UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 20202021

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: 001-38740

Vapotherm, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

46-2259298

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification Number)No.)

100 Domain Drive

 

Exeter, N.H.

(Address of principal executive offices)

03833

(Zip Code)

 

(603) 658-0011

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

VAPO

New York Stock Exchange

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No 

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes  ☒    No  

 

As of April 29, 2020,2021, there were 21,299,51225,911,595 outstanding common shares of Vapotherm, Inc.

 


Vapotherm, Inc.

Form 10-Q

For the Quarterly Period Ended March 31, 20202021

 

TABLE OF CONTENTS

 

 

Page No.

Note Regarding Forward-Looking Statements

3

 

PART I. FINANCIAL INFORMATION

Item 1

Condensed Consolidated Financial Statements (interim periods unaudited)

5

 

Condensed Consolidated Balance Sheets - March 31, 20202021 and December 31, 20192020

5

 

Condensed Consolidated Statements of Comprehensive Loss – Three monthsMonths ended March 31, 20202021 and 20192020

6

 

Condensed Consolidated Statements of Stockholders'Stockholders’ Equity - Three monthsMonths ended March 31, 20202021 and 20192020

7

 

Condensed Consolidated Statements of Cash Flows – Three monthsMonths ended March 31, 20202021 and 20192020

8

 

Notes to Condensed Consolidated Financial Statements

9

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2425

Item 3

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4

Controls and Procedures

3233

 

 

 

PART II. OTHER INFORMATION

Item 1

Legal Proceedings

3334

Item 1A

Risk Factors

33

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

3634

Item 6

Exhibits

3735

Exhibit Index

3735

Signatures

3836

__________________

2We use “Vapotherm,” “High Velocity Therapy,” “HVT,” “Precision Flow,” “Hi-VNI,” “OAM,” “HGE,” “Solus Medical,” and other marks as trademarks in the United States and/or in other countries. This Quarterly Report on Form 10-Q contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.


Unless otherwise indicated, information contained in this Quarterly Report on Form 10-Q concerning our industry and the markets in which we operate, including our general expectations, market position and market opportunity, is based on our management’s estimates and research, as well as industry and general publications and research, surveys and studies conducted by third parties. We believe that the information from these third-party publications, research, surveys and studies included in this Quarterly Report on Form 10-Q is reliable. Management’s estimates are derived from publicly available information, their knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable. This data involves a number of assumptions and limitations which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the “Risk Factors” section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 24, 2021 and this Quarterly Report on Form 10-Q.

Unless the context requires otherwise, references to “Vapotherm,” the “Company,” “we,” “us,” and “our,” refer to Vapotherm, Inc. and our consolidated subsidiaries.


SPECIAL NOTE REGARDING FORWARD-LOOKINGFORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words.words and the use of future dates. Forward-looking statements include, but are not limited to, statements concerning:

estimates regarding the annual total addressable market for our Precision Flow systems and future product offerings, future results of operations, financial position, capital requirements and our needs for additional financing;

estimates regarding the annual total addressable market for our Precision Flow systems, future results of operations, financial position, capital requirements and our needs for additional financing;

commercial success and market acceptance of our Precision Flow systems our Oxygen Assist Module and any future products we may seek to commercialize;

commercial success and market acceptance of our Precision Flow systems, our Oxygen Assist Module, HGE Digital Health application, and any future products we may seek to commercialize;

competitive companies and technologies in our industry;

competitive companies and technologies in our industry and our ability to compete successfully;

our ability to increase and sustain the increased production capacity of our Precision Flow systems as a result from the increased demand for our Precision Flow systems from the COVID-19 public health emergency, and the ability of our carriers to make timely delivery of our Precision Flow systems during the COVID-19 public health emergency;

our ability to enhance our High Velocity Therapy technology, our Oxygen Assist Module, expand our indications and develop and commercialize additional products;

our ability to enhance our Hi-VNI Technology and our Oxygen Assist Module, expand our indications and develop and commercialize additional products;

our business model and strategic plans for our products, technologies and business, including our implementation thereof;

our business model and strategic plans for our products, technologies and business, including our implementation thereof;

the impact of the current COVID-19 pandemic on our business and operating results;

our ability to accurately forecast customer demand for our products and manage our inventory;

our ability to accurately forecast customer demand for our products, adjust our production capacity if necessary and manage our inventory, particularly in light of the ongoing COVID-19 pandemic;

our ability to expand, manage and maintain our direct sales and marketing organizations in the United States and United Kingdom, and to market and sell our Hi-VNI Technology in markets outside of the United States;

our ability to expand, manage and maintain our direct sales and marketing organizations in the United States, Germany and United Kingdom, and to market and sell our Precision Flow systems globally and to expand our limited release and eventually to market and sell our Oxygen Assist Module throughout the United Kingdom, Europe, and the Middle East;

our ability to hire and retain our senior management and other highly qualified personnel;

our ability to hire and retain our senior management and other highly qualified personnel;

our ability to obtain additional financing in the future;

our ability to obtain additional financing in the future;

our ability to commercialize or obtain regulatory approvals for our products, or the effect of delays in commercializing or obtaining regulatory approvals;

our ability to commercialize or obtain regulatory approvals for our products, or the effect of delays in commercializing or obtaining regulatory approvals;

U.S. Food and Drug Administration or other United States or foreign regulatory actions affecting us or the healthcare industry generally, including healthcare reform measures in the United States and international markets;

U.S. Food and Drug Administration or other United States or foreign regulatory actions affecting us or the healthcare industry generally, including healthcare reform measures in the United States and international markets;

the timing or likelihood of regulatory filings and approvals;

the timing or likelihood of regulatory filings and approvals;

our ability to establish and maintain intellectual property protection for our Hi-VNI Technology, Precision Flow systems, and our Oxygen Assist Module or avoid claims of infringement;

our ability to establish, maintain, and use our intellectual property to protect our High Velocity Therapy technology, Precision Flow systems, Oxygen Assist Module, and HGE Digital Health application or avoid claims of infringement;

the volatility of the trading price of our common stock; and

the volatility of the trading price of our common stock; and

our expectations about market trends and their anticipated effect on our business and operating results.

our expectations about market trends.


3


The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of known and unknown risks, uncertainties and assumptions, including those described in the “Risk Factors” section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC on March 4, 2020, our Form 8-K filed with the SEC on April 13, 2020,February 24, 2021 and in our other filings with the SEC. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. Any forward-looking statements made herein speak only as of the date of this Quarterly Report on Form 10-Q, and you should not rely on forward-looking statements as predictions of future events. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

We use “Vapotherm,” “Precision Flow,” “Hi-VNI,” “OAM, ” and other marks as trademarks in the United States and/or in other countries. This Quarterly Report on Form 10-Q contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.

Unless otherwise indicated, information contained in this Quarterly Report on Form 10-Q concerning our industry and the markets in which we operate, including our general expectations, market position and market opportunity, is based on our management’s estimates and research, as well as industry and general publications and research, surveys and studies conducted by third parties. We believe that the information from these third-party publications, research, surveys and studies included in this Quarterly Report on Form 10-Q is reliable. Management’s estimates are derived from publicly available information, their knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable. This data involves a number of assumptions and limitations which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the “Risk Factors” section of our Annual Report on Form 10-K filed with the SEC on March 4, 2020 and our Form 8-K filed with the SEC on April 13, 2020. These and other factors could cause our future performance to differ materially from our assumptions and estimates.

Unless the context requires otherwise, references to “Vapotherm,” the “Company,” “we,” “us,” and “our,” refer to Vapotherm, Inc. and its consolidated subsidiary unless stated or the context otherwise requires.

 


4


PART I. FINANCIALFINANCIAL INFORMATION

 

ITEM 1.        FINANCIAL STATEMENTS

 

VAPOTHERM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

 

March 31, 2020

 

 

December 31, 2019

 

 

March 31, 2021

 

 

December 31, 2020

 

 

(unaudited)

 

 

 

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,393

 

 

$

71,655

 

 

$

93,828

 

 

$

113,683

 

Accounts receivable, net

 

 

11,948

 

 

 

8,243

 

 

 

13,659

 

 

 

23,488

 

Inventories

 

 

9,103

 

 

 

9,137

 

 

 

26,935

 

 

 

19,873

 

Prepaid expenses and other current assets

 

 

4,021

 

 

 

4,066

 

 

 

6,485

 

 

 

5,041

 

Total current assets

 

 

85,465

 

 

 

93,101

 

 

 

140,907

 

 

 

162,085

 

Property and equipment, net

 

 

15,696

 

 

 

15,086

 

 

 

21,667

 

 

 

20,573

 

Operating lease right-of-use assets

 

 

7,835

 

 

 

8,260

 

Restricted cash

 

 

1,852

 

 

 

1,852

 

 

 

253

 

 

 

1,853

 

Goodwill

 

 

549

 

 

 

588

 

 

 

14,009

 

 

 

16,226

 

Intangible assets, net

 

 

303

 

 

 

353

 

 

 

5,201

 

 

 

5,694

 

Deferred income tax assets

 

 

63

 

 

 

66

 

Other long-term assets

 

 

856

 

 

 

844

 

 

 

1,166

 

 

 

967

 

Total assets

 

$

104,784

 

 

$

111,890

 

 

$

191,038

 

 

$

215,658

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,614

 

 

$

3,375

 

 

$

6,049

 

 

$

4,967

 

Contract liabilities

 

 

175

 

 

 

137

 

 

 

1,285

 

 

 

2,977

 

Accrued expenses and other current liabilities

 

 

12,152

 

 

 

9,187

 

 

 

19,535

 

 

 

34,033

 

Short-term line of credit

 

 

4,489

 

 

 

3,491

 

Revolving loan facility, current portion

 

 

1,158

 

 

 

-

 

Total current liabilities

 

 

21,430

 

 

 

16,190

 

 

 

28,027

 

 

 

41,977

 

Long-term loans payable, net

 

 

41,858

 

 

 

41,787

 

 

 

39,671

 

 

 

39,653

 

Revolving loan facility, net of current portion

 

 

3,731

 

 

 

4,888

 

Deferred income tax liabilities

 

 

9

 

 

 

6

 

Other long-term liabilities

 

 

127

 

 

 

174

 

 

 

12,598

 

 

 

15,229

 

Total liabilities

 

 

63,415

 

 

 

58,151

 

 

 

84,036

 

 

 

101,753

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock ($0.001 par value) 25,000,000 shares authorized; no shares issued

and outstanding as of March 31, 2020 and December 31, 2019

 

 

-

 

 

 

-

 

Common stock ($0.001 par value) 175,000,000 shares authorized as of

March 31, 2020 and December 31, 2019, 20,917,149 and 20,851,531

shares issued and outstanding as of March 31, 2020 and

December 31, 2019, respectively

 

 

21

 

 

 

21

 

Preferred stock ($0.001 par value) 25,000,000 shares authorized; 0 shares issued

and outstanding as of March 31, 2021 and December 31, 2020

 

 

-

 

 

 

-

 

Common stock ($0.001 par value) 175,000,000 shares authorized as of

March 31, 2021 and December 31, 2020, 25,834,208 and 25,722,984

shares issued and outstanding as of March 31, 2021 and

December 31, 2020, respectively

 

 

26

 

 

 

26

 

Additional paid-in capital

 

 

320,660

 

 

 

319,115

 

 

 

434,274

 

 

 

430,781

 

Accumulated other comprehensive income (loss)

 

 

(27

)

 

 

44

 

Accumulated other comprehensive income

 

 

52

 

 

 

41

 

Accumulated deficit

 

 

(279,285

)

 

 

(265,441

)

 

 

(327,350

)

 

 

(316,943

)

Total stockholders' equity

 

 

41,369

 

 

 

53,739

 

 

 

107,002

 

 

 

113,905

 

Total liabilities and stockholders’ equity

 

$

104,784

 

 

$

111,890

 

 

$

191,038

 

 

$

215,658

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.


5


Vapotherm, Inc.

