75 | 104 | 149 | 202 | ||||||||||||
Leases | 51 | 91 | 164 | 181 | ||||||||||||
Total U.S. revenue | 144 | 274 | 395 | 527 | ||||||||||||
Outside of U.S. ("OUS") | ||||||||||||||||
Systems | 0 | 0 | 0 | 921 | ||||||||||||
Instruments and accessories | 236 | 284 | 519 | 661 | ||||||||||||
Services | 349 | 302 | 583 | 583 | ||||||||||||
Leases | 265 | 242 | 563 | 493 | ||||||||||||
Total OUS revenue | 850 | 828 | 1,665 | 2,658 | ||||||||||||
Total | ||||||||||||||||
Systems | 0 | 0 | 0 | 924 | ||||||||||||
Instruments and accessories | 254 | 363 | 601 | 802 | ||||||||||||
Services | 424 | 406 | 732 | 785 | ||||||||||||
Leases | 316 | 333 | 727 | 674 | ||||||||||||
Total revenue | $ | 994 | $ | 1,102 | $ | 2,060 | $ | 3,185 |
Remaining Performance Obligations
Transaction price allocated to remaining performance obligations relates to amounts allocated to products and services for which the revenue has not yet been recognized. A significant portion of this amount relates to service obligations performed under the Company's system sales contracts that will be invoiced and recognized as revenue in future periods. Transaction price allocated to remaining performance obligations was approximately $3.2 million and $3.1 million as of June 30, 20212022 and December 31,2020, respectively.was $2.1 million, which is expected to be recognized over one to four years.
Contract Assets and Liabilities
The Company invoices its customers based on the billing schedules in its sales arrangements. Contract assets for the periods presented primarily represent the difference between the revenue that was recognized based on the relative selling price of the related performance obligations and the contractual billing terms in the arrangements. Contract assets are included in accounts receivable and totaled $0.1 million and $0.1 million as of June 30, 2021 and December 31,2020, respectively. Deferred revenue for the periods presented was primarily related to service obligations, for which the service fees are billed up-front, generally annually. The associated deferred revenue is generally recognized ratably over the service period. The Company did not have any significant impairment losses on its contract assets for the periods presented. Revenue recognized for the three months ended June 30, 20212022 and 20202021 that was included in the deferred revenue balance at the beginning of each reporting period was $0.2$0.3 million and $0.4$0.2 million, respectively. Revenue recognized for the six months ended June 30, 20212022 and 20202021 that was included in the deferred revenue balance at the beginning of each reporting period was $0.5 million and $0.4 million, and $0.6 million, respectively. The aggregate amount of transaction price allocated to performance obligations that remain unsatisfied as of June 30, 2021 was $3.2 million, which is expected to be recognized as revenue over one to three years.
In connection withThe following information summarizes the Company’s contract assets recognized from the costs to obtain a contract with a customer, the Company determined that the sales incentive programs for its sales team do not meet the requirements to be capitalized as the Company does not expect to generate future economic benefits from the related revenue from the initial sales transaction and such costs are expensed as incurred.liabilities:
As of | ||||||||
June 30, 2022 | December 31, 2021 | |||||||
(in thousands) | ||||||||
Contract Assets | $ | 57 | $ | 91 | ||||
Deferred Revenue | $ | 510 | $ | 543 |
Senhance System Leasing
The Company enters into operating lease arrangements with certain qualified customers. Revenue related to arrangements including lease elements are allocated to lease and non-lease elements based on their relative standalone selling prices. Lease elements generally include a Senhance System, while non-lease elements generally include instruments, accessories, and services. For some lease arrangements, the customers are provided with the rightoption to purchase the leased System at some point during and/or at the end of the lease term. In some arrangements lease payments are based on the usage of the System. For the three and six months ended June 30, 2022, and 2021, variable lease revenue related to usage-based arrangements was not material.
In determining whetherTrade Accounts Receivable
The allowance for doubtful accounts is based on the Company’s assessment of collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a transaction should be classifiedcustomer’s ability to pay. The allowance for doubtful accounts was $1.5 million and $1.7 million as of June 30, 2022, and December 31, 2021, respectively. For the three and six months ended June 30, 2022, and 2021, bad debt expense was not material.
4. | Fair Value |
The following are categories of assets and liabilities measured at fair value on a sales-type, operating,recurring basis using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):
June 30, 2022 | ||||||||||||||||
(in thousands) | ||||||||||||||||
Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Assets measured at fair value | ||||||||||||||||
Cash and cash equivalents (1) | $ | 10,844 | $ | 0 | $ | 0 | $ | 10,844 | ||||||||
Restricted cash | 1,290 | 0 | 0 | 1,290 | ||||||||||||
Short-term investments | 0 | 83,360 | 0 | 83,360 | ||||||||||||
Long-term investments | 0 | 9,581 | 0 | 9,581 | ||||||||||||
Total assets measured at fair value | $ | 12,134 | $ | 92,941 | $ | 0 | $ | 105,075 | ||||||||
Liabilities measured at fair value | ||||||||||||||||
Contingent consideration | $ | 0 | $ | 0 | $ | 1,619 | $ | 1,619 | ||||||||
Total liabilities measured at fair value | $ | 0 | $ | 0 | $ | 1,619 | $ | 1,619 |
(1) Includes investments that are readily convertible to cash with original maturities of 90 days or less. |
December 31, 2021 | ||||||||||||||||
(in thousands) | ||||||||||||||||
Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Assets measured at fair value | ||||||||||||||||
Cash and cash equivalents (1) | $ | 18,129 | $ | 0 | $ | 0 | $ | 18,129 | ||||||||
Restricted cash | 1,154 | 0 | 0 | 1,154 | ||||||||||||
Short-term investments | 0 | 80,262 | 0 | 80,262 | ||||||||||||
Long-term investments | 0 | 37,435 | 0 | 37,435 | ||||||||||||
Total assets measured at fair value | $ | 19,283 | $ | 117,697 | $ | 0 | $ | 136,980 | ||||||||
Liabilities measured at fair value | ||||||||||||||||
Contingent consideration | $ | 0 | $ | 0 | $ | 2,371 | $ | 2,371 | ||||||||
Total liabilities measured at fair value | $ | 0 | $ | 0 | $ | 2,371 | $ | 2,371 |
(1) Includes investments that are readily convertible to cash with original maturities of 90 days or less. |
The carrying values of accounts receivable, other current assets, accounts payable, and accrued expenses and other current liabilities as of June 30, 2022, and December 31, 2021, approximate their fair values due to the short-term nature of these items.
The Company’s financial liabilities consisted of contingent consideration payable to an assignee of Sofar, S.p.A., the seller, related to the Company’s 2015 acquisition of the Senhance Surgical System (the “Senhance Acquisition”). Adjustments associated with the change in fair value of contingent consideration are included in the Company’s condensed consolidated statements of operations and comprehensive loss.
The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements for contingent consideration utilizing a Monte-Carlo simulation as of June 30, 2022 and December 31, 2021:
Valuation Methodology | Significant Unobservable Input | June 30, 2022 | December 31, 2021 | ||||||||
Contingent consideration | Probability weighted income approach | Milestone dates | 2031 | 2031 | |||||||
Discount rate | 14.5 | % | 9.5 | % | |||||||
Revenue volatility | 40.0 | % | 39.0 | % | |||||||
EUR-to-USD exchange rate | 1.05 | 1.14 |
The following table summarizes the change in fair value, as determined by Level 3 inputs for the contingent consideration for the six months ended June 30, 2022 and 2021:
Fair Value Measurement at Reporting Date (Level 3) | ||||||||
(in thousands) | ||||||||
Series B Warrants | Contingent consideration | |||||||
Balance at December 31, 2021 | $ | 0 | $ | 2,371 | ||||
Change in fair value | 0 | (752 | ) | |||||
Balance at June 30, 2022 | $ | 0 | $ | 1,619 | ||||
Balance at December 31, 2020 | $ | 255 | $ | 3,936 | ||||
Exercise of warrants | (2,236 | ) | 0 | |||||
Change in fair value | 1,981 | 257 | ||||||
Balance at June 30, 2021 | $ | 0 | $ | 4,193 | ||||
Current portion | $ | 0 | $ | 0 | ||||
Long-term portion | 0 | 1,619 | ||||||
Balance at June 30, 2022 | $ | 0 | $ | 1,619 |
5. | Investments, available-for-sale |
The aggregate fair values of investment securities along with unrealized gains and losses determined on an individual investment security basis and included in other comprehensive loss are as follows:
June 30, 2022 | ||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | Short-term investments | Long-term investments | |||||||||||||||||||
Commercial Paper | $ | 35,643 | $ | 0 | $ | (191 | ) | $ | 35,452 | $ | 35,452 | $ | 0 | |||||||||||
Corporate Bonds | 58,242 | 0 | (753 | ) | 57,489 | 47,908 | 9,581 | |||||||||||||||||
Total Investments | $ | 93,885 | $ | 0 | $ | (944 | ) | $ | 92,941 | $ | 83,360 | $ | 9,581 |
December 31, 2021 | ||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | Short-term investments | Long-term investments | |||||||||||||||||||
Commercial Paper | $ | 50,705 | $ | 0 | $ | (46 | ) | $ | 50,659 | $ | 50,660 | $ | 0 | |||||||||||
Corporate Bonds | 67,239 | 1 | (202 | ) | 67,038 | 29,602 | 37,435 | |||||||||||||||||
Total Investments | $ | 117,944 | $ | 1 | $ | (248 | ) | $ | 117,697 | $ | 80,262 | $ | 37,435 |
The following table summarizes the contractual maturities of the Company’s available-for-sale investments:
June 30, 2022 | ||||||||
(in thousands) | ||||||||
Amortized Cost | Fair Value | |||||||
Mature in less than one year | $ | 84,173 | $ | 83,360 | ||||
Mature in one to two years | 9,712 | 9,581 | ||||||
Total | $ | 93,885 | $ | 92,941 |
Actual maturities may differ from contractual maturities because certain borrowers have the right to call or direct financingprepay certain obligations. There were no sales of investments or gross realized gains or losses for the six months ended June 30, 2022, and 2021, respectively.
6. | Inventories |
The components of inventories are as follows:
June 30, 2022 | ||||||||||||
(in thousands) | ||||||||||||
Gross Carrying Amount | Reserve Balance | Net Carrying Amount | ||||||||||
Finished goods | $ | 14,687 | $ | (2,931 | ) | $ | 11,756 | |||||
Raw materials | 6,137 | (2,184 | ) | 3,953 | ||||||||
Total inventories | $ | 20,824 | $ | (5,115 | ) | $ | 15,709 | |||||
Current Portion | $ | 10,113 | $ | (1,662 | ) | $ | 8,451 | |||||
Long-term portion | 10,711 | (3,453 | ) | 7,258 | ||||||||
Total inventories | $ | 20,824 | $ | (5,115 | ) | $ | 15,709 |
December 31, 2021 | ||||||||||||
(in thousands) | ||||||||||||
Gross Carrying Amount | Reserve Balance | Net Carrying Amount | ||||||||||
Finished goods | $ | 13,066 | $ | (2,987 | ) | $ | 10,079 | |||||
Raw materials | 8,324 | (2,695 | ) | 5,629 | ||||||||
Total inventories | $ | 21,390 | $ | (5,682 | ) | $ | 15,708 | |||||
Current Portion | $ | 9,931 | $ | (1,297 | ) | $ | 8,634 | |||||
Long-term portion | 11,459 | (4,385 | ) | 7,074 | ||||||||
Total inventories | $ | 21,390 | $ | (5,682 | ) | $ | 15,708 |
The Company has determined that its December 31, 2021 and March 31, 2022 inventory footnote presentation overstated raw materials and understated finished goods by approximately $2.5 million. For comparative purposes, the Company’s prior year inventory footnote has been revised to reflect the adjustment to raw materials and finished goods. The revision had no effect on the previously reported total gross and net carrying value of inventory. The revision also had no effect on the previously reported balance sheets, statements of operations and comprehensive loss, cash flows and stockholders’ equity.
7. | Intellectual Property |
The components of gross intellectual property, accumulated amortization, and net intellectual property are as follows:
June 30, 2022 | ||||||||||||||||
(in thousands) | ||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Foreign Currency Translation Impact | Net Carrying Amount | |||||||||||||
Developed technology | $ | 68,838 | $ | (64,094 | ) | $ | (812 | ) | $ | 3,932 | ||||||
Technology and patents purchased | 400 | (220 | ) | 10 | 190 | |||||||||||
Total intellectual property | $ | 69,238 | $ | (64,314 | ) | $ | (802 | ) | $ | 4,122 |
December 31, 2021 | ||||||||||||||||
(in thousands) | ||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Foreign Currency Translation Impact | Net Carrying Amount | |||||||||||||
Developed technology | $ | 68,838 | $ | (58,912 | ) | $ | (262 | ) | $ | 9,664 | ||||||
Technology and patents purchased | 400 | (199 | ) | 27 | 228 | |||||||||||
Total intellectual property | $ | 69,238 | $ | (59,111 | ) | $ | (235 | ) | $ | 9,892 |
The weighted average remaining useful life of the developed technology and technology and patents purchased was 2.0 years and 4.8 years, respectively, as of June 30, 2022.
8. | Leases |
Lessee Information
The Company determines if an arrangement contains a lease or service contract at inception. Where an arrangement contains a lease, the Company considersdetermines if it is an operating lease or a finance lease. Subsequently, if the following terms at lease commencement: (1) whether title ofarrangement is modified, the Senhance System transfers automatically orCompany reevaluates the classification. The Company has entered into operating leases for a nominal fee by the endcorporate office buildings, vehicles, and machinery and equipment. Some of the lease term, (2) whetheragreements have renewal options, tenant improvement allowances, rent escalation clauses, and assignment and subletting clauses. While the presentoperating leases range from one year to ten years, some include options to extend the lease generally between one year and six years, and some include options to terminate the leases within one year.
Components of operating lease expense are primarily recorded in general and administrative on the condensed consolidated statements of operations and comprehensive loss were as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Long-term Operating | $ | 386 | $ | 485 | $ | 785 | $ | 923 | ||||||||
Short-term Operating | 0 | 0 | 0 | 0 | ||||||||||||
Total Operating lease expense | $ | 386 | $ | 485 | $ | 785 | $ | 923 |
Supplemental balance sheet information related to operating leases was as follows:
June 30, 2022 | December 31, 2021 | |||||||||
Weighted-average remaining lease term (in years) | 7.4 | 7.8 | ||||||||
Weighted-average discount rate | 7.4% | 7.8% | ||||||||
Incremental borrowing rate | 6.1% | - | 8.5% | 6.1% | - | 8.5 |
Maturities of operating lease obligations as of June 30, 2022 were as follows (in thousands):
Fiscal Year | ||||
2022 | $ | 430 | ||
2023 | 972 | |||
2024 | 886 | |||
2025 | 881 | |||
2026 | 822 | |||
Thereafter | 2,958 | |||
Total minimum lease payments | $ | 6,949 | ||
Less: Amount of lease payments representing interest | (1,760 | ) | ||
Present value of future minimum lease payments | $ | 5,189 |
9. | Property and Equipment Impairment |
During the three and six months ended June 30, 2022, the Company recorded a non-cash asset impairment charge of $0.4 million to reduce the carrying value of the minimum lease payments equals or exceeds substantially all of theproperty and equipment to its estimated fair value. The property and equipment is associated with returned Senhance Systems under operating leases that are not expected to generate future cash flows sufficient to recover their net book value. The fair value was estimated based on the discounted cash flows expected to be produced by the property and equipment. The impairment was recorded in property and equipment impairment on the condensed consolidated statements of operations and comprehensive loss.
10. | Income Taxes |
Income taxes have been accounted for using the leased System, (asset and liability method in accordance with ASC 3740) whether “Income Taxes”. The Company computes its interim provision for income taxes by applying the lease term isestimated annual effective tax rate method. The Company estimates an annual effective tax rate of (0.4)% for the major partyear ending December 31, 2022. This rate does not include the impact of the remaining economic life of the leased System, (4) whether the lease grants the lessee an option to purchase the leased System that the lessee is reasonably certain to exercise, and (5) whether the underlying System is of such a specialized nature that it is expected to have no alternative use to the Company at the end of the lease term. All such arrangements through June 30, 2021 are classified as operating leases.
Revenue related to lease elements from operating lease arrangements is generally recognized on a straight-line basis over the lease term or based upon System usage and is presented as product revenue. Revenue related to lease elements from operating lease arrangements was approximately $0.3 million and $0.1 millionany discrete items. The Company’s effective tax rate for the three months ended June 30, 20212022 and 2020,2021 respectively,was (0.4)% and $0.7 million and $0.2 million0.0%, respectively. The Company’s effective tax rate for the six months ended June 30, 20212022 and 2020,2021 was (0.4)% and 0.1%, respectively.
Cost of Revenue
Cost of revenue consists of contract manufacturing, materials, labor, and manufacturing overhead incurred internally to produce the products. Shipping and handling costs incurred by the Company are included in cost of revenue. During the three months ended June 30, 2021 and 2020, the Company recorded $0.2 million and $0 million, respectively, of expenses for inventory obsolescence related to certain System components. During the six months ended June 30, 2021 and 2020, the Company recorded $0.3 million and $0 million, respectively, of expenses for inventory obsolescence related to certain System components.
Research and Development Costs
Research and development expenses primarily consist of engineering, product development and regulatory expenses, incurred in the design, development, testing and enhancement of our products. Research and development costs are expensed as incurred.
The Company incurred losses for the three and six months ended June 30, 2022, and is forecasting additional losses through the year, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2022. Due to the Company’s history of losses, there is not sufficient evidence to record a net deferred tax asset associated with the U.S., Luxembourg, Swiss, Italian, Taiwanese, and Canadian operations. Accordingly, a full valuation allowance has been recorded related to the net deferred tax assets in those jurisdictions.
The total tax (expense) benefit during the three months ended June 30, 2022 and 2021, was approximately ($0.1) million and ($0.002) million, respectively. The total tax (expense) benefit during the six months ended June 30, 2022 and 2021, was approximately ($0.2) million and $0.036 million, respectively.
At June 30, 2022 the Company had 0 unrecognized tax benefits that would affect the Company’s effective tax rate.
The FASB Staff Q&A, Topic 740,No.5, Accounting for Global Intangible Low-Taxed Income (“GILTI”), states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI as a period expense in the year the tax is incurred. The Company does not expect a GILTI inclusion for 2022;no GILTI tax has been recorded for the six months ended June 30, 2022 or 2021.
11. | Stock-Based Compensation
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The fair value of restricted stock units is determined by the market price of the Company’s common stock on the date of grant.
The Company records as expense the fair value of stock-based compensation awards, including stock options and restricted stock units. Compensation expense for stock-based compensation was approximately $1.8 million and $1.9 million for the three months ended June 30, 2021 and 2020, respectively, and was approximately $3.6 million and $3.9 million for the six months ended June 30, 2021 and 2020, respectively.
Stock Options
The following table summarizes the Company’s stock option activity, including grants to non-employees, for the six months ended June 30, 2022:
Number of Shares | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Term (Years) | ||||||||||
Balance at December 31, 2021 | 4,640,660 | $ | 6.64 | 5.66 | ||||||||
Granted | 2,555,396 | 0.77 | ||||||||||
Forfeited | (23,047 | ) | 3.22 | |||||||||
Cancelled | (16,983 | ) | 33.27 | |||||||||
Exercised | (43,453 | ) | 0.41 | |||||||||
Balance at June 30, 2022 | 7,112,573 | $ | 4.52 | 5.71 |
The following table summarizes information about stock options outstanding at June 30, 2022:
Number of Shares | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (Millions) | |||||||||||||
Exercisable at June 30, 2022 | 3,119,355 | $ | 8.02 | 5.08 | $ | 0 | ||||||||||
Vested or expected to vest at June 30, 2022 | 6,777,170 | $ | 4.67 | 5.67 | $ | 0 |
Restricted Stock Units
The following is a summary of the restricted stock units activity, including performance restricted stock units, for the six months ended June 30, 2022:
Number of Restricted Stock Units Outstanding | Weighted- Average Grant Date Fair Value | |||||||
Unvested December 31, 2021 | 3,839,030 | $ | 2.36 | |||||
Granted | 6,040,915 | 0.75 | ||||||
Vested | (1,794,623 | ) | 2.47 | |||||
Forfeited | (100,047 | ) | 1.36 | |||||
Unvested Jun 30, 2022 | 7,985,275 | $ | 1.13 |
Performance Restricted Stock Units
In 2022 and 2021, the Company granted performance-based restricted stock units with vesting terms based on our attainment of certain operational targets by October 1, 2023 and October 1, 2022, respectively. The number of shares earnable under the 2022 and 2021 awards are based on achieving designated corporate goals.
Stock-based Compensation Expense
The following table summarizes non-cash stock-based compensation expense by award type for the three and six months ended June 30, 2022, and 2021:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Stock options | $ | 924 | $ | 1,087 | $ | 1,901 | $ | 2,207 | ||||||||
Restricted stock units | 822 | 690 | 1,707 | 1,293 | ||||||||||||
Performance restricted stock units | 337 | 33 | 720 | 70 | ||||||||||||
$ | 2,083 | $ | 1,810 | $ | 4,328 | $ | 3,570 |
As of June 30, 2022, the Company had future employee stock-based compensation expense of approximately $3.6 million related to unvested stock options, which is expected to be recognized over an estimated weighted-average period of 2.0 years. As of June 30, 2022, the unrecognized stock-based compensation expense related to unvested restricted stock units was approximately $6.0 million, which is expected to be recognized over a weighted average period of approximately 1.8 years.
The fair value of options granted were estimated using the Black-Scholes-Merton option pricing model based on the assumptions in the table below:
Six Months Ended June 30, | |||||||||||
2022 | 2021 | ||||||||||
Expected dividend yield | 0% | 0% | |||||||||
Expected volatility | 128% | - | 133% | 118% | - | 136% | |||||
Risk-free interest rate | 1.25% | - | 2.98% | 0.33% | - | 0.58% | |||||
Expected life (in years) | 4.3 | - | 4.5 | 3.8 | - | 4.5 |
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Equity financing transactions for the six months ended June 30, 2021, include:
2020 ATM Offering. On October 9, 2020, the Company filed a prospectus supplement relating to an at-the-market offering with Cantor pursuant to which the Company could sell from time to time, at its option, up to an aggregate of $40.0 million of shares of the Company’s common stock (the “2020 ATM Offering”). The Company terminated this agreement in January 2021.
January 2021 Public Offering. On January 29, 2021, the Company completed an underwritten public offering of 26,545,832 shares of its common stock, including the underwriter’s full exercise of an over-allotment option on February 1, 2021, at the public offering price of $3.00 per share, generating net proceeds of approximately $73.4 million.