CONDENSED CONSOLIDATED STATEMENTSSTATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share amounts)

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Net revenue

 

$

19,115

 

 

$

12,299

 

 

$

32,308

 

 

$

19,115

 

Cost of revenue

 

 

9,898

 

 

 

7,120

 

 

 

15,140

 

 

 

9,898

 

Gross profit

 

 

9,217

 

 

 

5,179

 

 

 

17,168

 

 

 

9,217

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,362

 

 

 

3,273

 

 

 

4,910

 

 

 

3,362

 

Sales and marketing

 

 

13,317

 

 

 

9,161

 

 

 

13,900

 

 

 

13,317

 

General and administrative

 

 

5,251

 

 

 

4,879

 

 

 

8,059

 

 

 

5,251

 

Total operating expenses

 

 

21,930

 

 

 

17,313

 

 

 

26,869

 

 

 

21,930

 

Loss from operations

 

 

(12,713

)

 

 

(12,134

)

 

 

(9,701

)

 

 

(12,713

)

Other (expense) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency gain (loss)

 

 

24

 

 

 

(9

)

 

 

(70

)

 

 

24

 

Interest income

 

 

125

 

 

 

203

 

 

 

29

 

 

 

125

 

Interest expense

 

 

(1,295

)

 

 

(1,024

)

 

 

(665

)

 

 

(1,295

)

Other

 

 

15

 

 

 

-

 

 

 

-

 

 

 

15

 

Net loss

 

$

(13,844

)

 

$

(12,964

)

 

$

(10,407

)

 

$

(13,844

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(71

)

 

 

-

 

 

 

11

 

 

 

(71

)

Total other comprehensive loss

 

$

(71

)

 

$

-

 

Total other comprehensive income (loss)

 

$

11

 

 

$

(71

)

Total comprehensive loss

 

$

(13,915

)

 

$

(12,964

)

 

$

(10,396

)

 

$

(13,915

)

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders - basic and diluted

 

$

(0.66

)

 

$

(0.76

)

Net loss per share - basic and diluted

 

$

(0.40

)

 

$

(0.66

)

Weighted-average number of shares used in calculating net

loss per share, basic and diluted

 

 

20,882,949

 

 

 

16,949,027

 

 

 

25,796,065

 

 

 

20,882,949

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 


VAPOTHERM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

20,851,531

 

 

$

21

 

 

$

319,115

 

 

$

44

 

 

$

(265,441

)

 

$

53,739

 

Balance at December 31, 2020

 

 

25,722,984

 

 

$

26

 

 

$

430,781

 

 

$

41

 

 

$

(316,943

)

 

$

113,905

 

Issuance of common stock upon exercise of options

 

 

24,687

 

 

 

-

 

 

 

40

 

 

 

-

 

 

 

-

 

 

 

40

 

 

 

77,892

 

 

 

-

 

 

 

761

 

 

 

-

 

 

 

-

 

 

 

761

 

Issuance of restricted stock

 

 

40,931

 

 

 

-

 

 

 

58

 

 

 

-

 

 

 

-

 

 

 

58

 

Issuance of common stock with restricted stock units and awards

 

 

33,332

 

 

 

-

 

 

 

47

 

 

 

-

 

 

 

-

 

 

 

47

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

1,447

 

 

 

-

 

 

 

-

 

 

 

1,447

 

 

 

-

 

 

 

-

 

 

 

2,685

 

 

 

-

 

 

 

-

 

 

 

2,685

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(71

)

 

 

-

 

 

 

(71

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

11

 

 

 

-

 

 

 

11

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,844

)

 

 

(13,844

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,407

)

 

 

(10,407

)

Balance at March 31, 2020

 

 

20,917,149

 

 

$

21

 

 

$

320,660

 

 

$

(27

)

 

$

(279,285

)

 

$

41,369

 

Balance at March 31, 2021

 

 

25,834,208

 

 

$

26

 

 

$

434,274

 

 

$

52

 

 

$

(327,350

)

 

$

107,002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

 

16,782,837

 

 

$

17

 

 

$

265,926

 

 

$

(214,382

)

 

$

51,561

 

Issuance of common stock warrants

 

 

 

 

 

 

 

 

 

 

293

 

 

 

 

 

 

 

293

 

Issuance of common stock upon exercise of options

 

 

268

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of restricted stock

 

 

116,580

 

 

 

-

 

 

 

226

 

 

 

-

 

 

 

226

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

1,903

 

 

 

-

 

 

 

1,903

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,964

)

 

 

(12,964

)

Balance at March 31, 2019

 

 

16,899,685

 

 

$

17

 

 

$

268,348

 

 

$

(227,346

)

 

$

41,019

 

 

 

 

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

20,851,531

 

 

$

21

 

 

$

319,115

 

 

$

44

 

 

$

(265,441

)

 

$

53,739

 

Issuance of common stock upon exercise of options

 

 

24,687

 

 

 

-

 

 

 

40

 

 

 

-

 

 

 

-

 

 

 

40

 

Issuance of common stock with restricted stock units and awards

 

 

40,931

 

 

 

-

 

 

 

58

 

 

 

-

 

 

 

-

 

 

 

58

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

1,447

 

 

 

-

 

 

 

-

 

 

 

1,447

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(71

)

 

 

-

 

 

 

(71

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,844

)

 

 

(13,844

)

Balance at March 31, 2020

 

 

20,917,149

 

 

$

21

 

 

$

320,660

 

 

$

(27

)

 

$

(279,285

)

 

$

41,369

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.


VAPOTHERM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(13,844

)

 

$

(12,964

)

 

$

(10,407

)

 

$

(13,844

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,447

 

 

 

1,903

 

 

 

2,685

 

 

 

1,447

 

Depreciation and amortization

 

 

1,097

 

 

 

621

 

 

 

1,574

 

 

 

1,097

 

Provision for bad debts

 

 

101

 

 

 

13

 

 

 

(156

)

 

 

101

 

Provision for inventories

 

 

23

 

 

 

2

 

Provision for inventory valuation

 

 

(12

)

 

 

23

 

Non-cash lease expense

 

 

422

 

 

 

256

 

Change in fair value of contingent consideration

 

 

202

 

 

 

-

 

Loss on disposal of property and equipment

 

 

3

 

 

 

23

 

 

 

23

 

 

 

3

 

Amortization of discount on debt

 

 

63

 

 

 

44

 

 

 

32

 

 

 

63

 

Deferred income taxes

 

 

3

 

 

 

-

 

Changes in operating assets and liabilities, net of acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,875

)

 

 

847

 

 

 

9,987

 

 

 

(3,875

)

Inventories

 

 

(12

)

 

 

1,780

 

 

 

(7,042

)

 

 

(12

)

Prepaid expenses and other assets

 

 

33

 

 

 

197

 

 

 

(1,651

)

 

 

33

 

Accounts payable

 

 

1,310

 

 

 

(1,094

)

 

 

870

 

 

 

1,310

 

Contract liabilities

 

 

38

 

 

 

22

 

 

 

(1,730

)

 

 

143

 

Accrued expenses and other current liabilities

 

 

2,894

 

 

 

(1,225

)

 

 

(14,338

)

 

 

2,789

 

Operating lease liabilities, current and long-term

 

 

(424

)

 

 

(256

)

Net cash used in operating activities

 

 

(10,722

)

 

 

(9,831

)

 

 

(19,962

)

 

 

(10,722

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,558

)

 

 

(1,128

)

 

 

(2,256

)

 

 

(1,558

)

Acquisition of business, net of cash acquired

 

 

-

 

 

 

(1,560

)

Net cash used in investing activities

 

 

(1,558

)

 

 

(2,688

)

 

 

(2,256

)

 

 

(1,558

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term line of credit

 

 

995

 

 

 

837

 

Proceeds from short-term line of credit

 

 

-

 

 

 

995

 

Proceeds from exercise of stock options

 

 

40

 

 

 

-

 

 

 

761

 

 

 

40

 

Proceeds on loans

 

 

-

 

 

 

10,500

 

Debt issuance costs

 

 

-

 

 

 

(322

)

Net cash provided by financing activities

 

 

1,035

 

 

 

11,015

 

 

 

761

 

 

 

1,035

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(17

)

 

 

-

 

 

 

2

 

 

 

(17

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(11,262

)

 

 

(1,504

)

 

 

(21,455

)

 

 

(11,262

)

Cash, cash equivalents and restricted cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

 

73,507

 

 

 

60,022

 

 

 

115,536

 

 

 

73,507

 

End of period

 

$

62,245

 

 

$

58,518

 

 

$

94,081

 

 

$

62,245

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid during the period

 

$

1,202

 

 

$

939

 

 

$

639

 

 

$

1,202

 

Property and equipment purchases in accounts payable and accrued expenses

 

$

36

 

 

$

42

 

 

$

263

 

 

$

36

 

Issuance of warrants in conjunction with debt draw down

 

$

-

 

 

$

293

 

Issuance of common stock upon vesting of restricted stock units

 

$

47

 

 

$

58

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8



VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

 

1. Description of Business

Vapotherm, Inc. (the “Company”) was founded in 1993 and reincorporated under the laws of the State of Delaware in 2013. Since inception, the Company hasis a global medical technology company primarily focused on the development and commercialization of its proprietary Hi-VNI TechnologyHigh Velocity Therapy products that are used to treat patients of all ages suffering from respiratory distress. The Company’s Hi-VNI TechnologyHigh Velocity Therapy delivers non-invasive ventilatory support by providing heated, humidified and oxygenated air at a high velocity to patients through a comfortable small-bore nasal interface. The Company’s Precision Flow systems, which use Hi-VNI Technology,High Velocity Therapy, are clinically validated alternatives to, and address many limitations of, the current standard of care for the treatment of respiratory distress in a hospital setting.

The Company offers four4 versions of its Precision Flow systems: Precision Flow Hi-VNI, Precision Flow Plus, Precision Flow Classic and Precision Flow Heliox. In certain countries outside of the United States, the Company offers the Oxygen Assist Module, which was launched in the United Kingdom, select European markets, and Israel in late 2020. The Company generates revenue primarily from sales of its Precision Flow systems and related disposable products utilized with its proprietary Precision Flow systems. The Company also generates revenue from the capital units themselves, and to a lesser extent, sales of its Precision Flow system’s companion products, which include the Vapotherm Transfer Unit 2.0, the Q50 compressor and various adaptors.adapters. The Company offers different options to its hospital customers for acquiring Precision Flow capital units, ranging from the purchase of the Precision Flow capital units with payment in full at the time of purchase, to financed purchases of the Precision Flow capital units, to bundled discounts involving the placement of Precision Flow capital units for use by the customer at no upfront charge in connection with the customer’s ongoing purchase of disposable products.

The Company sells Precision Flow systems to hospitals through a direct sales force in the United States and in the United Kingdom and through distributors in select other countries outside of the United States and United Kingdom. In addition, the Company utilizes clinical educators who are typically experienced users of Hi-VNI Technologyhigh velocity therapy and who focus on medical education efforts to facilitate adoption and increase utilization. The Company is focused on physicians, respiratory therapists and nurses who work in acute hospital settings, including the emergency department or ED,(“ED”) and adult, pediatric and neonatal intensive care units (the “ICUs”). The Company’s relationship with these clinicians is particularly important, as it enables its products to follow patients through the care continuum.

In March 2020, the World Health Organization declared a global pandemic related to the novel coronavirus (“COVID-19”). The Company’s Hi-VNI Technologyhigh velocity therapy is a first-line therapy for treating respiratory distress, which is experienced by many COVID-19 patients. The Journal of the American Medical Association published data from mainland China in April 2020 suggesting that 19% of all COVID-19 patients experience respiratory distress and require some amount of respiratory support. The Company’s hospital customers around the world are using itsthe Company’s technology to support the respiratory distress experienced by many COVID-19 patients so that they can triage their sickest patients using thea limited number of ventilators. As a result, the Company has seenexperienced a significant increase in worldwide demand for its products from both new and existing accounts initially in Europe2020 and the Middle East, and then later during the first quarter of 2020, in2021, as compared to prior year periods. The full extent to which the United States.

Since inception,COVID-19 pandemic will continue to impact the Company has financedCompany’s business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and variants of the virus and the actions taken to treat or contain COVID-19 or to otherwise limit its operations primarily through public offerings of its common stock, private placements of its convertible preferred stock, sales of its Precision Flow systems and amounts borrowed under its credit facilities. The Company has devotedimpact, including the majority of its resources to research and development activities related to its Precision Flow systems, including regulatory initiatives and sales and marketing activities. The Company has invested heavily in its sales and marketing function by increasing the number of sales representatives and clinical educators to facilitate adoption and increase utilization of its Hi-VNI Technology products and expanded its digital marketing initiatives and medical education programs.

The Company is subject to risks common to companies in the medical device industry, including, but not limited to, the successful development and commercialization of its Precision Flow products, fluctuations in operating results and financial risks, protection of proprietary knowledge and patent risks, dependence on key personnel and collaborative partners, competition, technological and manufacturing risks, customer acceptance and demand, compliance with the Food and Drug Administration and other governmental regulations, management of growthavailability and effectiveness of marketing by the Company and by third parties.vaccines, among other factors.

On November 16, 2018, the Company completed an initial public offering of 4,600,000 shares of common stock, which included the full exercise by the underwriters of their option to purchase 600,000 shares of common stock, at a price of $14.00 per share, which raised net proceeds of $57.4 million after deducting the underwriting discount of $4.5 million and offering expenses of $2.5 million.

On February 28, 2019,13, 2020, the Company acquired HGE Health Care Solutions LLC (“HGE”). The Company undertook the acquisition to expand its United Kingdom based distributor. capabilities by providing a remote monitoring platform designed to empower respiratory patients with chronic obstructive pulmonary disease (“COPD”) and providers to manage day-to-day symptoms, prevent exacerbations, lower costs and improve patient quality of life. See Note 3 “Business Combinations” to these condensed consolidated financial statements for details of this transaction.

9


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

 

In August 2019, the Company completed a public offering of 3,570,750 shares of common stock, which included the full exercise by the underwriters of their option to purchase 465,750 shares of common stock, at a price of $14.50 per share, which raised net proceeds of $48.3 million after deducting the underwriting discount of $3.1 million and offering expenses of $0.4 million.

On December 20, 2019, the Company entered into an Open Market Sales Agreement, or the ATM Agreement, with Jefferies LLC, or Jefferies, under which the Company may offer and sell its common stock having aggregate sales proceeds of up to $50.0 million from time to time through Jefferies as its sales agents. Subsequent to March 31, 2020, the Company sold 511,648 shares of common stock pursuant to the ATM Agreement for gross proceeds of $10.2 million, or $9.9 million net of commissions.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 20192020 (the “2019“2020 Form 10-K”). Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 20192020 Form 10-K and updated, as necessary, in this report. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements but does not include all disclosures required by U.S. GAAP.

Principles of Consolidation

These condensed consolidated financial statements include the financial statements of Solus Medical Ltd. (“Solus”), a wholly owned subsidiary of the Company based in the United Kingdom, which was acquiredHGE, a wholly owned subsidiary of the Company located in the first quarterUnited States, and Vapotherm Deutschland GmbH, a new wholly owned subsidiary of 2019.the Company located in Germany. All intercompany accounts and transactions have been eliminated upon consolidation.

Segment Information

Operating segments are defined as components of an enterprise for which separate discrete financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company globally manages the business within one1 reporting segment, Vapotherm, Inc. and two3 reporting units, Vapotherm, Solus and Solus.HGE. Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.

 

The majority of the Company’s long-term assets are located in the United States. Long-term assets located outside the United States total $0.1totaled $0.2 million as of each of March 31, 20202021 and December 31, 2019.2020.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. The Company evaluates its estimates on an ongoing basis. The Company bases its estimates on historical experience and 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. Significant estimates relied upon in preparing these condensed consolidated financial statements include calculation of stock-based compensation, valuation of warrants, fair values of acquired assets and liabilities, including goodwill and intangibles assets, realizability of inventories, allowance for bad debt,debts, accrued expenses, including the fair value of contingent consideration and estimated incurred but not reported insurance obligations, and the valuation allowances against deferred income tax assets. Actual results may differ from these estimates.

10


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of March 31, 2020,2021, and the condensed consolidated statements of comprehensive loss, stockholders’ equity and of cash flows for the three months ended March 31, 20202021 and 20192020 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 20202021 and the results of its operations and its cash flows for the three months ended March 31, 20202021 and 2019.2020. The financial data and other information disclosed in these notes related to the three months ended March 31, 20202021 and 20192020 are also unaudited. The results of operations for the three months ended March 31, 20202021 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

10


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

 

Reclassification

Certain amounts in 20192020 have been reclassified to conform to the presentation in 2020.2021. None of the reclassifications had any impact to the Company’s results of operations.

Financial Instruments and Concentrations of Credit Risk

As of March 31, 2020,2021, the Company’s financial instruments were comprised of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and debt, the carrying amounts of which approximated fair value due to thetheir short-term nature andor market interest rates. All of the Company’s cash and cash equivalents are maintained at creditworthy financial institutions. At March 31, 2020,2021, deposits exceedexceeded the amount of any federal depository insurance provided.

The Company extends credit to customers in the normal course of business but typically does not require collateral or any other security to support amounts due. Management performs ongoing credit evaluations of its customers. An allowance for potentially uncollectible accounts is provided based on history, economic conditions, and composition of the accounts receivable aging. In some cases, the Company makes allowances for specific customers based on these and other factors. Provisions for the allowance for doubtful accounts are recorded in general and administrative expenses in the accompanying condensed consolidated statements of comprehensive loss.

 

Foreign Currency and Foreign Operations

The functional currency of the Company is the currency of the primary economic environment in which the entity operates, which is the U.S. dollar. For ourthe Company’s non-U.S. subsidiarysubsidiaries that transactstransact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of exchange at the balance sheet date. Income and expense items are translated at the average foreign currency exchange rates for the period. Adjustments resulting from the translation of the financial statements of its foreign operations into U.S. dollars are excluded from the determination of net loss and are recorded in accumulated other comprehensive income, (loss), a separate component of stockholders’ equity.

Realized foreign currency gains or losses arising from transactions denominated in foreign currencies are recorded in other (expense) income in the condensed consolidated statements of comprehensive loss. Unrealized foreign currency gains or losses arising from transactions denominated in foreign currencies are recorded in accumulated other comprehensive income (loss).

 

Cash, Cash Equivalents, and Restricted Cash

 

The Company considers all highly liquid temporary investments purchased with original maturities of 90 days or less to be cash equivalents. The Company holds restricted cash related to certificates of deposits and collateral in relation to lease agreements. As of March 31, 2020, $0.32021, $0.6 million of our $62.2$94.1 million of cash, cash equivalents and restricted cash balance was located outside the United States.

 

11


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

The following table presents the components of total cash, cash equivalents, and restricted cash as set forth in the Company’s condensed consolidated statements of cash flows:

 

 

March 31,

2020

 

 

December 31,

2019

 

 

March 31,

2021

 

 

December 31,

2020

 

Cash and cash equivalents

 

$

60,393

 

 

$

71,655

 

 

$

93,828

 

 

$

113,683

 

Restricted cash

 

 

1,852

 

 

 

1,852

 

 

 

253

 

 

 

1,853

 

Total cash, cash equivalents, and restricted cash

 

$

62,245

 

 

$

73,507

 

 

$

94,081

 

 

$

115,536

 

 

Property and Equipment

Property and equipment are recorded at cost. Depreciation is recognized over the estimated useful lives of the related assets on a straight-line basis, except for tooling for which depreciation is recognized utilizing the units-of-production method prospectively

11


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

beginning on January 1, 2021. The Company changed to the units-of-production method to better reflect the pattern of economic consumption of the tooling. The prospective change to the units-of-production depreciation method had an immaterial impact on the Company’s results of operations for the three months ended March 31, 2021. Amortization of leasehold improvements is computed on a straight-line basis over the shorter of the remaining lease term or the estimated useful lives of the improvements and is included in depreciation expense. Demonstration equipment represents internally manufactured capital equipment that is used on-site at trade shows and at customer locations to demonstrate the Precision Flow system. Depreciation expense on demonstration equipment is recorded in sales and marketing expense in the condensed consolidated statements of comprehensive loss. Placement and evaluation systems represent capital equipment placed at customer locations under placement or evaluation agreements for which depreciation expense is included in cost of revenue in the accompanying condensed consolidated statements of comprehensive loss.

Product Warranty

The Company provides its customers with a standard one-year warranty on its capital equipment sales. Warranty costs are accrued based on actual historical trends and estimated at the time of sale. The warranty liability is included within accrued expenses and other liabilities in the condensed consolidated balance sheets. A roll-forward of the Company’s warranty liability from December 31, 20192020 to March 31, 20202021 is as follows:

 

 

 

 

 

Balance at December 31, 2019

 

$

225

 

Balance at December 31, 2020

 

$

561

 

Provisions for warranty obligations

 

 

334

 

 

 

7

 

Settlements

 

 

(204

)

 

 

(106

)

Balance at March 31, 2020

 

$

355

 

 

 

 

 

Balance at March 31, 2021

 

$

462

 

 

Insurance

Effective January 1, 2020, the Company was self-insured for certain obligations related to health insurance. The Company also purchases stop-loss insurance to protect itself from material losses. Judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred but have not been reported. The Company’s estimates consider expected claim experience and other factors. Receivables for insurance recoveries are recorded as assets, on an undiscounted basis. The Company’s liabilities are based on estimates, and, while the Company believes that its accruals are adequate, the ultimate liability may be significantly different from the amounts recorded. Changes in claims experience, the Company’s ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.

 

Revenue Recognition

The Company’s revenue consistsis primarily ofderived from the sale of products, leases and services. Product revenue consists of capital equipment and single-use disposables that are shipped and billed to customers both domestically and internationally. The Company’s main capital equipment products are the Precision Flow Hi-VNI, Precision Flow Plus, Precision Flow Classic,systems, the Vapotherm Transfer Unit 2.0 and Q50 compressor. The Company’s main disposable products are single-use disposables and nasal interfaces, or cannulas, and adaptors. Lease revenue consists of two components which include capital equipment that the Company leases out to its customers and, in certain situations, an allocation from disposable revenue to other lease revenue upon the sale of disposable products in bundled arrangements involving the placement of Precision Flow capital units for use by the customer at no upfront charge in connection with the customer’s ongoing purchase of disposable products. Service revenue consists of fees associated with routine service of capital units, and the sale of extended service contracts and preventative maintenance plans, which are purchased by a small portion of the Company’s customer base.base and revenue related to HGE’s “software as a service” platform. In addition, the Company sells small quantities of component parts in the United States, United Kingdom and to third-party international service centers who provide service on Precision Flow capital units outside of the United States.States and United Kingdom. Freight revenue is based upon actual freight costs plus a percentage markup of such costs associated with the shipment of products domestically, and to a lesser extent, internationally, and is included in service revenue. Rebates and fees consist of contractually obligated administrative fees and percentage-of-sales rebates paid to Group Purchasing Organizations (“GPOs”), Integrated Delivery Networks (“IDNs”) and distributor partners and accounted for as a reduction of service revenue.

12


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Under the Financial Accounting Standard BoardBoard’s (“FASB”) Accounting Standards Codifications (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entityCompany satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and assesses whether each promised good or service is distinct and determines those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value-added, and other taxes collected on behalf of third parties are excluded from revenue. The Company’s standard payment term isterms are generally 30 days from the date of sale.

Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative stand-alone selling prices of the promised products or services

12


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

underlying each performance obligation. The Company determines stand-alone selling prices based on the price at which the performance obligation is sold separately. If the stand-alone selling price is not observable through past transactions, the Company estimates the stand-alone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Revenue is generally recognized when the customer obtains control of the Company’s product, which generally occurs at a point in time upon shipment based on the contractual shipping terms of a contract.

Product and service revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value amount method to which the Company expects to be entitled. As such, revenue on sales is recorded net of prompt pay discounts and payments made to GPOs, IDNs and distributors. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Determination of whether to include estimated amounts in the transaction price is based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. The Company believes that the estimates it has established are reasonable based upon current facts and circumstances. Applying different judgments to the same facts and circumstances could result in different estimates.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying thea practical expedient in paragraph 606-10-32-18,under ASC 606, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. NoneNaN of the Company’s contracts contained a significant financing component during the three months ended March 31, 20202021 or 2019.2020.