January 2021 Registered Direct Purchase Agreement. On January 12, 2021, the Company sold in a registered direct offering 25,000,000 shares of common stock at a purchase price per share of $1.25 for aggregate net proceeds of $28.6 million.
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The Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. These assets and liabilities include cash and cash equivalents, restricted cash, contingent consideration and warrant liabilities. ASC 820-10 (“Fair Value Measurement Disclosure”) requires the valuation using a three-tiered approach, which requires that fair value measurements be classified and disclosed in one of three tiers. These tiers are: Level 1, defined as quoted prices in active markets for identical assets or liabilities; Level 2, defined as valuations based on observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable input data; and Level 3, defined as valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. The Company did not have any transfers of assets and liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy during the three and six months ended June 30, 2021 and 2020.
For assets and liabilities recorded at fair value, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market data and therefore, are based primarily upon estimates, are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
As prescribed by U.S. GAAP, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy.
The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures and based on various factors, it is possible that an asset or liability may be classified differently from period to period. However, the Company expects changes in classifications between levels will be rare.
The carrying values of accounts receivable, other current assets, accounts payable, and certain accrued expenses as of June 30, 2021 and December 31,2020 approximate their fair values due to the short-term nature of these items. The Company’s notes payable balance also approximates fair value as of December 31,2020, as the interest rate on the notes payable approximates the rates available to the Company as of this date.
The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31,2020, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):
June 30, 2021 | ||||||||||||||||
(in thousands) | ||||||||||||||||
Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Assets measured at fair value | ||||||||||||||||
Cash and cash equivalents | $ | 157,078 | $ | 0 | $ | 0 | $ | 157,078 | ||||||||
Restricted cash | 1,045 | 0 | 0 | 1,045 | ||||||||||||
Total assets measured at fair value | $ | 158,123 | $ | 0 | $ | 0 | $ | 158,123 | ||||||||
Liabilities measured at fair value | ||||||||||||||||
Contingent consideration | $ | 0 | $ | 0 | $ | 4,671 | $ | 4,671 | ||||||||
Total liabilities measured at fair value | $ | 0 | $ | 0 | $ | 4,671 | $ | 4,671 |
December 31, 2020 | ||||||||||||||||
(in thousands) | ||||||||||||||||
Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Assets measured at fair value | ||||||||||||||||
Cash and cash equivalents | $ | 16,363 | $ | 0 | $ | 0 | $ | 16,363 | ||||||||
Restricted cash | 1,166 | 0 | 0 | 1,166 | ||||||||||||
Total assets measured at fair value | $ | 17,529 | $ | 0 | $ | 0 | $ | 17,529 | ||||||||
Liabilities measured at fair value | ||||||||||||||||
Contingent consideration | $ | 0 | $ | 0 | $ | 3,936 | $ | 3,936 | ||||||||
Warrant liabilities | 0 | 0 | 255 | 255 | ||||||||||||
Total liabilities measured at fair value | $ | 0 | $ | 0 | $ | 4,191 | $ | 4,191 |
The Company’s financial liabilities consisted of contingent consideration payable to Sofar related to the Senhance Acquisition in September 2015. This liability is reported as Level 3 as estimated fair value of the contingent consideration related to the acquisition requires significant management judgment or estimation and is calculated using the income approach, using various revenue and cost assumptions, and applying a probability to each outcome. The increase in fair value of the contingent consideration of $0.5 million and $0.7 million for the three and six months ended June 30, 2021, respectively was primarily due to a lower discount rate, increased volatility, and the passage of time. The increase in fair value of the contingent consideration of $0.2 million and $1.3 million for the three and six months ended June 30, 2020, respectively was primarily due to the passage of time. Adjustments associated with the change in fair value of contingent consideration are included in the Company’s condensed consolidated statements of operations and comprehensive loss. The Company uses a probability-weighted income approach for estimating the fair value of the contingent consideration. The significant unobservable inputs used in this approach include estimates of amounts and timing of stated milestones, volatility, and the discount rate.
On April 28, 2017, the Company sold 24.9 million units (the “Units”), each consisting of approximately 0.077 shares of the Company's Common Stock, a Series A warrant to purchase approximately 0.077 shares of Common Stock with an exercise price of $13.00 per share (the “Series A Warrants”), and a Series B warrant to purchase approximately 0.058 shares of Common Stock with an exercise price of $13.00 per share (the “Series B Warrants,” together with the Series A Warrants, the “Warrants”), at an offering price of $1.00 per Unit. All of the Series A Warrants were exercised prior to the expiration date of October 31, 2017. As of December 31, 2020, 567,660 Series B Warrants were outstanding with an exercise price of $0.35 per share. All outstanding Series B Warrants were exercised in the first quarter 2021.
The final remeasurement upon exercise of the Series B warrants was on February 8, 2021 and all Series B warrants have been exercised as of June 30, 2021. The change in fair value of the Series B warrants for the six months ended June 30, 2021 and 2020 was an increase of $2.0 million and an increase of $0.3 million, respectively and was included in the Company’s condensed consolidated statements of operations and comprehensive loss. The increase in fair value of the Series B warrants of $2.0 million for the six months ended June 30, 2021 was primarily due to an increase in share price, a lower discount rate, increased volatility, and the passage of time. NaN change in fair value was recorded for the three months ended June 30, 2021. The change in fair value of the Series B warrants for the three months ended June 30, 2020 was an increase of $0.1 million and was primarily due to a lower discount rate, decreased volatility, and the passage of time. The following table presents the inputs and valuation methodologies used for the Company’s fair value of the Series B warrants:
December 31, | ||||
Series B Warrants | 2020 | |||
Valuation methodology | Black-Scholes-Merton | |||
Term (years) | 1.32 | |||
Risk free rate | 0.10 | % | ||
Dividends | 0 | |||
Volatility | 150.97 | % | ||
Share price | $ | 0.63 |
The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements for contingent consideration as of June 30, 2021 and December 31,2020:
Methodology | Unobservable Input | 2021 | 2020 | |||||||||||
Contingent consideration | Probability weighted income approach | Milestone dates | 2025 | to | 2029 | 2024 | to | 2029 | ||||||
Discount rate | 9.0% | 9.50% | ||||||||||||
Volatility | 74.0% | 71.0% |
The following table summarizes the change in fair value, as determined by Level 3 inputs for the warrants and the contingent consideration for the six months ended June 30, 2021:
Fair Value Measurement at Reporting Date (Level 3) | ||||||||
(in thousands) | ||||||||
Common stock warrants | Contingent consideration | |||||||
Balance at December 31, 2020 | $ | 255 | $ | 3,936 | ||||
Exercise of warrants | (2,236 | ) | 0 | |||||
Change in fair value | 1,981 | 735 | ||||||
Balance at June 30, 2021 | $ | 0 | $ | 4,671 | ||||
Current portion | $ | 0 | $ | 0 | ||||
Long-term portion | 0 | 4,671 | ||||||
Balance at June 30, 2021 | $ | 0 | $ | 4,671 |
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The components of inventories are as follows:
June 30, 2021 | December 31, 2020 | |||||||
(in thousands) | ||||||||
Finished goods | $ | 13,238 | $ | 10,749 | ||||
Raw materials | 5,875 | 8,098 | ||||||
Total inventories | $ | 19,113 | $ | 18,847 | ||||
Current portion | $ | 12,523 | $ | 10,034 | ||||
Long-term portion | 6,590 | 8,813 | ||||||
Total inventories | $ | 19,113 | $ | 18,847 |
During the three and six months ended June 30, 2021, the Company recorded a $0.2 million and a $0.3 million charge for inventory obsolescence related to certain system components, respectively. There were 0 such write-downs or charges for the three and six months ended June 30, 2020.
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The components of gross intellectual property, accumulated amortization, and net intellectual property as of June 30, 2021 and December 31,2020 are as follows:
June 30, 2021 | ||||||||||||||||
(in thousands) | ||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Foreign Currency Translation Impact | Net Carrying Amount | |||||||||||||
Developed technology | $ | 68,838 | $ | (55,755 | ) | $ | 2,601 | $ | 15,684 | |||||||
Technology and patents purchased | 400 | (185 | ) | 44 | 259 | |||||||||||
Total intellectual property | $ | 69,238 | $ | (55,940 | ) | $ | 2,645 | $ | 15,943 |
December 31, 2020 | ||||||||||||||||
(in thousands) | ||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Foreign Currency Translation Impact | Net Carrying Amount | |||||||||||||
Developed technology | $ | 68,838 | $ | (51,734 | ) | $ | 4,872 | $ | 21,976 | |||||||
Technology and patents purchased | 400 | (168 | ) | 59 | 291 | |||||||||||
Total intellectual property | $ | 69,238 | $ | (51,902 | ) | $ | 4,931 | $ | 22,267 |
The weighted average remaining useful life of the developed technology and technology and patents purchased was 1.8 years and 5.8 years, respectively as of June 30, 2021.
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Income taxes have been accounted for using the asset and liability method in accordance with ASC 740 “Income Taxes”. The Company computes its interim provision for income taxes by applying the estimated annual effective tax rate method. The Company estimates an annual effective tax rate of (0.1)% for the year ending December 31, 2021. This rate does not include the impact of any discrete items. The Company’s effective tax rate for the three months ended June 30, 2021 and 2020 was 0.0% and 4.8%, respectively. The Company’s effective tax rate for the six months ended June 30, 2021 and 2020 was 0.1% and 4.4%, respectively
The Company incurred losses for the three- and six- month periods ended June 30, 2021 and is forecasting additional losses through the year, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2021. Due to the Company’s history of losses, there is not sufficient evidence to record a net deferred tax asset associated with the U.S., Luxembourg, Swiss, Italian, Taiwanese, and Canadian operations. Accordingly, a full valuation allowance has been recorded related to the net deferred tax assets in those jurisdictions.
Income tax benefit on the condensed consolidated statement of operations and comprehensive loss is comprised of deferred tax benefit and current tax expense (benefit). The deferred tax benefit during the three months ended June 30, 2021 and 2020, was approximately $0.0 million and $0.7 million, respectively. The deferred tax benefit during the six months ended June 30, 2021 and 2020, was approximately $0.0 million and $1.4 million, respectively. The current tax expense (benefit) during the three months ended June 30, 2021 and 2020, was approximately $0.0 million and $0.01 million, respectively. The current tax expense (benefit) during the six months ended June 30, 2021 and 2020, was approximately $(0.04) million and $0.03 million, respectively.
At June 30, 2021, the Company had 0 unrecognized tax benefits that would affect the Company’s effective tax rate.
The FASB Staff Q&A, Topic 740,No.5, Accounting for Global Intangible Low-Taxed Income (“GILTI”), states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI as a period expense in the year the tax is incurred. The Company does not expect a GILTI inclusion for 2021;no GILTI tax has been recorded for the three or six months ended June 30, 2021 or 2020.
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The CARES Act was passed in the United States and signed into law on March 7, 2020 and was amended on June 5, 2020 through the enactment of the Paycheck Protection Program Flexibility Act. On April 27, 2020, Asensus Surgical US, Inc., a wholly owned subsidiary of the Company, received funding under a promissory note dated April 18, 2020 (the “Promissory Note”), evidencing an unsecured non-recourse loan in the principal amount of $2,815,200 under the PPP provisions of the CARES Act. The PPP is administered by the U.S. Small Business Administration (the “SBA”). The Promissory Note was made through City National Bank of Florida, a national banking association (the “Lender”). The Company accounted for the PPP loan as debt and included the principal amount within notes payable on the condensed consolidated balance sheet.
The Promissory Note has a two-year term, maturing on April 27, 2022, and bears interest at 1.00% per annum. The Promissory Note may be forgiven partially or fully if the proceeds are used for covered payroll, rent and utility costs incurred during the Covered Period and if at least 60% of the proceeds are used for covered payroll costs. All or a portion of the Promissory Note may be forgiven by the SBA upon application by the Company and documentation of expenditures in accordance with the SBA requirements. If the Promissory Note is not forgiven, payments can be deferred until 10 months after the end of the Company’s covered period, which is the 24-week period beginning on the date the Company received the PPP loan proceeds from the Lenders (the “Covered Period”). The Promissory Note contains customary events of default relating to, among other things, payment defaults, and breach of representations and warranties, or other provisions of the Promissory Note. The Promissory Note was classified as long term except for the portion to be paid within twelve months of the year end, which was classified as current.
The Company submitted its application for forgiveness of the Promissory Note in full to the Lender on February 10, 2021. On June 10, 2021, the Company received notification from the SBA that the principal amount of $2.8 million and related interest had been forgiven. Gain on extinguishment of debt of $2.8 million was recognized for the three and six months ended June 30, 2021 on the condensed consolidated statement of operations and comprehensive loss.
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On August 12, 2019, the Company entered into a Controlled Equity Offering Sales Agreement (the “2019 Sales Agreement”), with Cantor Fitzgerald & Co., (“Cantor”), and commenced an at-the-market offering (the “2019 ATM Offering”) pursuant to which the Company could sell from time to time, at its option, up to an aggregate of $25.0 million shares of the Company’s common stock, through Cantor, as sales agent. Sales of the common stock under the 2019 ATM Offering were made under the Company’s previously filed and currently effective shelf registration statement on Form S-3. The aggregate compensation payable to Cantor was 3.0% of the aggregate gross proceeds from each sale of the Company’s common stock. Under the 2019 ATM Offering, the Company raised gross proceeds of $7.2 million and net proceeds of $7.0 million during the year ended December 31, 2019, and an additional $11.6 million of gross proceeds and $11.2 million of net proceeds during the year ended December 31, 2020.
On October 9, 2020, the Company filed a prospectus supplement relating to an at-the-market offering with Cantor pursuant to which the Company may sell from time to time, at its option, up to an aggregate of $40.0 million of shares of the Company’s common stock, through Cantor as sales agent, pursuant to the 2019 Sales Agreement (the “2020 ATM Offering”). Sales of the common stock were made on the Company’s shelf registration statement on Form S-3, which was declared effective by the SEC on February 10, 2020. The aggregate compensation payable to Cantor was 3.0% of the aggregate gross proceeds from each sale of the Company’s common stock.
The following table summarizes the total sales under the 2020 ATM Offering for the six months ended June 30, 2021 (in thousands except for share and per share amounts):
For the Six Months Ended June 30, 2021 | ||||
Total shares of common stock sold | 19,120,037 | |||
Average price per share | $ | 1.47 | ||
Gross proceeds | $ | 28,100 | ||
Commissions earned by Cantor | $ | 843 | ||
Net proceeds | $ | 27,257 |
On May 19, 2021, the Company entered into a Controlled Equity OfferingSales Agreement (the “2021 Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), Robert W. Baird & Co. Incorporated (“Baird”) and Oppenheimer & Co. Inc. (“Oppenheimer”). Each of Cantor, Baird and Oppenheimer are individually an “Agent” and collectively are the “Agents” under the Agreement. Also on May 19, 2021, the Company commenced an at-the-market offering (the “2021 ATM Offering”) pursuant to which the Company could sell from time to time, at its option, up to an aggregate of $100.0 million shares of the Company’s common stock. The aggregate compensation payable to the Agents was 3.0% of the aggregate gross proceeds from each sale of the Company’s common stock.
The following table summarizes the total sales under the 2021 ATM Offering for the six months ended June 30, 2021 (in
2021 ATM Offering. On May 19, 2021, the Company entered into a Controlled Equity Offering Sales Agreement (the “2021 Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), Robert W. Baird & Co. Incorporated (“Baird”) and Oppenheimer & Co. Inc. (“Oppenheimer”). Each of Cantor, Baird and Oppenheimer are individually an “Agent” and collectively are the “Agents” under the Agreement. Also On May 19, 2021, the Company commenced an at-the-market offering (the “2021 ATM Offering”) pursuant to which the Company could sell from time to time, at its option, up to an aggregate of $100.0 million shares of the Company’s common stock. The aggregate compensation payable to the Agents was 3.0% of the aggregate gross proceeds from each sale of the Company’s common stock.
Sales during the six months ended June 30, 2021, under the 2021 and 2020 ATM Offering are as follows (in thousands, except for share and per share amounts):
Six Months Ended | ||||||||||||
2021 ATM | 2020 ATM | Total | ||||||||||
Total shares of common stock sold | 331,811 | 19,120,037 | 19,451,848 | |||||||||
Average price per share | $ | 3.47 | $ | 1.47 | $ | 1.50 | ||||||
Gross proceeds | $ | 1,152 | $ | 28,100 | $ | 29,252 | ||||||
Commission earned by Sales Agents | $ | 34 | $ | 843 | $ | 877 | ||||||
Net proceeds | $ | 1,118 | $ | 27,257 | $ | 28,375 |
2021 Exercise of Warrants. During the six months ended June 30, 2021, certain holders of our Series B, C and D warrants to purchase shares of our common stock exercised such warrants for aggregate proceeds to the Company of $30.6 million.
2022 ATM Offering. On March 18, 2022, the Company entered a Controlled Equity Offering Sales Agreement (the “2022 Sales Agreement”), with Cantor Fitzgerald & Co., and Oppenheimer & Co. Inc. The Company commenced an at-the-market offering (the “2022 ATM Offering”) pursuant to which the Company could sell from time to time, at its option, up to an aggregate of $100.0 million shares of the Company’s common stock. NaN sales of common stock were made under the 2022 ATM Offering during the six months ended June 30, 2022.
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13.
On March 10, 2020, the Company closed the March 2020 Public OfferingBasic and sold an aggregate of 14,121,766 Class A Units at a public offering price of $0.68Diluted Net Loss per Class A UnitShare
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed giving effect to all potential dilutive common shares that were outstanding during the period when the effect is dilutive. Potential dilutive common shares consist of incremental shares issuable upon exercise of stock options, restricted stock units, and warrants. No adjustments have been made to the weighted average outstanding common shares figures for the three and six months ended June 30, 2022 or 2021 as the assumed exercise of outstanding options, warrants and restricted stock units would be anti-dilutive.
Potential common shares not included in calculating diluted net loss per share are as follows:
June 30, | ||||||||
2022 | 2021 | |||||||
Stock options | 7,112,573 | 4,279,335 | ||||||
Stock warrants | 1,120,300 | 1,016,383 | ||||||
Nonvested restricted stock units | 7,985,275 | 1,768,861 | ||||||
Total | 16,218,148 | 7,064,579 |
14. | Commitments and |
License and Supply Agreements
As part of the Company’s acquisition of the Senhance System in 2015, the Company assumed certain license and supply agreements. Additionally, the Company has purchase orders with various suppliers for certain tooling, supplies, contract engineering and research services. Commitments related to these agreements and purchase orders are as follows (in thousands):
Fiscal Year | ||||
2022 | $ | 8,465 | ||
2023 | 852 | |||
2024 | 550 | |||
2025 | 339 | |||
2026 | 0 | |||
Thereafter | 0 | |||
Total commitments | $ | 10,206 |
| Segments and
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The Company operates in 1 business segment—the research, development, and sale of medical device robotics to improve minimally invasive surgery. The Company’s chief operating decision maker (determined to be the Chief Executive Officer), does not manage any part of the Company separately, and the allocation of resources and assessment of performance are based on the Company’s consolidated operating results.
The following table presents consolidated assets and long-lived assets by geographic area, which includes property and equipment, intellectual property, and operating lease assets:
June 30, 2022 | ||||||||
Long-Lived Assets | Total Assets | |||||||
U.S. | 33 | % | 77 | % | ||||
EMEA | ||||||||
Switzerland | 40 | % | 18 | % | ||||
Italy | 20 | % | 3 | % | ||||
Other | 7 | % | 1 | % | ||||
Total EMEA | 67 | % | 22 | % | ||||
Asia | 0 | % | 1 | % | ||||
Total | 100 | % | 100 | % |
December 31, 2021 | ||||||||
Long-Lived Assets | Total Assets | |||||||
U.S. | 26 | % | 77 | % | ||||
EMEA | ||||||||
Switzerland | 34 | % | 16 | % | ||||
Italy | 36 | % | 5 | % | ||||
Other | 4 | % | 1 | % | ||||
Total EMEA | 74 | % | 22 | % | ||||
Asia | 0 | % | 1 | % | ||||
Total | 100 | % | 100 | % |
The Company recognizes sales by geographic area based on the country in which the customer is based. For the three months ended June 30, 2022 and 2021, 15% and 25%, respectively, of net revenue were generated in the United States; while 63% and 53%, respectively, were generated in Europe; and 22% and 22% were generated in Asia. For the six months ended June 30, 2022 and 2021, 19% and 17%, respectively, of net revenue were generated in the United States; while 56% and 32%, respectively, were generated in Europe; and 25% and 51% were generated in Asia.
16. | Related Person Transactions |
In March 2018, Asensus Surgical Europe S.à.r.l entered into a Service Supply Agreement with 1 Med S.A. for certain regulatory consulting services. Andrea Biffi, a current member of the Company’s Board of Directors, owns a non-controlling interest in 1 Med S.A. Expenses under the Service Supply Agreement were approximately $68,000 and $0 for the three months ended June 30, 2022 and 2021, respectively and $141,000 and $93,000 for the six months ended June 30, 2022 and 2021, respectively.
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Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed giving effect to all potential dilutive common shares that were outstanding during the period when the effect is dilutive. Potential dilutive common shares consist of incremental shares issuable upon exercise of stock options, restricted stock units, warrants and preferred stock. For the six months ended June 30, 2020, the effects of the Series A Preferred Stock beneficial conversion charge and conversion are included in the calculation of net loss attributable to common stockholders. No adjustments have been made to the weighted average outstanding common shares figures for the six months ended June 30, 2021 or 2020 as the assumed exercise of outstanding options, warrants and restricted stock units would be anti-dilutive.
Potential common shares not included in calculating diluted net loss per share are as follows:
June 30, | ||||||||
2021 | 2020 | |||||||
Stock options | 4,279,335 | 4,278,967 | ||||||
Stock warrants | 1,016,383 | 46,461,630 | ||||||
Nonvested restricted stock units | 1,768,861 | 3,036,176 | ||||||
Total | 7,064,579 | 53,776,773 |
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Contingent Consideration
On September 21,2015, the Company completed the strategic acquisition, through its wholly owned subsidiary TransEnterix International, from Sofar, of all of the assets, employees and contracts related to the advanced robotic system for minimally invasive laparoscopic surgery now known as the Senhance System. Under the terms of the Purchase Agreement, as amended in 2016, as of June 30, 2021 the Company has accrued $4.7 million of estimated fair value of remaining contingent consideration which shall be payable upon achievement of trailing revenues from sales or services contracts of the Senhance System of at least €25.0 million over a calendar quarter.
Legal Proceedings
No liability or related charge was recorded to earnings in the Company’s condensed consolidated financial statements for legal contingencies for the three or six months ended June 30, 2021 and 2020.