The Company’s contracts with its customers generally have a duration of less than one year. Therefore, the Company has elected to apply thea practical expedient in paragraph ASC 340-40-25-4 and recognizes the incremental costs of obtaining contracts as an expense. These costs are included in sales and marketing expense in the accompanying condensed consolidated statements of comprehensive loss.

Lease Revenue

The Company also enters into agreements to lease its capital equipment. For such sales, the Company accounts for revenue under ASC 840, 842, Leases (“ASC 842”), and assesses and classifies these transactions as sales-type or operating leases based on whether the lease transfers ownership of the equipment to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term. Equipment included in arrangements including transfer of title are accounted for as sales-type leases and the Company recognizes the totalpresent value of the lease payments due over the lease term toas revenue at the inception of the lease. The Company records the currentpresent value of future lease payments underin prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets andsheets; these amounts totaled $1.0$2.1 million and $0.9$2.7 million at March 31, 20202021 and December 31, 2019,2020, respectively. Equipment included in arrangements that do not include the transfer of title, nor any of the capitalsales-type or direct financing lease criteria, are accounted for as operating leases and revenue is recognized on a straight-line basis as it becomes receivable monthly over the term of the lease.

The Company also enters into agreements involving the placement of Precision Flow capital units for use by the customer at no upfront charge in connection with the customer’s ongoing purchase of disposable products. In these bundled arrangements, revenue recognized for the sale of the disposables is allocated between disposable revenue and other lease revenue based on the estimated relative stand-alone selling prices of the individual performance obligations.obligation.

Shipping and Handling Costs

Amounts billed to customers for shipping and handling are included in service revenue. Shipping and handling costs are included in costs of sales. The total costs of shipping and handling for both the three months ended March 31, 2021 and 2020 were $0.5 and 2019 was $0.3 million.million, respectively.

13


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Sales and Value-Added Taxes

When required by local jurisdictions, the Company bills its customers for sales tax and value-added tax calculated on each sales invoice and records a liability for the sales and value-added tax payable, which is included in accrued expenses and other liabilities in the condensed consolidated balance sheets. Sales tax and value-added tax billed to a customer isare not included in the Company’s revenue.

Timing13


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and Amount of Revenue Recognitionper share amounts)

The Company recognizes revenue on product sales and service of its capital equipment and product sales of disposables to its end users. In each instance, revenue is generally recognized when the customer obtains control of the Company’s product, which generally occurs at a point in time upon shipment based on the contractual shipping terms of a contract.

Product and service revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value amount method to which the Company expects to be entitled. As such, revenue on sales are recorded net of prompt pay discounts and payments made to GPOs, IDNs and distributors. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. The Company believes that the estimates it has established are reasonable based upon current facts and circumstances. Applying different judgments to the same facts and circumstances could result in the estimated amounts to vary.

Stock-Based Compensation

The Company maintains an equity incentive plan to provide long-term incentives for employees, consultants, and members of the board of directors. The plan allows for the issuance of non-statutory and incentive stock options, restricted stock, unrestricted stock, stock units, including restricted stock units, and stock appreciation rights to employees, and non-statutory stock options to consultants and non-employee directors. The Company recognizes stock-based compensation expense for awards of equity instruments to employees and non-employees based on the grant date fair value of those awards in accordance with ASC Topic 718, Stock Compensation (ASC 718)(“ASC 718”). ASC 718 requires all equity-based compensation awards, including grants of restricted shares and stock options, to be recognized as expense in the condensed consolidated statements of comprehensive loss based on their grant date fair values.

The fair value of each option grant is estimated on the grant date using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. For performance-based awards, the related compensation cost is amortized over the performance period on an accelerated attribution basis. Compensation cost associated with performance awards is based on fair value on the date of grant and the number of units expected to be earned after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved. Cumulative adjustments are recorded each quarter to reflect estimated outcomes of the performance-related conditions until the results are determined and settled. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including the expected life (weighted average period of time that the options granted are expected to be outstanding), the volatility of the Company’s common stock and an assumed risk-free interest rate. Expected volatility is calculated based on historical volatility of a group of publicly traded companies that the Company considers a peer group. The expected life is estimated using the simplified method for “plain vanilla” options. The risk-free interest rate is based on U.S. Treasury rates with a remaining term that approximates the expected life assumed at the date of grant. NoNaN dividend yield is assumed as the Company does not pay, and does not expect to pay, dividends on its common stock. The Company estimates forfeitures based on historical experience with pre-vested forfeitures. To the extent actual forfeitures differ from the estimate, the difference is recorded to compensation expense in the period of the forfeiture.

The Company recognizes stock-based expense for shares of its common stock issued pursuant to its 2018 Employee Stock Purchase Plan (“ESPP”) on a straight-line basis over the related offering period. The Company estimates the fair value of shares to be issued under the ESPP based on a combination of options valuedusing the Black-Scholes option-pricingoption pricing model. The expected life is determined based on the contractual term. Dividend yield and forfeiture rates are estimated in a manner similar to option grants described above and expected volatility is based on the Company’s historical volatility.

 

14


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Income Tax

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the condensed consolidated financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company accounts for uncertainty in income taxes recognized in the condensed consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the condensed consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

The Company’s major tax jurisdictions are the United States, New Hampshire and the United Kingdom. There is no0 provision or benefit for income taxes for the three months ended March 31, 20202021 or 20192020 because the Company has historically incurred operating losses and maintains a full valuation allowance against its United States net deferred tax assets.

14


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”) due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and tax credit carryforwards that can be utilized to offset future taxable income and reduce taxes, respectively. The Company has not currently completed an evaluation of ownership changes through MarchDecember 31, 2020 or December 31, 2019 to assess whether utilization of the Company’s net operating loss and tax credit carryforwards would be subject to an annual limitation under Sections 382 and 383 of the Code. To the extent an ownership change is determined to have occurred under Sections 382 and 383 of the Code, the net operating loss and tax credit carryforwards may be subject to limitation.

 

Recently Issued Accounting Pronouncements

Leases (Topic 842):

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 establishes a comprehensive new lease accounting model. The new standard clarifies the definitions of a lease, requires a dual approach to lease classification similar to current lease classifications, and causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease term of more than twelve months. In July 2018, the FASB issued ASU No. 2018-11 Leases (Topic 842) (“ASU 2018-11”) which provided another transition method in addition to the existing transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivative and Hedging (Topic 815) and Leases (Topic 842), which defers the effective date for ASU 2016-02 to annual periods beginning after December 15, 2020 and interim periods beginning after December 15, 2021. The new standard originally required a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of the initial application. The Company has not yet determined the effects that the adoptions of ASU 2016-02 and ASU 2018-11 may have on its financial position, results of operations, cash flows, or disclosures.

15


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Credit Losses (Topic 326):

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used and establishes additional disclosures related to credit risks. In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivative and Hedging (Topic 815) and Leases (Topic 842), which defers the effective date for ASU 2016-13 to interim and annual periods beginning after December 15, 2022.2022 for private companies, emerging growth companies following private company adoption dates, or public entities meeting the definition of smaller reporting companies as of the date of issuance of this update. Since the Company met the definition of a smaller reporting company as of the date of issuance of this update, the Company is not required to adopt ASU 2016-13 until January 1, 2023. The Company has not yet determined the effects, if any, that the adoption of ASU 2016-13 may have on its financial position, results of operations, cash flows, or disclosures.disclosures.

 

3. Business CombinationsCombination

On February 28, 2019,November 13, 2020, the Company completed the acquisition of all outstanding equity securitiesmembership interests of Solus, HGE, whose principal assets included intangible assets related to supplier agreements.customer relationships, developed technology, trademarks and trade names. The Company undertook the acquisition to accelerateexpand its penetration in the United Kingdom market. capabilities by providing a remote monitoring platform which is designed to empower respiratory patients with COPD and providers to manage day-to-day symptoms, prevent exacerbations, lower costs and improve patient quality of life.

The purchase price, net of cash acquired, of $2.0$19.3 million was funded with an initial cash payment of approximately $1.6$8.4 million and a settlement$10.9 million of a $0.4 million receivable from a preexisting relationship. Additionally,contingent consideration. The contingent consideration is payable in cash or common stock, at the sole discretion of the Company, recognized $1.0 millionand will be remitted in contingent consideration as compensation expensefuture milestone payments, one following calendar year 2021, one following calendar year 2022, and one following calendar year 2023. The final three payments will be adjusted up or down based on the revenue performance of certain HGE service offerings during 2019 and expects to recognize contingent consideration of $1.2 million as compensation expense in 2020. those three years. The acquisition has been accounted for as an acquisition of a business.

15


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

The Company is in the process of finalizing its valuation of the assets acquired and liabilities assumed. During the three months ended March 31, 2021, we recorded an adjustment to correct immaterial errors related to the acquisition which reduced the estimated purchase price by $2.3 million and decreased goodwill, intangible assets and other liabilities by $2.2 million, $0.3 million and $0.3 million, respectively. The following table summarizes the corrected preliminary purchase price allocation that includes the fair values of the separately identifiable assets acquired and liabilities assumed as of February 28, 2019:November 13, 2020:

 

 

 

 

Cash

$

466

 

 

$

2

 

Accounts receivable

411

 

 

 

518

 

Inventory

492

 

 

 

3

 

Prepaids and other assets

3

 

Prepaids and other current assets

 

 

238

 

Property and equipment

1

 

 

 

225

 

Operating lease right-of-use assets

 

 

2,329

 

Goodwill

592

 

 

 

13,398

 

Intangible assets

455

 

 

 

5,180

 

Other long-term assets

 

 

45

 

Total assets acquired

 

2,420

 

 

 

21,938

 

Accounts payable and accrued expenses

 

(241

)

Accounts payable

 

 

(32

)

Accrued expenses and other liabilities

 

 

(620

)

Contract liabilities

 

(75

)

 

 

(31

)

Deferred taxes

 

(78

)

Other long-term liabilities

 

 

(1,951

)

Total liabilities assumed

 

(394

)

 

 

(2,634

)

Total purchase price

$

2,026

 

 

$

19,304

 

 

 

 

 

The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions.

In determiningThe fair values of assets acquired and liabilities assumed may be subject to change as additional information is received. The Company expects to finalize the purchase price allocation as soon as practicable, but not later than one year from the Company considered, among other factors, the opportunity provided by a supplier agreement with the National Health Service. acquisition date.

The fair value of the intangible assetsasset associated with this agreement werecustomer relationships was estimated using a discounted cash flow method with the application of the multi-period excess earnings method. Under this method, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows attributable to only the subject intangible assets after deducting contributory asset charges. An income and expensesexpense forecast was built based upon specific intangible asset revenue and expense estimates. The fair value of the intangible asset associated with developed technology, trademarks and trade names was valued using the relief from royalty method. Under this method, an intangible asset’s fair value is equal to the present value of the estimated after-tax royalty savings generated over the life of the assets. Royalty rates were selected based on market review of third-party licensing arrangements. The fair value of the contingent consideration was valued based on a Monte-Carlo simulation of HGE’s estimated future revenue discounted to its present value.

The rate used to discount the estimated future net cash flows to their present values for each intangible asset was based upon a weighted average cost of capital calculation. The discount rate was determined after consideration of market rates of return on debt and equity capital, the weighted average return on invested capital and the risk associated with achieving forecasted sales related to the assets acquired from Solus.HGE.

16


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

The total weighted average amortization period for each of the intangible assets is approximately 3.8310 years. The intangible assets are being amortized on a straight-line basis, which is consistent with the pattern that the economic benefits of the intangible assets are expected to be utilized based upon estimated cash flows generated from such assets. Goodwill associated with the acquisition was primarily attributable to the market expansion opportunity inof the United Kingdom.remote monitoring platform for respiratory patients and providers. The goodwill attributable to the United Kingdom jurisdiction is not deductible for tax purposes.