Operating Leases
Many of the Company’s leases include base rental periods coupled with options to renew or terminate the lease, generally at the Company’s discretion. In evaluating the lease term, the Company considers whether renewal is reasonably certain. To the extent a significant economic incentive exists to renew the lease, the option is included within the lease term. Based on the Company’s leases, renewal options generally do not provide a significant economic incentive and are therefore excluded from the lease term. The ROU asset is included in operating lease right-of-use assets, net on the condensed consolidated balance sheets. The current portion of operating lease liabilities are presented within operating lease liabilities – current portion on the condensed consolidated balance sheets and the non-current portion of operating lease liabilities are presented within noncurrent operating lease liabilities on the condensed consolidated balance sheets and represents the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rate, which ranges between 6.1% and 8.5% based on the terms of the lease. The weighted average discount rate was 7.9% and 8.2% as of June 30, 2021 and December 31, 2020, respectively.
As of June 30, 2021, the right-of-use asset totaled $4.1 million and the lease liability totaled $4.3 million, of which $0.9 million is classified as current and $3.5 million is classified as non-current. Operating lease costs for the three months ended June 30, 2021 and 2020 totaled $0.4 million and $0.5 million and are included within operating expenses in the condensed consolidated statement of operations and comprehensive loss. Operating lease costs for the six months ended June 30, 2021 and 2020 totaled $0.9 million and $1.0 million and are included within operating expenses in the condensed consolidated statement of operations and comprehensive loss. The weighted average remaining lease term for operating leases as of June 30, 2021 was 8.9 years. Total cash paid for operating leases, which is included within cash flows from operating activities within the condensed consolidated statement of cash flows, was $0.1 million and $0.3 million during the three months ended June 30, 2021 and 2020, respectively, and was $0.5 million and $0.7 million during the six months ended June 30, 2021 and 2020, respectively.
The following table presents the minimum lease payments as of June 30, 2021 (in thousands):
Fiscal Year | ||||
Remainder of 2021 | $ | 515 | ||
2022 | 851 | |||
2023 | 585 | |||
2024 | 484 | |||
2025 | 487 | |||
Thereafter | 2,932 | |||
Total minimum lease payments | $ | 5,854 | ||
Less: Amount of lease payments representing interest | (1,528 | ) | ||
Present value of future minimum lease payments | $ | 4,326 |
License and Supply Agreements
As part of the Company’s acquisition of the Senhance System in 2015, the Company assumed certain license and supply agreements. Payments under these arrangements generally become due and payable only upon the achievement of certain milestones. For instances in which the achievement of these milestones is neither probable nor reasonably estimable, such contingencies are not included in the estimated amount. The Company has also placed orders with various suppliers for the purchase of certain tooling, supplies and contract engineering and research services. Each of these orders has a duration or expected completion within the next twelve months. Commitments under these agreements amount to approximately $3.6 million in 2021, $0.1 million in 2022, $0.3 million in 2023, $0.2 million in 2024, and $0.2 million thereafter until termination in 2027.
Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operation
The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes to our condensed consolidated financial statements included in this report. The following discussion contains forward-looking statements. See cautionary note regarding “Forward-Looking Statements” at the beginning of this report.
Overview
Asensus Surgical is a medical device company that is digitizing the interface between the surgeon and the patient to pioneer a new era of Performance-Guided SurgerySurgery™ by unlocking the clinical intelligence to enable consistently superior outcomes and a new standard of surgery. This builds upon the foundation of Digital Laparoscopy with the Senhance® Surgical System powered by the Intelligent Surgical UnitUnit™, or ISU™, to increase surgeon control and reduce surgical variability. With the addition of machine vision, augmented intelligence, and deep learning capabilities throughout the surgical experience, we intend to holistically address the current clinical, cognitive and economic shortcomings that drive surgical outcomes and value-based healthcare. The Company is focused on the market development for and commercialization of the Senhance Surgical System, which digitizes laparoscopic minimally invasive surgery, or MIS. The Senhance System is the first and only digital, multi-port laparoscopic platform designed to maintain laparoscopic MIS standards while providing digital benefits such as haptic feedback, robotic precision, comfortable ergonomics, advanced instrumentation including 3 mm3mm microlaparoscopic instruments, 5mm articulating instruments, eye-sensing camera control and fully-reusable standard instruments to help maintain per-procedure costs similar to traditional laparoscopy.
The Senhance System is available for sale in Europe, the United States, Japan, Taiwan, Russia (to the extent lawful), and select other countries.
• | The Senhance System has a CE Mark in Europe for adult and pediatric laparoscopic abdominal and pelvic surgery, as well as limited thoracic surgeries excluding cardiac and vascular surgery. |
• | In the United States, the Company has received 510(k) clearance from the FDA for use of the Senhance System in general laparoscopic surgical procedures and laparoscopic gynecologic surgery in a total of 31 indicated procedures, including benign and oncologic procedures, laparoscopic inguinal, hiatal and paraesophageal hernia, sleeve gastrectomy and laparoscopic cholecystectomy |
• | In Japan, the Company has received regulatory approval and reimbursement for 98 laparoscopic procedures. |
• | The Senhance System |
We also enter into lease arrangements with certain qualified customers. For some lease arrangements, the customers are provided with the right to purchase the leased Senhance System during or at the end of the lease term ("Lease Buyout"). In the first quarter of 2021, we completed a Lease Buyout of a Senhance System.
InOn February 23, 2021, we changed our name from TransEnterix, Inc. to Asensus Surgical, Inc. as part of our strategy to utilize the Senhance System and ISU capabilities, along with our other augmented intelligence related offerings and instrumentation to unlock clinical intelligence to enable consistently superior outcomes and a new standard of surgery we are calling Performance-Guided Surgery. We believe our product offerings, and our digitization of the interface between the surgeon and the patient allows us to assist the surgeon in all aspects of laparoscopic surgery including:
| Pre-operative - in what we call “intelligent preparation,” our machine learning models will take data from all |
| Intra-operative – we believe the Senhance System provides perceptive real-time guidance for intra-operative tasks, allowing any surgeon performing a procedure with the Senhance System to perform multiple tasks and benefit from the collective knowledge and rules-based performance of thousands of other successful Senhance-based procedures. Not only will this provide the surgeon with a pathway to better outcomes, but we also believe it will ultimately help reduce the cognitive load of the surgeons. |
|
|
We received FDA clearance in March 2020 for our ISU. We believe it is the only FDA cleared device for machine vision technology in abdominal robotic surgery. On September 23,
In February 2020, we received CE Mark for the Senhance System and related instruments for pediatric use indications in CE Mark territories.
In 2020, the Companywe obtained regulatory clearance for the Senhance ultrasonic system in both Taiwan and Japan. On February 12, 2020,We also received clearance for the Company expanded its claimsISU in both the U.S. and Japan. Finally, in the EU, we expanded our claims for the Senhance System to include pediatric patients, allowing accessibility to more surgeons and patients, as well as expanding itsour potential market to include pediatric hospitals in Europe. The Company anticipatesWe anticipate the robotic precision provided by the Senhance System, coupled with the already available 3 mm diameter3mm instruments will prove to be an effective tool in surgery with smaller patients. On March 13, 2020 the Company announced that it received FDA clearance for the Intelligent Surgical Unit™ (ISU™) for use with the Senhance System. The Company believes it is the first such FDA submission seeking clearance for machine vision technology in abdominal robotic surgery. On September 23, 2020, the Company announced the first surgical procedures successfully completed using the ISU.
On January 19, 2021, the Company announced that it received CE Mark for the ISU. Finally, on July 28, 2021, the Company announced that it received FDA clearance for 5 mm5mm diameter articulating instruments, offering better access to difficult-to-reach areas of the anatomy by providing two additional degrees of freedom. These instruments have previously received CE Mark for use in the EU.
The Company believes that future outcomes of minimally invasive laparoscopic surgery will be enhanced through its combination of more advanced tools and robotic functionality, which are designed to: (i) empower surgeons with improved precision, dexterity and visualization; (ii) improve patient satisfaction and enable a desirable post-operative recovery; and (iii) provide a cost-effective robotic system, compared to existing alternatives today, for a wide range of clinical indications.
From our inception, we devoted a substantial percentage of our resources to research and development and start-up activities, consisting primarily of product design and development, clinical studies, manufacturing, recruiting qualified personnel and raising capital. We expect to continue to invest in research and development and market development as we implement our strategy.
Since inception, we have been unprofitable. As of June 30, 2021,2022, we had an accumulated deficit of $753.4$824.1 million.
We operate in one business segment.
Recent Financing Transactions
January 2021 Public OfferingAt-the -Market Offerings
On January 29, 2021, the Company completed an underwritten public offering of 26,545,832 shares of its common stock, including the underwriter’s full exercise of an over-allotment option on February 1, 2021, at the public offering price of $3.00 per share, generating net proceeds of approximately $73.4 million.
January 2021 Registered Direct Purchase Agreement
On January 12, 2021,March 18, 2022, the Company sold in a registered direct offering 25,000,000 shares of common stock at a purchase price per share of $1.25 for aggregate gross proceeds of $31.25 million, and net proceeds of $28.6 million.
At-the-Market Offering
On May 19, 2021, the Company entered into a Controlled Equity OfferingSMSales Agreement (the “Agreement”“2022 Sales Agreement”), with Cantor Fitzgerald & Co. (“Cantor”), Robert W. Baird & Co. Incorporated (“Baird”) and Oppenheimer & Co. Inc. (“Oppenheimer”). Each of Cantor, Baird and Oppenheimer are individually an “Agent” and collectively are the “Agents” under the Agreement. Also on May 19, 2021, theThe Company filed a prospectus supplement relating tocommenced an at-the-market offering (the “2021“2022 ATM Offering”) bypursuant to which the Company ofcould sell from time to time, at its option, up to an aggregate of $100,000,000 of$100.0 million shares of the Company’s common stock. No sales of common stock par value $0.001 per share (the “Common Stock”), which shares of Common Stock are registeredwere made under the Registration Statement on Form S-3 ASR (File No. 333-256284) and automatically effective on May 19, 2021.
In June 2021, the Company launched the 2021 ATM Offering. Sales to date under the 20212022 ATM Offering are as follows (in thousands except for share and per share amounts):
For the Quarter Ended June 30, 2021 | ||||
Total shares of common stock sold | 331,811 | |||
Average price per share | $ | 3.47 | ||
Gross proceeds | $ | 1,152 | ||
Commisssion earned by Sales Agents | $ | 34 | ||
Net proceeds | $ | 1,118 |
2021 Exercise of Warrants
Duringduring the six months ended June 30, 2021, Series B, C and D warrants have been exercised for aggregate proceeds to the Company of $30.6 million.2022.
Results of Operations
- Comparison of Three Months Ended June 30, 20212022 and 20202021
Revenue
In the second quarter of 2021,2022, our revenue consisted of ongoing System leasing payments, and sales of instruments and accessories, and services revenue for Systems sold or placed in Europe, Asia, and the U.S. in prior periods.
Product revenue for the three months ended June 30, 2021 increased2022 decreased to $0.7$0.3 million compared to $0.4 million for the three months ended June 30, 2021. Service revenue remained consistent at $0.4 million for the three months ended June 30, 2022 and 2021. Lease revenue remained consistent at $0.3 million for the three months ended June 30, 2020.2022 and 2021. The $0.4 million increase was primarily the result of revenues from a higher number of lease arrangements and increased instruments and accessories sales for previously installed Senhance Systems during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. We expect revenue from customer exercises of the buyout optionsfluctuations in their leases to fluctuate period to period based on the timing of when, and if customers choose to exercise the buyout options.
Service revenue for the three months ended June 30, 2022 and 2021, increased to $0.4 million compared to $0.3 million forwere primarily the three months ended June 30, 2020. The $0.1 million increase is primarily due to a higher numberresult of systems with maintenance agreementscustomer mix and fluctuations in the current period.exchange rates.
Cost of Revenue
Cost of revenue consists of contract manufacturing, materials, labor, and manufacturing overhead incurred internally to produce the products. Shipping and handling costs incurred by the Company are included in cost of revenue. We expense all inventory obsolescence provisions as cost of revenue. The manufacturing overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment depreciation and operations supervision and management. We expect overhead costs as a percentage of revenues to become less significantdecline as our production volume increases. We expect cost of revenue to increase in absolute dollars to the extent our revenues grow and as we continue to invest in our operational infrastructure to support anticipated growth.
Product cost for the three months ended June 30, 20212022 decreased to $0.9 million as compared to $1.0 million for the three months ended June 30, 2021. The $0.1 million decrease primarily relates to a decrease in personnel-related costs.
Service cost remained consistent at $0.6 million for the three months ended June 30, 2022 and 2021.
Lease cost for the three months ended June 30, 2022 increased to $1.5$0.8 million as compared to $0.7 million for the three months ended June 30, 2020. The $0.8 million increase primarily relates to $0.5 million increase in product costs driven by higher system leasing revenue, $0.2 million increase due to a write down of inventory and $0.1 million increase in personnel costs.2021.
Service cost for the three months ended June 30, 2021 increased to $0.9 million as compared to $0.7 million for the three months ended June 30, 2020. This $0.2 million increase primarily relates to an increase in supplies costs. Cost of revenue exceeds revenue primarily due to part replacements under maintenance plans, which are expensed when incurred, along with salaries for the field service teams.
Research and Development
Research and development, or R&D, expenses primarily consist of engineering, product development and regulatory expenses incurred in the design, development, testing and enhancement of our products and legal services associated with our efforts to obtain and maintain broad protection for the intellectual property related to our products. In future periods, we expect R&D expenses to continue to increase moderately as we continue to invest in additional regulatory approvals as well as new products, instruments, and accessories to be offered with the Senhance System. R&D expenses are expensed as incurred.
R&D expenses for the three months ended June 30, 2021 decreased 5%2022 increased 78% to $4.1$7.3 million as compared to $4.3$4.1 million for the three months ended June 30, 2020.2021 as we continue to invest in basic research, clinical studies, and product development in the areas of robotics and digital technologies supporting the growth of the Senhance System and ISU digital and cloud capabilities. All activities are in the effort of building the future for Performance-Guided Surgery. The $0.2$3.2 million decreaseincrease primarily relates to decreasedincreased personnel costs of $1.5 million driven by additional headcount as well as the transfer of employees within functional areas due to the evolving nature and commercialization of our business. The change was also driven by an increase in contract engineering services, consulting, and other outside services of $1.0 million, increased supplies costs of $0.3 million, decreased technology fees of $0.1 million and decreased supplies costs of $0.1 million partially offset by increased personnel-related costs of $0.1 million, increased miscellaneous costs of $0.1 million, and increased facilities costs of $0.1$0.4 million.
Sales and Marketing
Sales and marketing expenses include costs for sales and marketing personnel, travel, demonstration product, market development, physician training, tradeshows, marketing clinical studies and consulting expenses. We expect sales and marketing expenses to remain lower compared to prior years as we refocus our resources and efforts on market development activities pursuant to our restructuring plan.
Sales and marketing expenses for the three months ended June 30, 2022 and 2021 increased 24% toremained consistent at $3.6 million compared to $2.9 million for the three months ended June 30, 2020. The $0.7 million increase was primarily related to increased personnel costs of $0.3 million, increased consulting costs of $0.2 million, increased travel costs of $0.1 million, increased supplies costs of $0.1 million and increased miscellaneous costs of $0.1 million, partially offset by decreased depreciation expense of $0.1 millionmillion.
General and Administrative
General and administrative expenses consist of personnel costs related to the executive, finance, legal and human resource functions, as well as professional service fees, legal fees, accounting fees, insurance costs, and general corporate expenses. We expect general and administrative costs to remain flat in future periods.
General and administrative expenses for the three months ended June 30, 20212022 increased 6%32% to $3.8$5.0 million compared to $3.6$3.8 million for the three months ended June 30, 2020.2021. The $0.2$1.2 million increase was primarily related to increased stockholder meetingpersonnel costs of $0.2$1.0 million driven by additional headcount as well as the transfer of employees within functional areas due to the evolving nature and increased suppliescommercialization of our business. The change was also driven by an increase in miscellaneous costs of $0.1$0.5 million, partially offset by a decrease in bad debt expense of facilities$0.2 million, and a decrease in supplies costs of $0.1 million.
Amortization of Intangible Assets
Amortization of intangible assets for the three months ended June 30, 2021 increased 8%2022 decreased to $2.8$2.5 million compared to $2.6$2.9 million for the three months ended June 30, 2020.2021. The $0.2$0.4 million increase wasdecrease is primarily driven by changes in the result of foreign currency exchange rates.rate.
Change in Fair Value of Contingent Consideration
The change in fair value of contingent consideration in connection with the Senhance Acquisition was a $0.6 million decrease for the three months ended June 30, 2022 compared to a $0.5 million increase for the three months ended June 30, 2021 compared2021. The decrease was primarily due to a $0.2changes in market assumptions utilized in the valuation of fair value of the contingent consideration.
Property and Equipment Impairment
During the three months ended June 30, 2022, the Company recorded an impairment charge of $0.4 million increaseto reduce the carrying value of property and equipment to its estimated fair value. The property and equipment is associated with operating leases that did not elect to renew their agreements. No impairment charge was recognized for the three months ended June 30, 2020. The $0.32021.
Other Income (Expense)
Other income for the three months ended June 30, 2022 decreased to $0.0 million increasecompared to $2.9 million for the three months ended June 30, 2021. Other income for the three months ended June 30, 2021 primarily related to the gain on extinguishment of debt of $2.8 million. No related income was due to changesrecorded in the Company's fair value measurement of a discounted cash flow model using significant unobservable inputs including the probability of achieving the potential milestone, future Euro-to-USD exchange rates, and an estimated discount rate associated with the risks of the expected cash flows attributable to the milestone.three months ended June 30, 2022.
Income Tax (Expense) Benefit
The Company recognized $0.1 million income tax expense for the three months ended June 30, 2022, compared to $0.0 million income tax expense for the three months ended June 30, 2021, compared to $0.7 million income tax benefit for the three months ended June 30, 2020. Income tax benefit for the three months ended June 30, 2020 consists primarily of taxes related to the amortization of purchase accounting intangibles in connection with the Italian taxing jurisdiction for Asensus Surgical Italia as a result of the acquisition of the Senhance System.2021.
Results of Operations - Comparison of Six Months Ended June 30, 20212022 and 20202021
Revenue
In the six months ended June 30, 2021,2022, our revenue consisted of one Lease Buyout, ongoing System leasing payments, and sales of instruments and accessories, and services revenue for Systems sold or placed in Europe, Asia, and the U.S. in prior periods.
Product revenue for the six months ended June 30, 2021 increased2022 decreased to $2.4$0.6 million compared to $0.6$1.7 million for the six months ended June 30, 2020.2021. The $1.8$1.1 million increasedecrease was primarily the result of a Lease Buyout and revenues from multiple lease arrangements duringin the six months ended June 30, 2021 as compared to only revenues from leasing arrangements as well as instrument and accessory sales for previously installed Senhance System during the six months ended June 30, 2020. We expect revenue from customer exercises of the buyout options in their leases to fluctuate period to period based on the timing of when, and if customers choose to exercise the buyout options.prior period.
Service revenue for the six months ended June 30, 2021 increased30,2022 decreased to $0.8$0.7 million compared to $0.7$0.8 million for the six months ended June 30, 2020.2021. The $0.1 million increase is primarily due to a higher numberdecrease was the result of systems with maintenance agreementscustomer mix and fluctuations in the current period.exchange rates.
Lease revenue for the six months ended June 30, 2022 and 2021 remained consistent at $0.7 million.
Cost of Revenue
Cost of revenue consists of contract manufacturing, materials, labor, and manufacturing overhead incurred internally to produce the products. Shipping and handling costs incurred by the Company are included in cost of revenue. We expense all inventory obsolescence provisions as cost of revenue. The manufacturing overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment depreciation and operations supervision and management. We expect overhead costs as a percentage of revenues to become less significantdecline as our production volume increases. We expect cost of revenue to increase in absolute dollars to the extent our revenues grow and as we continue to invest in our operational infrastructure to support anticipated growth.
Product cost for the six months ended June 30, 2021 increased2022 decreased to $3.9$1.3 million as compared to $1.6$2.7 million for the six months ended June 30, 2020.2021. The increase$1.4 million decrease primarily relates to a Lease Buyout and higher$0.7 million decrease in product costs driven by higher system leasing revenue.a Lease Buyout in the prior period and a $0.9 million decrease in personnel-related costs, partially offset by a $0.1 million increase in supplies costs and $0.1 million increase in freight expenses.
Service cost for the six months ended June 30, 20212022 increased to $1.6$1.1 million as compared to $1.5$1.0 million for the six months ended June 30, 2020. This2021. The $0.1 million increase primarily relates to increased suppliesan increase in personnel-related costs. Cost of revenue exceeds revenue primarily due to part replacements under maintenance plans, which are expensed when incurred, along with salaries for the field service teams.
Lease cost for the six months ended June 30, 2022 and 2021 remained consistent at $1.8 million.
Research and Development
Research and development, or R&D, expenses primarily consist of engineering, product development and regulatory expenses incurred in the design, development, testing and enhancement of our products and legal services associated with our efforts to obtain and maintain broad protection for the intellectual property related to our products. In future periods, we expect R&D expenses to continue to increase moderately as we continue to invest in additional regulatory approvals as well as new products, instruments and accessories to be offered with the Senhance System. R&D expenses are expensed as incurred.
R&D expenses for the six months ended June 30, 20212022 increased 1%65% to $8.3$13.7 million as compared to $8.2$8.3 million for the six months ended June 30, 2020.2021 as we continue to invest in basic research, clinical studies, and product development in the areas of robotics and digital technologies supporting the growth of the Senhance System and ISU digital and cloud capabilities. All activities are in the effort of building the future for Performance-Guided Surgery. The $0.1$5.4 million increase primarily relates to increased technology fees of $0.3 million, facilitiespersonnel costs of $0.1$2.5 million driven by additional headcount as well as the transfer of employees within functional areas due to the evolving nature and commercialization of our business. The change was also driven by an increase in contract engineering services, consulting, and other outside services costs of $0.1$1.9 million, increased supplies costs of $0.1$0.4 million, testing costs of $0.1 million, partially offset by decreased personneland increased miscellaneous costs of $0.6 million.
Sales and Marketing
Sales and marketing expenses include costs for sales and marketing personnel, travel, demonstration product, market development, physician training, tradeshows, marketing clinical studies and consulting expenses. We expect sales and marketing expenses to remain lower compared to prior years as we refocus our resources and efforts on market development activities pursuant to our restructuring plan.
Sales and marketing expenses for the six months ended June 30, 2021 decreased 8%2022 increased 11% to $6.6$7.3 million compared to $7.2$6.6 million for the six months ended June 30, 2020.2021. The $0.6$0.7 million decreaseincrease was primarily related to decreased personnelincreased consulting costs of $0.4$0.5 million, decreasedincreased travel related costs of $0.2 million, and decreased depreciation expense of $0.2$0.5 million, partially offset by increased consulting costs of $0.1 million and increaseddecreased supplies costs of $0.1$0.3 million.