The Company has included the financial results of SolusHGE in the condensed consolidated financial statements from the date of acquisition. The transaction costs associated with the acquisition were approximately $0.2 million and were recorded in general and administrative expense as incurred during 2019.2020.

16


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

The following table summarizes changes to the contingent consideration payable, a recurring Level 3 measurement, for the three months ended March 31, 2021:

Balance at December 31, 2020

 

$

13,187

 

Change in value of contingent consideration based on correction of purchase

   price calculation

 

 

(2,258

)

Change in fair value of contingent consideration

 

 

202

 

Balance at March 31, 2021

 

$

11,131

 

Pro Forma Financial Information

The following unaudited pro forma information for the three months ended March 31, 20192020 presents consolidated information as if the SolusHGE acquisition occurred on January 1, 2019,2020, which iswas the first day of the Company’s fiscal year 2019:2020:

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

 

Three Months

Ended

March 31, 2020

 

Net revenue

 

$

12,536

 

 

 

$

19,375

 

Net loss

 

$

(12,908

)

 

 

$

(14,217

)

Net loss per share, basic

 

$

(0.76

)

 

 

$

(0.68

)

 

4. Fair Value Measurements

In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements), and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

 

Level 1 – inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 1 – inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

 

Level 2 – inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.

Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.

 

Level 3 – inputs are

Level 3 – unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

As of March 31, 2021, the asset or liability in which there is little, if any, market activity for the asset or liabilityCompany had two items, cash equivalents and contingent consideration, measured at the measurement date.

fair value on a recurring basis. The Company’s cash equivalents primarily consist of money market deposits which total approximately $53.3$77.3 million at March 31, 20202021 and are valued based on Level 1 of the fair value hierarchy. As described in Note 8 “Debt”, during 2019,The Company’s contingent consideration which totals $11.1 million at March 31, 2021 relates to the Company granted warrants to purchase 19,790 shares2020 acquisition of common stock in connection with an amendment to its financing arrangement. These equity-classified warrants wereHGE and is valued using the Black-Scholes pricing model, which falls withinbased on Level 3 of the fair value hierarchy.

The assumptions usedhierarchy as describe in the Black-Scholes pricing modelNote 3 “Business Combination.” There were as follows at the date0 transfers in and out of grant:

Expected dividend yield

0.0

%

Risk free interest rate

2.4

%

Expected stock price volatility

60.9

%

Expected term (years)

10.0

Level 1, 2 or 3.

17


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

 

5. Accounts Receivable

Accounts receivable consists of the following:

 

 

March 31,

2020

 

 

December 31,

2019

 

 

March 31,

2021

 

 

December 31,

2020

 

United States

 

$

8,159

 

 

$

5,574

 

 

$

8,279

 

 

$

18,893

 

International

 

 

4,120

 

 

 

2,908

 

 

 

5,555

 

 

 

4,967

 

Total accounts receivable

 

 

12,279

 

 

 

8,482

 

 

 

13,834

 

 

 

23,860

 

Less: Allowance for doubtful accounts

 

 

(331

)

 

 

(239

)

 

 

(175

)

 

 

(372

)

Accounts receivable, net of allowance for doubtful

accounts

 

$

11,948

 

 

$

8,243

 

 

$

13,659

 

 

$

23,488

 

 

 

 

 

 

 

 

 

 

NoNaN individual customer accounted for 10% or more of net revenue for the three months ended March 31, 20202021 or 2019. No2020. NaN customers accounted for approximately 17% and 13% of total accounts receivable at March 31, 2021. NaN individual customers accounted for 10% or more of total accounts receivable at either March 31, 2020 or December 31, 2019.2020.

 

6. Inventories

Inventories consist of the following:

 

 

March 31,

2020

 

 

December 31,

2019

 

 

March 31,

2021

 

 

December 31,

2020

 

Component parts

 

$

4,723

 

 

$

4,948

 

 

$

14,453

 

 

$

10,367

 

Finished goods

 

 

4,380

 

 

 

4,189

 

 

 

12,482

 

 

 

9,506

 

Total inventory

 

$

9,103

 

 

$

9,137

 

Total inventories

 

$

26,935

 

 

$

19,873

 

 

7. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill and intangible assets during 20202021 are as follows:

 

 

 

Goodwill

 

 

Intangible Assets

 

Balance at December 31, 2019

 

$

588

 

 

$

353

 

Acquired during the period

 

 

-

 

 

 

-

 

Amortization

 

 

-

 

 

 

(28

)

Foreign currency exchange rate changes

 

 

(39

)

 

 

(22

)

Balance at March 31, 2020

 

$

549

 

 

$

303

 

 

 

Goodwill

 

 

Intangible Assets

 

Balance at December 31, 2020

 

$

16,226

 

 

$

5,694

 

Change in value based on correction of purchase

   price calculation and allocation

 

 

(2,222

)

 

 

(340

)

Amortization

 

 

-

 

 

 

(155

)

Foreign currency exchange rate changes

 

 

5

 

 

 

2

 

Balance at March 31, 2021

 

$

14,009

 

 

$

5,201

 

 

The following table presents a summary of acquired intangible assets:

 

 

As of March 31, 2020

 

 

As of March 31, 2021

 

 

Period of

amortization

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Weighted Average

Amortization Period

in Years

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

Customer relationships

 

 

10.00

 

 

$

2,420

 

 

$

(91

)

Developed technology

 

 

10.00

 

 

 

2,400

 

 

 

(90

)

Customer agreements

 

 

3.83

 

 

$

424

 

 

$

121

 

 

 

3.83

 

 

 

456

 

 

 

(241

)

Trade name / marks

 

 

10.00

 

 

 

360

 

 

 

(13

)

Total identifiable intangible assets

 

 

 

 

 

$

424

 

 

$

121

 

 

 

9.50

 

 

$

5,636

 

 

$

(435

)

18


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

 

The Company recognized $0.1 million of amortization expense within sales and marketing expenses related to the intangible assets during the three months ended March 31, 2021 and 2020. The Company also recognized less than $0.1 million of amortization expense within general and administrative expenses related to intangible assets during the three months ended March 31, 2021 with 0 such amounts being recorded within general and administrative expenses during the three months ended March 31, 2020.

8. Debt

RevolvingCurrent Credit LineFacilities

On November 16, 2016,October 21, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Canadian Imperial Bank of Commerce Innovation Banking (“CIBC”) which provides for a revolving loan facility of $12.0 million (the “Revolving Facility”) and a term loan facility of $40.0 million (the “Term Facility” and, together with the Revolving Facility, the “Facilities”). The proceeds of the Facilities were used to repay the Company’s former revolving loan facility and term loan facility, described in more detail below.

The Revolving Facility will mature on October 21, 2022 and may be renewed on an annual basis thereafter by mutual agreement of the Company and CIBC. The Revolving Facility bears interest at a floating rate per annum equal to the Wall Street Journal (“WSJ”) Prime Rate plus 1.0% and is subject to a floor of 3.25%. At March 31, 2021, the interest rate was 4.25%. The outstanding balance under the Revolving Facility was $4.9 million at March 31, 2021 and there were letters of credit of $1.2 million outstanding at March 31, 2021. Availability under the Revolving Facility is determined based on eligible receivables reduced by letters of credit outstanding. At March 31, 2021, there were 0 additional borrowings available under the Revolving Facility.

The Term Facility will mature on October 21, 2025. Advances under the Term Facility bear interest at a floating rate equal to the WSJ Prime Rate plus 2.5% and is subject to a floor of 3.25%. At March 31, 2021, the interest rate was 5.75%. The outstanding balance was $40.0 million at March 31, 2021. The Loan Agreement provides for interest-only payments on the Term Facility for the first 36 months through October 21, 2023. Thereafter, amortization payments on the Term Facility will be payable monthly in 24 equal installments. The Term Facility may not be prepaid prior to October 21, 2021 without prepaying all of the interest that otherwise would have been payable on the Term Facility during the period commencing on October 21, 2020 and ending on October 21, 2021, plus a prepayment charge of 2.0%. Thereafter, the Term Facility may be prepaid in full, subject to a prepayment charge of (i) 2.0%, if such prepayment occurs after October 21, 2021 but on or prior to October 21, 2022, and (ii) 1.0%, if such prepayment occurs after October 21, 2022 but on or prior to October 21, 2023. The Term Facility and Revolving Facility are secured by a lien on substantially all of the Company’s assets, including intellectual property.

The Loan Agreement contains customary covenants and representations, including, without limitation, a minimum revenue covenant equal to 80% of each year’s annual operating plan (tested on a trailing twelve month basis at the end of each fiscal quarter) and other financial covenants, reporting obligations, and limitations on dispositions, changes in business or ownership, mergers or acquisitions, indebtedness, encumbrances, distributions and investments, transactions with affiliates and capital expenditures.

The events of default under the Loan Agreement include, without limitation, and subject to customary grace periods, (1) the Company’s failure to make any payments of principal or interest under the Loan Agreement or other loan documents, (2) the Company’s breach or default in the performance of any covenant under the Loan Agreement, (3) the occurrence of a material adverse effect or an event that is reasonably likely to result in a material adverse effect, (4) the existence of an attachment or levy on a material portion of funds of the Company or its subsidiaries, (5) the Company’s insolvency or bankruptcy, or (6) the occurrence of certain material defaults with respect to any other of the Company’s indebtedness in excess of $500,000. If an event of default occurs, CIBC is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement. The Loan Agreement also contains other customary provisions, such as expense reimbursement and confidentiality. CIBC has indemnification rights and the right to assign the Facilities, subject to customary restrictions.

As of March 31, 2021, the Company was in compliance with all covenants under the Loan Agreement.

19


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

The annual principal maturities of the Company’s term loans as of March 31, 2021 are as follows:

2021

 

 

0

 

2022

 

 

0

 

2023

 

 

3,200

 

2024

 

 

19,200

 

2025

 

 

17,600

 

Less: Unamortized deferred financing costs

 

 

(329

)

Long-term loans payable

 

$

39,671

 

Prior Credit Facilities

On October 21, 2020, the Company used $40 million of the Term Facility, approximately $4.9 million of the Revolving Facility, and approximately $6.3 million of cash on hand to pay off all obligations owing under, and to terminate, both its prior Credit Agreement and Guaranty, as amended (the “Amended Credit Agreement and Guaranty”), with Perceptive Credit Holdings II, LP (“Perceptive”) and its Business Financing Agreement, as amended (the “Revolver“Amended Revolver Agreement”) with Western Alliance Bank,Bank. As a result of the termination of the Amended Credit Agreement and Guaranty and the Amended Revolver Agreement, the Company recorded a loss on extinguishment of debt of $4.2 million, which included the prepayment penalty, exit fees, write-off of the remaining unamortized deferred financing costs, and legal fees, during the fourth quarter of 2020.

As of March 31, 2020, the Company had $42.6 million of term debt outstanding under the Amended Credit Agreement and Guaranty, which accrued interest at an Arizona Corporation,annual rate equal to 9.06% plus the greater of (a) one-month LIBOR or (b) 1.75% per year, and $4.5 million of outstanding borrowings under the Amended Revolver Agreement, which replaced its then existing revolvingaccrued interest monthly on the average outstanding balance at the WSJ Prime Rate plus 1.75%, floating, subject to a floor of 3.5%. This prior term debt was scheduled to mature in 2023 and although the prior line of credit.credit was scheduled to mature on September 30, 2020, this was extended during the third quarter of 2020, to April 6, 2023. The Amended Revolver Agreement had made available $7.0up to $7.5 million of revolving credit upon the closing date. Availability under the Revolver Agreement is calculated based upon 80% of the eligible receivables (net of pre-paid deposits, pre-billed invoices, other offsets, and contras related to each specific account debtor). The original maturity date was September 30, 2018.As previously mentioned, both of these term debt and revolving line of credit were paid off and terminated on October 21, 2020 when the Company established its new Facilities.