General and Administrative
General and administrative expenses consist of personnel costs related to the executive, finance, legal and human resource functions, as well as professional service fees, legal fees, accounting fees, insurance costs, and general corporate expenses. We expect general and administrative costs to remain flat in future periods.
General and administrative expenses for the six months ended June 30, 20212022 increased 11%35% to $7.8$10.5 million compared to $7.0$7.8 million for the six months ended June 30, 2020. The $0.82021. The$2.7 million increase was primarily related to increased personnel costs of $0.7$1.9 million stockholder meetingdriven by additional headcount as well as the transfer of employees within functional areas due to the evolving nature and commercialization of our business. The change was also driven by an increase in software costs of $0.4 million, increased consulting costs of $0.2 million, and supplies costs of $0.1 million, offset by decreased facilitiesincreased miscellaneous costs of $0.2 million.
Amortization of Intangible Assets
Amortization of intangible assets for the six months ended June 30, 2021 increased 10%2022 decreased to $5.7$5.2 million compared to $5.2$5.7 million for the six months ended June 30, 2020.2021. The $0.5 million increasedecrease is primarily the result of the transfer of IPR&D to definite-lived intangible assetsdriven by changes in the first quarter of 2020 and fluctuations in foreign currency exchange rates.rate.
Change in Fair Value of Contingent Consideration
The change in fair value of contingent consideration in connection with the Senhance Acquisition was a $0.8 million decrease for the six months ended June 30, 2022 compared to a $0.7 million increase for the six months ended June 30, 2021 compared2021. The decrease was primarily due to a $1.3changes in market assumptions utilized in the valuation of fair value of the contingent consideration.
Property and Equipment Impairment
During the six months ended June 30, 2022, the Company recorded an impairment charge of $0.4 million increaseto reduce the carrying value of property and equipment to its estimated fair value. The property and equipment is associated with operating leases that did not elect to renew their agreements. No impairment charge was recognized for the six months ended June 30, 2020. The $0.6 million decrease was due to changes in the Company's fair value measurement of a discounted cash flow model using significant unobservable inputs including the probability of achieving the potential milestone, future Euro-to-USD exchange rates, and an estimated discount rate associated with the risks of the expected cash flows attributable to the milestone.2021.
Change in Fair Value of Warrant LiabilitiesOther Income (Expense)
The change in fair value of Series B Warrants issued in April 2017 was $2.0Company recognized $0.1 other expense for the six months ended June 30, 2022, compared to $0.9 million other income for the six months ended June 30, 2021. Other income for the six months ended June 30, 2021 comparedprimarily related to $0.3the gain on extinguishment of debt of $2.8 million, partially offset by the change in the fair value of Series B Warrants of $2.0 million. No related income or expense was recorded in the six months ended June 30, 2022.
Income Tax (Expense) Benefit
The Company recognized $0.2 million income tax expense for the six months ended June 30, 2020. The net $1.7 million increase was the result of an increase in the stock price.
Income Tax (Expense) Benefit
The Company recognized2022, compared to $0.0 million income tax benefit for the six months ended June 30, 2021, compared to $1.4 million for the six months ended June 30, 2020. Income tax benefit for the six months ended June 30, 2020 consists primarily of taxes related to the amortization of purchase accounting intangibles in connection with the Italian taxing jurisdiction for Asensus Surgical Italia as a result of the acquisition of the Senhance System.2021.
Liquidity and Capital Resources
The Company had an accumulated deficit of $753.4$824.1 million and working capital of $165.7$98.9 million as of June 30, 2021.2022. The Company has not established sufficient sales revenues to cover its operating costs and believes it maywill require additional capital in the future to proceed with its operating plan. As of June 30, 2021,2022, the Company had cash, and cash equivalents, short-term investments and long-term investments, excluding restricted cash, of approximately $157.1$103.8 million.
The Company believes the COVID-19 pandemic and other geopolitical factors will continue to negatively impact its operations and ability to implement its market development efforts, which will have a negative effect on its financial condition.
While the Company believes that its existing cash, and cash equivalents, short-term and long-term investments, as of June 30, 20212022 and as of the date of filing, will be sufficient to sustain operations for at least the next 12 months from the issuance of these financial statements, the Company believes it maywill need to obtain additional financing in the future to proceed with its business plan. Management's plan to obtain additional resources for the Company may include additional sales of equity, traditional financing, such as loans, entry into a strategic collaboration, entry into an out-licensing arrangement or provision of additional distribution rights in some or all of our markets. However, management cannot provide any assurance that the Company will be successful in accomplishing any or all of its plans.
The Company is subject to risks similar to other similarly sized companies in the medical device industry. These risks include, without limitation: potential negative impacts on the Company's operations caused by the COVID-19 pandemic;pandemic and other geopolitical factors; the historical lack of profitability; the Company’s ability to increase utilization of the Senhance System and grow its placements, the Company’s ability to raise additional capital; the success of its market development efforts, the liquidity and capital resources of its partners;efforts; its ability to successfully develop, clinically test and commercialize its products; the timing and outcome of the regulatory review process for its products; changes in the health care and regulatory environments of the United States, the United Kingdom, the European Union, Japan, Taiwan and other countries in which the Company operates or intends to operate; its ability to attract and retain key management, marketing and scientific personnel; its ability to successfully prepare, file, prosecute, maintain, defend and enforce patent claims and other intellectual property rights; its ability to successfully transition from a research and development company to a marketing, sales and distribution concern; competition in the market for robotic surgical devices; and its ability to identify and pursue development of additional products.
Sources of Liquidity
Our principal sources of cash to date have been proceeds from public offerings of common stock, incurrence of debt, the sale of equity securities held as investments and asset sales. We have financed our operations from these financing transactions, as discussed in detail in “Overview – Recent Financing Transactions” above.
Consolidated Cash Flow Data
Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(in millions) | 2021 | 2020 | ||||||||||||||
(Unaudited, in millions) | 2022 | 2021 | ||||||||||||||
Net cash (used in) provided by | ||||||||||||||||
Operating activities | $ | (18.5 | ) | $ | (25.1 | ) | $ | (30.2 | ) | $ | (18.5 | ) | ||||
Investing activities | (0.7 | ) | (0.0 | ) | 23.2 | (0.7 | ) | |||||||||
Financing activities | 160.1 | 30.8 | (0.3 | ) | 160.1 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | (0.3 | ) | (0.0 | ) | 0.2 | (0.3 | ) | |||||||||
Net increase in cash, cash equivalents and restricted cash | $ | 140.6 | $ | 5.7 | ||||||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (7.1 | ) | $ | 140.6 |
Operating Activities
For the six months ended June 30, 2022, cash used in operating activities of $30.2 million consisted of a net loss of $38.7 million, changes in operating assets and liabilities of $2.6 million, offset by non-cash items of $11.1 million. The non-cash items primarily consisted of $5.2 million of amortization of intangible assets, $4.3 million of stock-based compensation expense, $1.7 million of depreciation, $0.4 million of net amortization of discounts and premiums on investments, $0.4 million in impairment of property and equipment, $0.2 million deferred tax expense, offset by $0.6 million change in inventory reserves and $0.8 million of change in fair value of contingent consideration. The decrease in cash from changes in operating assets and liabilities primarily relates to a $1.9 million increase in inventory net of transfers to property and equipment, $1.2 million increase in other current and long-term assets, $0.3 million decrease in accrued expenses, $0.3 million decrease in operating lease liabilities, offset by a $0.5 million increase in accounts payable, $0.4 million decrease in operating lease right-of-use assets, and a $0.2 million decrease in prepaid expenses.
For the six months ended June 30, 2021, cash used in operating activities of $18.5 million consisted of a net loss of $30.5 million offset by cash generated from workingwork capital of $1$1.0 million and non-cash items of $11.1 million. The non-cash items primarily consisted of $3.6 million of stock-based compensation expense, $5.7 million of amortization of intangible assets, $2.0 million change in fair value of warrant liabilities, $1.6 million of depreciation, $0.7 million change in fair value of contingent consideration, and $0.3 million write down ofchange in inventory reserves, offset by $2.8 million gain on extinguishment of debt. The increase in cash from changes in working capital primarily relates to a $3.2$3.1 million increase in operating lease liabilities, a $2.7 million decrease in other current and long-term assets, a $3.1 million increase in operating lease liabilities, a $0.7 million increase in accounts payable, a $0.5 million decrease in prepaid expenses, and a $0.1 million decrease in accounts receivable, offset by a $3.0 million increase in operating lease right-of-use assets,asset, a $1.7 million increase in inventory net of transfers toof property and equipment, and a $1.4 million decrease in accrued expenses.
Investing Activities
For the six months ended June 30, 2022, net cash provided by investing activities was $23.2 million. This amount consists of $41.4 million of proceeds from maturities of available-for-sale investments, offset by $17.8 million of purchases of available-for-sale investments and $0.4 million purchases of property and equipment.
For the six months ended June 30, 2021, net cash used in investing activities was $0.7 million. This amount consists of $0.7 million, related to purchases of property and equipment.
Financing Activities
For the six months ended June 30, 2022, net cash used in financing activities was $0.3 million, related to taxes paid for the net share settlement of vesting of restricted stock units.
For the six months ended June 30, 2021, net cash provided by financing activities was $160.1 million. The net change primarily related to $130.3 million in net proceeds from the issuance of common stock of $73.4 million in the January 2021 public offering, $28.6 million in the January 2021 registered direct offering, $27.3 million in the 2020 ATM Offering, $1.0 million in the 2021 ATM Offering, $30.6and $30.8 million aggregate proceeds from the exercise of Series B, C and D warrants, and $0.2 million proceeds from stock option exercises,partially offset by $1.0 million of taxes paid related to net share settlement of vesting of restricted stock units.
Operating Capital and Capital Expenditure Requirements
We intend to spend substantial amounts on research and development activities, including product development, regulatory and compliance, and clinical studies in support of our future product offerings, commercial activities and the enhancement and protection of our intellectual property. We obtained financing for these activities over the past six months but cannot assure you that additional financing will not be required in the future to support our operations.studies. We intend to use financing opportunities strategically to continue to strengthen our financial position.
Cash and cash equivalents held by our foreign subsidiaries totaled $2.9$2.4 million as of June 30, 2021,2022, including restricted cash. We do not intend or currently foresee a need to repatriate cash and cash equivalents held by our foreign subsidiaries. If these funds are needed in the United States, we believe that the potential U.S. tax impact to repatriate these funds would be immaterial.
Off-Balance Sheet Arrangements
As of June 30, 2021, we did not have any material off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations set forth above under the headings “Results of Operations” and “Liquidity and Capital Resources” have been prepared in accordance with U.S. GAAP and should be read in conjunction with our financial statements and notes thereto appearing in this Form 10-Q and in the Fiscal 20202021 Form 10-K. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates, including identifiable intangible assets, contingent consideration, warrant liabilities, stock-based compensation, inventory, revenue recognition and income taxes. We base our estimates on historical experience and on various other assumptions that are 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 that are not readily apparent from other sources. A more detailed discussion on the application of these and other accounting policies can be found in Note 2 in the Notes to the Financial Statements in this Form 10-Q. Actual results may differ from these estimates under different assumptions and conditions. There have been no new or material changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, that are of significance, or potential significance, to us.