9. Commitments and Contingencies

Lease Commitments

In May 2016, the Company entered into a lease agreement for office and storage space at 100 Domain Drive, Exeter New Hampshire and has entered into several amendments since then to lease additional space. In total, the Company occupies approximately 95,320 square feet of space at this facility and the lease, as most recently amended, is scheduled to expire on January 28, 2025. The Company refinancedhas the Revolver Agreement in April 2018, increasingoption to renew the credit linelease for 2 additional five-year terms by providing written notice twelve months prior to $7.5 million and extendingend of the maturity date to September 30, 2020.initial or first lease extension term. The principalCompany is due upon maturity. On March 22,not reasonably certain that it will renew the lease beyond January 2025.

In October 2019, the Company entered into an amendmentassignation and variation agreement for a lease of 453 square meters of office and warehouse space at 2 Dryden Loan, Bilston Glen Industrial Estate, Loanhead in the United Kingdom. The lease term expires on February 15, 2022 and will automatically renew for an additional five-year period unless the Company terminates the lease by providing written notice to the Revolver Agreement (as amended,landlord one month prior to the “Amended Revolver Agreement”), which increasedend of the allowable permitted indebtedness undercurrent lease term. The Company is not reasonably certain that it will renew the Amended Revolver Agreementlease beyond February 2022.

In November 2020, in connection with the Company’s credit card program from $0.3 millionacquisition of HGE, the Company assumed a real estate lease for 22,524 square feet of office space at 1301 Virginia Drive, Fort Washington, Pennsylvania. The lease term expires on July 31, 2025. The Company has the option to $0.5 million.renew the lease for 1 additional five-year term by providing written notice six months prior to end of the current lease term. The Company is not reasonably certain that it will renew the lease beyond July 2025.

At

The Company adopted ASC 842 effective January 1, 2020. As a result, the March 31, 2020 condensed consolidated financial statements have been updated, as applicable, to reflect the interest rateadoption of this standard. There was 5.25%. The outstanding balance under the Amended Revolver Agreement was $4.5 million at March 31, 2020 and there was $2.3 million remaining availability based on eligible receivables. At December 31, 2019, the interest rate was 6.50%. The outstanding balance under the Revolver Agreement was $3.5 million at December 31, 2019 and the remaining availability based on eligible receivables was $0.8 million. The Amended Revolver Agreement requires the Company to comply with a minimum liquidity covenant at all times. As of March 31, 2020, the Company was in compliance with all covenants.

The Amended Revolving Agreement is secured by substantially allno effect of the Company’s assets, excluding intellectual property.

Term Loans

On April 6, 2018, the Company entered into a Credit Agreement and Guaranty (the “Credit Agreement and Guaranty”) with Perceptive Credit Holdings II, LP (“Perceptive”). Pursuant to the Credit Agreement and Guaranty, a total of $42.5 million was available in three tranches. The first tranche was drawn down in the amount of $20.0 millionchange on the closing date, April 6, 2018, which paid offCompany’s 2020 results of operations as a former loan agreement in full. In connection with this draw down, the Company granted Perceptive warrants to purchase 37,693 shares of Series D preferred stock which were converted into warrants to purchase shares of common stock at the timeresult of the initial public offering.adoption. The warrants have an exercise price of $15.92 per share, were fully vested upon issuance, exercisable atfollowing table presents operating lease cost and information related to operating right-of-use assets and operating lease liabilities for the option of the holder, in whole or in part, and expire in April 2028.periods indicated:

On July 20 2018, pursuant to the Credit Agreement and Guaranty, the Company drew down the second tranche of $10.0 million. In connection with this draw down, the Company granted Perceptive warrants to purchase 18,846 shares of Series D preferred stock which were converted into warrants to purchase shares of common stock at the time of the initial public offering. The warrants have an exercise price of $15.92 per share, were fully vested upon issuance, exercisable at the option of the holder, in whole or in part, and expire in July 2028.

On September 27, 2018, the Company entered into the first amendment to the Credit Agreement and Guaranty (the “Amendment”, together with the Credit Agreement and Guaranty, the “Amended Credit Agreement and Guaranty”) with Perceptive. Pursuant to the Amended Credit Agreement and Guaranty, the Company was permitted to draw the final $12.5 million of availability at any time through March 31, 2019 and the minimum 2018 revenue requirement of $43.2 million that was required to draw down the final tranche was eliminated. Concurrently with the closing of the Amendment, the Company drew down $2.0 million of the remaining $12.5 million available. In connection with this draw down, the Company granted to Perceptive warrants to purchase 3,769 shares of its Series D preferred stock which were converted into warrants to purchase shares of common stock at the time of the initial public offering. The warrants have an exercise price of $15.92 per share, were fully vested upon issuance, are exercisable at the option of the holder, in whole or in part, and expire in September 2028.

On March 22, 2019, the Company drew the remaining $10.5 million of availability under the Amended Credit Agreement and Guaranty. In connection with this draw down, the Company granted Perceptive warrants to purchase 19,790 shares of common stock. The warrants have an exercise price of $15.92 per share, were fully vested upon issuance, are exercisable at the option of the holder, in whole or in part, and expire in March 2029.

19


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

 

On March 22, 2019, the Company entered into a second amendment to the Amended Credit Agreement and Guaranty increasing the allowable permitted indebtedness in connection with the Company’s credit card program from $0.3 million to $0.5 million.

Pursuant to the Amended Credit Agreement and Guaranty, the outstanding principal amount accrues interest at an annual rate equal to 9.06% plus the greater of (a) one-month LIBOR and (b) 1.75% per year. At March 31, 2020, the interest rate was 10.81%. The outstanding balance, including accretion of the additional final payment due upon maturity and described below, was $42.6 million at March 31, 2020 and there was no remaining availability. The Amended Credit Agreement and Guaranty is secured by substantially all of the Company’s assets, including intellectual property. 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

2020

 

Lease cost:

 

 

 

 

 

 

 

  Operating lease cost

 

$

416

 

$

403

 

  Variable lease cost

 

 

133

 

 

102

 

  Total

 

$

549

 

$

505

 

Operating cash flow impacts:

 

 

 

 

 

 

 

  Cash paid for amounts included in measurement of lease liabilities

 

$

587

 

$

404

 

Weighted average remaining lease term - operating leases (in years)

 

 

4.0

 

 

4.8

 

Weighted average discount rate - operating leases

 

 

8.0

%

 

9.1

%

On the maturity date, in addition to the payment of principal and accrued interest, the Company will be required to make a payment of 0.5% of the total amount borrowed under the Amended Credit Agreement and Guaranty unless the Company has already made such a payment in connection with an acceleration or prepayment of borrowings under the agreement. In the event the Company prepays all or part of the amounts borrowed under the Amended Credit and Guaranty prior to the maturity date, the Company will be subject to additional prepayment fees which decrease as the time to maturity decreases. The Amended Credit Agreement and Guaranty requires the Company to comply with a minimum liquidity covenant at all times and a minimum revenue covenant measured at the end of each fiscal quarter.

As of March 31,2020, the Company was in compliance with all covenants.

The annual principal31, 2021, future maturities of lease liabilities under the Company’s term loans as of March 31, 2020noncancelable operating leases are as follows:

 

2020

 

 

-

 

2021

 

 

-

 

2022

 

 

-

 

2023

 

 

42,582

 

Less: Discount on loans payable

 

 

(724

)

Long-term loans payable

 

$

41,858

 

 

 

Total Due

 

2021 (remaining 9 months)

 

 

1,772

 

2022

 

 

2,343

 

2023

 

 

2,380

 

2024

 

 

2,417

 

2025

 

 

515

 

Total payments

 

 

9,427

 

Less interest

 

 

(1,476

)

Total present value of lease payments

 

$

7,951

 

 

9. Commitments and Contingencies

Legal Matters

From time to time, the Company may become involved in various legal proceedings, including those that may arise in the ordinary course of business. On December 16, 2019, the Company settled a litigation with Engineered Medical Systems, Inc., or EMS, a former supplier of a component of our Precision Flow systems, whereby EMS agreed to pay the Company $0.65 million in a series of monthly payments through December 2021, and the both the Company and EMS agreed to release each from any other outstanding claims, which included $0.5 million of accounts payable the Company had previously recorded. The Rockingham Superior Court approved the parties’ stipulation of dismissal with prejudice on January 2, 2020. The Company believes there is no other litigation pending that could have, individually, or in the aggregate, a material adverse effect on the results of its operations or financial condition.

 

10. Warrants

The Company’sThere was 0 warrant activity is summarized as follows:during the three months ended March 31, 2021. The Company had outstanding warrants to purchase 33,948 shares of its common stock at a price of $14.00 per share at both March 31, 2021 and December 31, 2020.

 

 

 

Common Stock Warrants

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

Outstanding at December 31, 2019

 

 

182,076

 

 

$

14.84

 

Warrants granted

 

 

-

 

 

 

-

 

Warrants exercised

 

 

-

 

 

 

-

 

Outstanding at March 31, 2020

 

 

182,076

 

 

$

14.84

 

 

11. Revenue

2021


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

 

Disaggregated Revenue

The following table shows the Company’s net revenue disaggregated into categories the Company considers meaningful to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors:meaningful:

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

2020

 

 

2021

 

 

US

 

 

International

 

 

Total

 

 

US

 

 

International

 

 

Total

 

Net revenue by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Equipment

 

$

3,301

 

 

$

1,697

 

 

$

4,998

 

 

$

6,232

 

 

$

4,932

 

 

$

11,164

 

Disposable

 

 

9,694

 

 

 

2,736

 

 

 

12,430

 

 

 

12,461

 

 

 

4,695

 

 

 

17,156

 

Subtotal Product Revenue

 

 

12,995

 

 

 

4,433

 

 

 

17,428

 

 

 

18,693

 

 

 

9,627

 

 

 

28,320

 

Lease Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Equipment

 

 

627

 

 

 

17

 

 

 

644

 

 

 

1,577

 

 

 

33

 

 

 

1,610

 

Other

 

 

317

 

 

 

75

 

 

 

392

 

 

 

544

 

 

 

136

 

 

 

680

 

Service and Other Revenue

 

 

402

 

 

 

249

 

 

 

651

 

 

 

1,255

 

 

 

443

 

 

 

1,698

 

Total Revenue

 

$

14,341

 

 

$

4,774

 

 

$

19,115

 

Total Net Revenue

 

$

22,069

 

 

$

10,239

 

 

$

32,308

 

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

2019

 

 

2020

 

 

US

 

 

International

 

 

Total

 

 

US

 

 

International

 

 

Total

 

Net revenue by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Equipment

 

$

1,510

 

 

$

505

 

 

$

2,015

 

 

$

3,301

 

 

$

1,697

 

 

$

4,998

 

Disposable

 

 

7,547

 

 

 

1,472

 

 

 

9,019

 

 

 

9,694

 

 

 

2,736

 

 

 

12,430

 

Subtotal Product Revenue

 

 

9,057

 

 

 

1,977

 

 

 

11,034

 

 

 

12,995

 

 

 

4,433

 

 

 

17,428

 

Lease Revenue

 

 

663

 

 

 

-

 

 

 

663

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Equipment

 

 

627

 

 

 

17

 

 

 

644

 

Other

 

 

317

 

 

 

75

 

 

 

392

 

Service and Other Revenue

 

 

329

 

 

 

273

 

 

 

602

 

 

 

402

 

 

 

249

 

 

 

651

 

Total Revenue

 

$

10,049

 

 

$

2,250

 

 

$

12,299

 

Total Net Revenue

 

$

14,341

 

 

$

4,774

 

 

$

19,115

 

 

United States and International net revenue is based on the customer location to which the product is shipped. No individual foreign country represents more than 10% of the Company’s total net revenue.

Contract Balances from Contracts with Customers

Contract liabilities consist of deferred revenue and other contract liabilities associated with rebates and fees payable to GPOs, IDNs and distributor partners. Deferred revenues are included in accrued expenses and other liabilities in the accompanying consolidated balance sheets. The following table presents changes in contract liabilities during the three months ended March 31, 2020:2021:

 

 

Contract

Liabilities

 

 

Deferred

Revenue

 

 

Deferred

Revenue

 

 

Other Contract

Liabilities

 

Balance at December 31, 2019

 

$

137

 

 

$

344

 

Balance at December 31, 2020

 

$

2,518

 

 

$

459

 

Additions

 

 

175

 

 

 

195

 

 

 

1,361

 

 

 

326

 

Subtractions

 

 

(137

)

 

 

(97

)

 

 

(2,920

)

 

 

(459

)

Balance at March 31, 2020

 

$

175

 

 

$

442

 

Balance at March 31, 2021

 

$

959

 

 

$

326

 

 

2122


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

 

12. Stock-Based Compensation

Stock-based compensation expense was allocated based on the employees’ and non-employees’ functions as follows:

 

 

Three Months Ended

March 31,

 

 

Three Months Ended

March 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Cost of goods sold

 

$

71

 

 

$

111

 

 

$

176

 

 

$

71

 

Research and development

 

 

201

 

 

 

265

 

 

 

341

 

 

 

201

 

Sales and marketing

 

 

440

 

 

 

513

 

 

 

921

 

 

 

440

 

General and administrative

 

 

735

 

 

 

1,014

 

 

 

1,247

 

 

 

735

 

Total

 

$

1,447

 

 

$

1,903

 

 

$

2,685

 

 

$

1,447

 

 

Stock Options

 

The Company granted options to purchase 357,140 shares of common stock at exercise prices ranging from $23.01 to $35.51 per share, with a weighted average exercise price of $27.06 per share, during the three months ended March 31, 2021. The Company granted options to purchase 909,960 shares of common stock at exercise prices ranging from $10.60 to $12.28 per share, with a weighted average exercise price of $12.13 per share, during the three months ended March 31, 2020. The Company granted options to purchase 752,346 shares of common stock at exercise prices ranging from $16.34 to $17.15 per share, with a weighted average exercise price of $17.11 per share, during the three months ended March 31, 2019. The weighted average fair value of stock options granted during the three months ended March 31, 2021 and 2020 was $19.73 and 2019 was $8.93, and $11.59, respectively.

 

The weighted average assumptions used in the Black-Scholes options pricing model are as follows:

 

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Expected dividend yield

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

Risk free interest rate

 

 

1.8

%

 

 

2.5

%

 

 

0.5

%

 

 

1.8

%

Expected stock price volatility

 

 

87.6

%

 

 

75.5

%

 

 

88.3

%

 

 

87.6

%

Expected term (years)

 

 

6.1

 

 

 

6.1

 

 

 

6.1

 

 

 

6.1

 

 

Restricted Stock Units and Restricted Stock Awards

The Company has granted both restricted stock units and restricted stock awards.

A summary of restricted stock unit activity for the three months ended March 31, 20202021 is as follows:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Unvested at December 31, 2019

 

 

229,913

 

 

$

3.76

 

Granted/purchased

 

 

36,367

 

 

 

10.40

 

Vested

 

 

(40,931

)

 

 

3.30

 

Canceled

 

 

-

 

 

 

-

 

Unvested at March 31, 2020

 

 

225,349

 

 

$

4.65

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Unvested at December 31, 2020

 

 

228,489

 

 

$

25.60

 

Granted

 

 

169,096

 

 

 

27.53

 

Vested

 

 

(1,921

)

 

 

22.35

 

Canceled

 

 

(2,050

)

 

 

12.74

 

Unvested at March 31, 2021

 

 

393,614

 

 

$

26.52

 

 

Employee Stock Purchase Plan

In connection with our initial public offering in November 2018, the Company’s board of directors adopted the ESPP and a total of 166,500 shares of common stock were initially reserved for issuance under the ESPP. The number of shares of common stock available for issuance under the ESPP is increased on the first day of each calendar year beginning January 1, 2019 and each year thereafter until 2028 by the lessor of (i) 1% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, and (ii) the number of shares of common stock determined by the Company’s board of directors up to such an initial maximum of 1,741,300 shares of common stock. The number of shares of common stock reserved under the plan at March 31, 2020 totals 548,437.

2223


VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

 

A summary of restricted stock award activity for the three months ended March 31, 2021 is as follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Unvested at December 31, 2020

 

 

103,650

 

 

$

1.68

 

Granted/purchased

 

 

-

 

 

 

-

 

Vested

 

 

(27,778

)

 

 

1.68

 

Canceled

 

 

-

 

 

 

-

 

Unvested at March 31, 2021

 

 

75,872

 

 

$

1.68

 

Employee Stock Purchase Plan

The ESPP provides for successive discreetdiscrete offering periods of approximately six months or as determined by the plan administrator. TheOffering periods begin on each November 15th and May 15th or the first offering period began on January 2, 2020 and has not yet concluded as of March 31, 2020. As a result, the Company has not yet issued any shares of common stock pursuant to the ESPP in any period.trading day thereafter.

The ESPP permits eligible employees to elect to purchase shares of common stock through fixed whole percentage contributions from eligible compensation during each offering period, not to exceed 10% of the eligible compensation a participant receives during an offering period and not to accrue at a rate which exceeds $25,000 of the fair value of the stock (determined on the grant date(s)) for each calendar year. A participant may purchase the lower of (a) a number of shares of common stock determined by dividing such participant’s accumulated payroll deductions on the exercise date by the option price, (b) 5,000 shares;shares, or (c) such other lesser maximum number of shares as shall have been established by the plan administrator.

 

Amounts deducted and accumulated by the participant will be used to purchase shares of common stock at the end of each offering period. The purchase price of the shares will be 85% of the lower of the fair value of common stock on the first trading day of each offering period or on the purchase date. Participants may end their participation during an offering period up to ten days in advance of the exercise date and will be paid their accumulated contributions that have not been used to purchase shares of common stock. Participation ends automatically upon termination of employment.

The fair value of the purchase right for the ESPP option is estimated on the date of grant using the Black-Scholes model with the following assumptions for the initial offering period:

Expected dividend yield

0.0

%

Risk free interest rate

1.6

%

Expected stock price volatility

107.9

%

Expected term (years)

0.4

 

13. Net Loss Per Share

 

The Company excluded the following potential common shares, based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

 

As of March 31,

 

 

As of March 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Options to purchase common stock

 

 

1,897,617

 

 

 

1,515,671

 

 

 

2,009,646

 

 

 

1,897,617

 

Unvested restricted stock units and awards

 

 

469,486

 

 

 

225,349

 

Warrants to purchase common stock

 

 

182,076

 

 

 

250,085

 

 

 

33,948

 

 

 

182,076

 

Unvested restricted stock

 

 

225,349

 

 

 

353,371

 

Employee stock purchase plan shares

 

 

21,086

 

 

-

 

 

 

63,581

 

 

 

21,086

 

 

 

2,326,128

 

 

 

2,119,127

 

 

 

2,576,661

 

 

 

2,326,128

 

 

14. Related Party Transactions

See Note 8 for a discussion of the Company’s Amended Credit Agreement and Guaranty and related transactions with Perceptive, a holder of more than 5% of the Company’s common stock.

 

 


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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements for the fiscal quarter ended March 31, 2020,2021, included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the “Risk Factors” section of our 20192020 Form 10-K filed with the SEC on March 4, 2020, our Form 8-K filed with the SEC on April 13, 2020, February 24, 2021 and this Quarterly Report on Form 10-Q.

Vapotherm is a global medical technology company primarily focused on the development and commercialization of our proprietary Hi-VNI TechnologyHigh Velocity Therapy products that are used to treat patients of all ages suffering from respiratory distress. Our Hi-VNI Technology deliversHigh Velocity Therapy products deliver non-invasive ventilatory support by providing heated, humidified and oxygenated air at a high velocity to patients through a comfortable small-bore nasal interface. Our Precision Flow systems, which use Hi-VNI Technology,High Velocity Therapy technology, are clinically validated alternatives to, and address many limitations of, the current standard of care for the treatment of respiratory distress in a hospital setting. As of March 31, 2020,2021, more than 2.22.8 million patients have been treated with our Precision Flow systems, and we have a global installed base of over 17,00030,000 capital units.units.

The efficacy of Vapotherm’sour products is supported by a significant body of clinical evidence across multiple patient populations suffering from respiratory distress. We have developed the only high velocity nasal insufflation device clinically validated as an alternative to be as effective as non-invasive positive pressure ventilation, or NIPPV,NiPPV while addressing many of its limitations, including throughevidenced in part by our sponsored 204 patient, multisite randomized controlled trial in the emergency department, or ED which was published in the July 2018 issue of Annals of Emergency Medicine. Additionally, inIn April 2020 Heart and Lung, the Journal of Cardiopulmonary and Acute Care, published a subgroup analysis from this ED study that showed Hi-VNI TechnologyHigh Velocity Therapy may provide ventilatory support similar to NIPPVNiPPV in patients presenting with acute hypercapnic respiratory failure.

Vapotherm’s Hi-VNI Technology is In February 2021, Critical Care Explorations published a first-line therapymulti-center, prospective observational case study that showed High Velocity Therapy was an effective tool for treatingreducing the respiratory distress, which is experienced by many COVID-19 patients. The Journal of the American Medical Association published data from mainland Chinarate in AprilCOPD patients with acute hypercapnic respiratory failure.

Our business was significantly transformed during 2020 suggesting that 19% of all COVID-19 patients experience respiratory distress and require some amount of respiratory support. Our hospital customers around the world are using our technologydue to treat the respiratory distress experienced by many COVID-19 patients so that they can triage their sickest patients to a limited number of ventilators. As a result, we have seen a significant increase inincreased demand for our productsHigh Velocity Therapy technology for treatment of COVID-19 patients, as evidenced by year over year revenue growth of 161.4% from both new and existing accounts, initially in Europe and the Middle East, and then later during2019 to 2020. For the first quarter of 2020,2021, our net revenues grew by 55.4% over the same period in the United States. Our operations team, with support from our primarily domestic supply chain, has more than tripled its production capacity, including adding additional shifts and production lines, and2020. In addition, our worldwide installed base of Precision Flow Hi-VNI systems grew twice as fast inby 72.5% compared to the first quarter of 2020 than2020. The COVID-19 pandemic contributed to this transformation in at least two primary ways: First, it didresulted in increased awareness of high flow therapy, including recognition by the CDC, WHO, NIH, Society for Critical Care Medicine, American College of Emergency Physicians, and the Chinese, German, Italian, and Australian thoracic societies of high flow therapy as an appropriate first line therapy for those suffering from low oxygen levels. Second, many respiratory distress patients who require ventilatory support are initially treated in a hospital’s ED with the goal of stabilizing these patients with a non-invasive ventilation therapy so their underlying condition can be treated. Our existing focus on hospital emergency departments as an effective entry point for our products resulted in our systems being in the first quarterright place at the right time when the COVID-19 pandemic hit. This exposed a significant number of 2019. Looking ahead,new physicians to the efficacy of our focus is on managingHigh Velocity Therapy technology, especially as they were able to see patients moved out of the emergency room and into lower acuity settings in the hospital after receiving our supply chain to sustainHigh Velocity Therapy. We expect that increased awareness among physicians of the current production level, and potentially increasing it further, however, COVID-19 also represents both gross margin head winds, such as increases in air freight costs, expedite fees for components, and a higher mixefficacy of capital equipment and international revenue, and many risks to our business, so the full extent of its impact will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actionsHigh Velocity Therapy to treat patients in respiratory distress, whether they are hypoxic or contain COVID-19 or to otherwise limit its impact, among others.hypercapnic, will result in expanded use of our products in a variety of settings.

 

We currently offer four versions of our Precision Flow systems: Precision Flow Hi-VNI, Precision Flow Plus, Precision Flow Classic and Precision Flow Heliox. We also initiated a limited releaseIn certain countries outside of the United States we currently offer our Oxygen Assist Module, to certainwhich was fully launched in the United Kingdom, accountsselect European markets, and Israel in February 2020 and we may expand that limited release to certain European accounts in the future. We also plan on offering the Oxygen Assist Module to some of our European customers for use with their adult hypoxic COVID-19 patients in the coming months. In the United States, the Oxygen Assist Module was granted Breakthrough Device Designation by the United States Food and Drug Administration, or FDA, on April 2, 2020 for on-demand titration of oxygen into warm humidified breathing gases delivered to spontaneously breathing patients based on continuous non-invasive monitoring of blood oxygen saturation. We are continuing to work on an Investigational Device Exemption and, if authorized, plan to initiate a neonate study by the end of the year.late 2020. The Oxygen Assist Module is designed tocan be used with all versions of our Precision Flow systems except for the Precision Flow Heliox. OurThe Oxygen Assist Module is designed to help clinicians maintain thea patient’s pulse oxygen saturation or SpO2,(“SpO2”) within thea target SpO2 range over a significantly greater proportionperiod of time while requiring significantly fewer manual adjustments to the equipment. Maintenance of the prescribed oxygen saturation range may reduce the health risks associated with dosing too much, or too little, oxygen, such asoxygen. In neonates, these risks include visual or developmental impairment or death.