Quantitative and Qualitative Disclosures about Market Risk |
We are exposed to changes in foreign currency exchange rates. Operations outside of the United States accounted for 81% and 83% of revenue for six months ended June 30, 2022 and 2021, respectively, and are concentrated principally in Europe. We translate the revenue and expenses of our foreign operations using average exchange rates prevailing during the period. The effect of a 10% change in the average foreign currency exchange rates among the U.S. dollar versus the Euro for the six months ended June 30, 2022, would result in revenue changing by $0.2 million. This change would be not material to our cash flows and our results of operations.
While all accounting policies impact the financial statements, certain policies may be viewed as critical. Critical accounting policies are those that are both most important to the portrayal of financial condition and results of operations and that require management’s most subjective or complex judgments and estimates.
Intellectual Property
Intellectual property consists of purchased patent rights and developed technology acquired as part of a business acquisition. Developed technology includes reclassified IPR&D assets related to (i) the Senhance System acquired in 2015 and reclassified in 2017 and (ii) MST acquired in 2018 and reclassified in 2020. We amortize patent rights using the straight-line method over the estimated useful life of the patents of 10 years. Amortization of the developed technology is recorded using the straight-line method over the estimated useful life of 5 to 7 years.
We periodically evaluate intellectual property for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. To determine the recoverability, we evaluate the probability that future estimated undiscounted net cash flows will be less than the carrying amount of the assets. If such estimated cash flows are less than the carrying amount of the assets, then such assets are written down to their fair value. No impairment of intellectual property was identified during the six months ended June 30, 2021 and 2020.
Contingent Consideration
Contingent cash consideration arising from business combinations is recorded as a liability and is the estimate of the fair value of potential milestone payments related to those acquisitions. Contingent consideration is measured at fair value using a discounted cash flow model using significant unobservable inputs including the probability of achieving each of the potential milestones, future Euro-to-USD exchange rates, and an estimated discount rate associated with the risks of the expected cash flows attributable to the various milestones. Significant increases or decreases in any of the probabilities of success or changes in expected achievement of any of these milestones would result in a significantly higher or lower fair value of these milestones, respectively, and commensurate changes to the associated liability. The contingent consideration is revalued at each reporting period and changes in fair value are recognized in the condensed consolidated statements of operations and comprehensive loss.
Inventory
Inventory, which includes material, labor, and overhead costs, is stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value. We record reserves, when necessary, to reduce the carrying value of inventory to its net realizable value. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Any inventory on hand at the measurement date in excess of the Company's current requirements based on anticipated levels of sales is classified as long-term on the Company's condensed consolidated balance sheets. The Company's classification of long-term inventory requires us to estimate the portion of on hand inventory that can be realized over the upcoming twelve months.
Revenue Recognition
Our revenue consists of product revenue resulting from the sale and lease of Systems, System components, instruments and accessories, and service revenue. We account for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. Our revenues are measured based on consideration specified in the contract with each customer, net of any sales incentives and taxes collected from customers that are remitted to government authorities. Our System sale arrangements generally include a five-year service period; the first year of service is generally free and included in the System sale arrangement and the remaining four years are generally included at a stated service price.
Our System sale arrangements generally contain multiple products and services. For these condensed consolidated sale arrangements, we account for individual products and services as separate performance obligations if they are distinct, which is if a product or service is separately identifiable from other items in the condensed consolidated package, and if a customer can benefit from it on its own or with other resources that are readily available to the customer. Our System sale arrangements may include a combination of the following performance obligations: system(s), system components, instruments, accessories, and system services.
For arrangements that contain multiple performance obligations, revenue is allocated to each performance obligation based on its relative estimated standalone selling price. When available, standalone selling prices are based on observable prices at which the Company separately sells the products or services; however, due to limited sales to date, standalone selling prices are not directly observable. We estimate the standalone selling price using the market assessment approach considering market conditions and entity-specific factors including, but not limited to, features and functionality of the products and services, geographies, type of customer, and market conditions. We regularly review estimated standalone selling prices and updates these estimates if necessary.
We recognize revenues as the performance obligations are satisfied by transferring control of the product or service to a customer. We generally recognize revenue for the performance obligations as follows:
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We invoice our customers based on the billing schedules in our sales arrangements. Contract assets for the periods presented primarily represent the difference between the revenue that was recognized based on the relative selling price of the related performance obligations and the contractual billing terms in the arrangements. Deferred revenue for the periods presented was primarily related to service obligations, for which the service fees are billed up-front, generally annually. The associated deferred revenue is generally recognized ratably over the service period.
In connection with assets recognized from the costs to obtain a contract with a customer, we have determined that sales incentive programs for our sales team do not meet the requirements to be capitalized as we do not expect to generate future economic benefits from the related revenue from the initial sales transaction.
We enter into lease arrangements with certain qualified customers. Revenue related to arrangements including lease elements are allocated to lease and non-lease elements based on their relative standalone selling prices. Lease elements generally include a System, while non-lease elements generally include instruments, accessories, and services. For some lease arrangements, the customers are provided with the right to purchase the leased System at some point during or at the end of the lease term. In some arrangements lease payments are based on the usage of the System.
In determining whether a transaction should be classified as a sales-type or operating lease, we consider the following terms at lease commencement: (1) whether title of the System transfers automatically or for a nominal fee by the end of the lease term, (2) whether the present value of the minimum lease payments equals or exceeds substantially all of the fair value of the leased System, (3) whether the lease term is for the major part of the remaining economic life of the leased System, (4) whether the lease grants the lessee an option to purchase the leased System that the lessee is reasonably certain to exercise, and (5) whether the underlying System is of such a specialized nature that it is expected to have no alternative use to the Company at the end of the lease term. As of June 30, 2021, all such arrangements have been classified as operating leases.
Income Taxes
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets or liabilities for the temporary differences between financial reporting and tax basis of our assets and liabilities, and for tax carryforwards at enacted statutory rates in effect for the years in which the asset or liability is expected to be realized. The effect on deferred taxes of a change in tax rates is recognized in income during the period that includes the enactment date. In addition, valuation allowances are established when necessary to reduce deferred tax assets and liabilities to the amounts expected to be realized.
We recognize the financial statement benefit of an income tax position only after determining that the relevant taxing authority would more-likely-than-not sustain the position following audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority. We recognize interest accrued related to unrecognized tax benefits and penalties in the provision for income taxes.
Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require application of significant judgment. We are subject to U.S. federal and various state and local jurisdictions. Due to our net operating loss carryforwards, we may be subject to examination by authorities for all previously filed income tax returns.
Recent Accounting Pronouncements
See “Note 2. Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in the Company’s Fiscal 2020 Form 10-K, as well as the notes to the condensed consolidated financial statements above in this Form 10-Q, for a full description of recent accounting pronouncements including the respective expected dates of adoption and effects on our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations and Comprehensive Loss.
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We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Controls and Procedures |
Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2021.2022. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that, as of June 30, 2021,2022, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2021,2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that mostsome of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
Legal |
None.
Risk Factors. |
Reference is made to the Risk Factors included in our Fiscal 20202021 Form 10-K. There have been no material changes to our risk factors from those disclosed under “Risk Factors” in Part I, Item 1A of our Fiscal 2021 Form 10-K, aswhich are supplemented by the following.following:
The coronavirus (COVID-19) pandemic continues to negatively impact our operations.
We have facilities and/or customers located in the United States, Israel, Japan, and Italy and a few other locations. All of our facilities are in locations that are subject to, or have been subject to, stay-at-home or shelter-in-place orders that have been re‑instated from time to time as pandemic surges occur. A variety of travel restrictions continue to cause delays in our product installation and training activities and are expected to continue. In the first quarter of 2021, elective surgeries were significantly reduced in Europe, Japan, and to some extent in different locations in the United States. These pandemic-related events have negatively impacted our implementation of new leasing arrangements, performance of surgical procedures using the Senhance System in some locations, and our product installation and training activities. In the second quarter of 2021, elective surgeries continued to be cancelled, particularly in Europe. Although we believe such disruptions may be temporary, we cannot assure you thatsee the impact of the COVID-19 pandemic and other geopolitical factors on our business, and cannot assure you that we will be able to grow our business as forecast.
We continue to see delays in implementing robotic systems, training physicians on the use of the Senhance System and working with hospitals and surgeons to increase procedure volumes because of the impact of the COVID-19 pandemic, related world-wide supply shortages and the ongoing war in the Ukraine, as well as other geopolitical factors. We cannot assure you that we can implement our growth plans on the timeline desired, and continued delays could have a material negative impact on our business, results of operations and financial condition.
We may experience difficulties implementing our new global enterprise resource planning system.
We are engaged in a multi-year implementation of a new global enterprise resource planning system (“ERP”), which is entering a critical phase in 2022. The ERP is designed to efficiently maintain our books and records and provide information important to the operation of our business to our management team. The ERP will continue to require significant investment of human and financial resources. In implementing the ERP, we may experience significant delays, increased costs and other difficulties. Any significant disruption or deficiency in the design and implementation of the ERP could adversely affect our ability to process orders, ship product, send invoices and track payments, fulfill contractual obligations or otherwise operate our business. In addition, our efforts to centralize various business processes and functions within our organization in connection with our ERP implementation may continue to disrupt our operations and negatively impact our business, results of operations and financial condition.
Many of our Senhance Systems are placed under leasing arrangements with a buy-out option.If the customer does not extend the leasing arrangement or elect to purchase the Senhance System, it reduces future revenue.
Many of our Senhance Systems are placed under leasing arrangements with a buy-out option. If the customer does not elect to extend the lease arrangement or purchase the Senhance System it is returned to us, which reduces future revenue as we will not receive revenues from the capital purchases. In the quarter ended June 30, 2022, four customers chose not to extend their lease arrangements. As our leasing arrangements expire, we may see a termination of more leasing arrangements, which could have a material impact on our business and financial results.future revenues.
Unregistered Sales of Equity Securities and Use of Proceeds. |
The following table summarizes the Company’s purchases of its common stock for the quarter ended June 30, 2021:None.
Issuer Purchases of Equity Securities | ||||||||||||||||
Total | Maximum | |||||||||||||||
Number of | Number of | |||||||||||||||
Shares | Shares | |||||||||||||||
Purchased | that May | |||||||||||||||
as Part of | Yet be | |||||||||||||||
Total | Publicly | Purchased | ||||||||||||||
Number | Average | Announced | Under the | |||||||||||||
of Shares | Price Paid | Plans or | Plan or | |||||||||||||
Period | Purchased (1) | per Share | Programs | Programs | ||||||||||||
April 1 - 31, 2021 | - | $ | - | - | - | |||||||||||
May 1 - 31, 2021 | - | - | - | - | ||||||||||||
June 1 - 30, 2021 | 245,850 | 3.37 | - | - | ||||||||||||
Total | 245,850 | $ | 3.37 | - | - |
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Defaults Upon Senior Securities. |
None.
Mine Safety Disclosures. |
Not applicable.
Other Information. |
None.
EXHIBITS |
Exhibit No. | Description | |
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31.1 * | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). | |
31.2 * | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). | |
32.1 * | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 * | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS * | Inline XBRL Instance Document. | |
101.SCH* * | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL* * | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF* * | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB* * | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE * | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, |
+ A management contract, compensatory plan or arrangement required to be separately identified.
* Filed herewith.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Asensus Surgical, Inc. | |||
Date: August | By: | /s/ Anthony Fernando | |
Anthony Fernando | |||
President and Chief Executive Officer | |||
Date: August | By: | /s/ Shameze Rampertab | |
Shameze Rampertab | |||
Executive Vice President and Chief Financial Officer |