In February 2021, we upgraded the software on approximately 45 Oxygen Assist Module units outside of the United States from software version 2.2.0 to software version 2.5.0. Subsequently, a bug in software version 2.5.0 was discovered by one of our employees. Although there have been no reports of patient injury associated with this bug and mortalitywe believe risk of patient injury is unlikely, out of an abundance of caution, we immediately notified our users and undertook a field action to remove software version


2.5.0 from all upgraded units and downgrade these units to software version 2.2.0 until the issue is resolved. All software downgrades have been completed.

The Oxygen Assist Module was granted Breakthrough Device Designation by the FDA on April 2, 2020 for the following indication:Oxygen Assist Module is an optional module used only with the Vapotherm Precision Flow and is indicated for on-demand titration of oxygen into warm humidified breathing gases delivered to spontaneously breathing patients based on continuous non-invasive monitoring of pulse oxygen saturation. Oxygen Assist Module is intended to treat pediatric patients (neonates and infants ≥1000g) in neonates.monitored clinical environments (e.g., the NICU). We intendare continuing to fully launchwork with FDA through the Breakthrough Device program to make our Oxygen Assist Module available in the United States, with the first step being an investigational device exemption for pediatric evaluation of the Oxygen Assist Module commercially throughoutin the United KingdomStates. Our IDE clinical study was approved on April 29, 2021. We expect to begin enrollment in this clinical study later in the second quarter of 2021.

We are also in the process of seeking FDA clearance for our High Velocity Therapy 2.0 (“HVT 2.0”) as the next generation of our Precision Flow system. Subject to receipt of FDA clearance, the HVT 2.0 is targeted to be released in the United States in the second half of 2021. The HVT 2.0 represents the next generation of High Velocity Therapy. The system retains the core competencies of the current Precision Flow platform and, Europe bywith an internal blower, is designed to eliminate the endneed for wall air. With a variable oxygen connection (tank, wall or concentrator) the HVT 2.0 system is designed to support patients wherever they need respiratory support, including outside of 2020, at whichthe hospital in a home or future use in a field transport setting. A large intuitive display with touchscreen operation, on screen troubleshooting guidance, and a fully assembled disposable are designed to minimize clinician time we believe we will begin generating revenuespent on operating the equipment so they can focus on their patient. Despite not yet having received 510(k) clearance from the product.FDA, on February 12, 2021, the FDA notified us that, under FDA Emergency Use Authorization (“EUA”) issued on March 24, 2020, the HVT 2.0 was authorized for emergency use in healthcare settings to treat patients during the COVID-19 pandemic, subject to the conditions set forth in the EUA. We recently received a positive assessment from our Notified Body for the HVT 2.0, allowing us to affix the CE mark and sell HVT 2.0 in the European Union. As a result, we expect to initiate a limited market release in certain European countries in the second quarter of 2021 before moving to a full market release in the second half of 2021.

We generateHistorically, we have generated revenue primarily from sales of the disposable products utilized with our proprietary Precision Flow systems. We also generate revenuesystems and our Oxygen Assist Module, and to a lesser extent, from the sale or lease of the capital units themselves. We offer different optionsHowever, due to demand for our hospital customers for acquiringHigh Velocity Therapy technology during the COVID-19 pandemic, we generated revenue primarily from sales of our Precision Flow capital units, ranging fromsystems in 2020, which although putting pressure on our margins also resulted in a 72.8% increase in our installed base, which we expect will drive future recurring disposable revenue. The extent to which the purchaseCOVID-19 pandemic will impact our business during 2021 and beyond will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and variants of the Precision Flow capital units with payment in full atvirus, and the timeactions taken to treat or contain COVID-19 or to otherwise limit its impact, the availability and effectiveness of purchase,vaccines, among other factors. For example, as COVID-19 hospitalizations continue to financed


purchasesdecrease and vaccinations continue to increase, we expect our product mix to normalize back to historical levels and the overall demand for our products may be negatively impacted. Also, worldwide precautionary measures taken to reduce the spread of the Precision Flow capital units,COVID-19 infections, have impacted, and may continue to bundled discounts involving the placement of Precision Flow capital units for use by the customer at no upfront charge in connection with the customer’s ongoing purchase of disposable products.impact, flu and flu-related illnesses, which could negatively impact our future revenue.

We sell our Precision Flow systems to hospitals through a direct sales organization in the United States and in the United Kingdom and we sell our Precision Flow systems through distributors in other select countries outside of the United States and the United Kingdom. We intend to fully launch ourOur Oxygen Assist Module commercially throughout the United Kingdom and Europe by the end of 2020is sold through a direct sales organization in the United Kingdom and through distributors in other select countriesEurope and the Middle East. We expanded the commercial launch of our Oxygen Assist Module throughout the United Kingdom, Europe, and the Middle East in Europe.the first quarter of 2021. In addition, we haveemploy field-based clinical educators who are experienced users of Hi-VNI Technology and who focus on our medical education efforts toand training in the effective use of our products and help facilitate increased adoption and increase utilization. We focus on physicians, respiratory therapists and nurses who work in acute hospital settings, including the ED and adult, pediatric and neonatal ICUs. Our relationship with these clinicians is particularly important, as it enables our products to follow patients through the care continuum. WeAs of March 31, 2021, we have sold our Precision Flow systems to over 1,6001,700 hospitals across the United States, where they have been primarily deployed in the ICU setting.

We assemble our Precision Flow systems in our facility in New Hampshire and we rely on third-party suppliers for a majority of the components of our products, including many single source suppliers. Historically, we maintained higher levels of inventory to protect ourselves from supply interruptions, and, as a result, we were subject to the risk of inventory obsolescence and expiration, which could lead to inventory impairment charges. However, currently, as we seek to fulfill increased demand in connection with the COVID-19 public health emergency, we are not able to carry higher levels of inventory, and as a result, we have experienced and may continue to experience supply interruptions. We currently ship our Precision Flow systems from our facility in New Hampshire directly to our United States customers and many of our international distributors on a purchase order basis. Warehousing and shipping operations for some of our international distributors are handled by a third-party vendor with facilities located in the Netherlands. While our customers have the right to return purchased products subject to a restocking fee, our historical return experience has been immaterial. However, although we have priority shipping status with our carriers, as a result of the COVID-19 public health emergency, we recently have experienced shipping delays throughout the United States and internationally, and as a result, there have been and may continue to be delays in our ability to ship our product to customers and distributors in a timely manner, which may potentially result in a greater percentage of returned product than we have historically experienced.

Since inception, we have financed our operations primarily through public offeringssales of our common stock, private placements of our convertible preferred stock,equity securities, sales of our Precision Flow systems and their associated disposables, and amounts borrowed under our credit facilities. We have devoted the majority of our resources to research and development activities related to our Precision Flow systems, Oxygen Assist Module and HVT 2.0, including regulatory initiatives and sales and marketing activities. We have invested heavily in our sales and marketing function by increasing the number of sales representatives and clinical educators to facilitate adoption and increase utilization of our Hi-VNI TechnologyHigh Velocity Therapy products and expanded our digital marketing initiatives and medical education programs. Forprograms, including our Vapotherm Academy which was instrumental during the pandemic and used to train more than 28,000 caregivers during 2020 and the first quarter of 2020, we generated revenue of $19.1 million and had a net loss of $13.8 million compared to revenue of $12.3 million and a net loss of $13.0 million for the first quarter of 2019. Our accumulated deficit as of March 31, 2020 was $279.3 million. In the first quarter of 2020, 75.0% of our revenue was derived in the United States and 25.0% was derived outside the United States. No single customer accounted for more than 10% of our revenue.2021.


We intend to continue to make significant investments in our sales and marketing organization by increasing the number of U.S. sales representatives, expanding the number of clinical educators internationally along with our international marketing programs and expanding worldwide direct to clinician digital marketing efforts to help facilitate further adoption among existing hospital accounts as well as broaden awareness of our products to new hospitals. We also expect to continue to make investments in research and development, regulatory affairs and clinical studies to develop future generations of our Hi-VNI TechnologyHigh Velocity Therapy products, support regulatory submissions and demonstrate the clinical efficacy of our new products. In addition, as we seek to maintain our current increased production capacity, and explore further expansion thereof to satisfy COVID-19 related demand, we expect to continue to make investments in our production capabilities.capabilities related to future generations of High Velocity Therapy products. Because of these and other factors, we expect to continue to incur net losses for the next several years and we expect to require additional funding, which may include future equity including sales under our at-the-market sales agreement with Jefferies LLC dated March 20, 2019 under which we may offer and sell from time to time our common stock having aggregate sales proceeds of up to $50.0 million, and debt financings.

Results of Operations

 


 

 

Three Months Ended March 31,

 

 

 

 

2021

 

 

2020

 

 

 

 

(in thousands)

Net revenue

 

$

32,308

 

 

$

19,115

 

 

Cost of revenue

 

 

15,140

 

 

 

9,898

 

 

Gross profit

 

 

17,168

 

 

 

9,217

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,910

 

 

 

3,362

 

 

Sales and marketing

 

 

13,900

 

 

 

13,317

 

 

General and administrative

 

 

8,059

 

 

 

5,251

 

 

Total operating expenses

 

 

26,869

 

 

 

21,930

 

 

Loss from operations

 

 

(9,701

)

 

 

(12,713

)

 

Other expense, net

 

 

(706

)

 

 

(1,131

)

 

Net loss

 

$

(10,407

)

 

$

(13,844

)

 

Results of Operations

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

2019

 

 

 

 

(in thousands)

Net revenue

 

$

19,115

 

 

$

12,299

 

 

Cost of revenue

 

 

9,898

 

 

 

7,120

 

 

Gross profit

 

 

9,217

 

 

 

5,179

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,362

 

 

 

3,273

 

 

Sales and marketing

 

 

13,317

 

 

 

9,161

 

 

General and administrative

 

 

5,251

 

 

 

4,879

 

 

Total operating expenses

 

 

21,930

 

 

 

17,313

 

 

Loss from operations

 

 

(12,713

)

 

 

(12,134

)

 

Other expense, net

 

 

(1,131

)

 

 

(830

)

 

Net loss

 

$

(13,844

)

 

$

(12,964

)

 

 

Revenue

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

 

2021

 

 

2020

 

 

Change

 

 

(in thousands, except percentages)

 

 

 

 

 

 

 

 

 

 

(in thousands, except percentages)

 

 

 

 

 

 

 

 

 

 

Amount

 

 

% of Revenue

 

 

Amount

 

 

% of Revenue

 

 

$

 

 

%

 

 

Amount

 

 

% of Revenue

 

 

Amount

 

 

% of Revenue

 

 

$

 

 

%

 

Product Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Equipment

 

$

4,998

 

 

 

26.2

%

 

$

2,015

 

 

 

16.4

%

 

$

2,983

 

 

 

148.0

%

 

$

11,164

 

 

 

34.6

%

 

$

4,998

 

 

 

26.2

%

 

$

6,166

 

 

 

123.4

%

Disposable

 

 

12,430

 

 

 

65.0

%

 

 

9,019

 

 

 

73.3

%

 

 

3,411

 

 

 

37.8

%

Disposables

 

 

17,156

 

 

 

53.1

%

 

 

12,430

 

 

 

65.0

%

 

 

4,726

 

 

 

38.0

%

Subtotal Product Revenue

 

 

17,428

 

 

 

91.2

%

 

 

11,034

 

 

 

89.7

%

 

 

6,394

 

 

 

57.9

%

 

 

28,320

 

 

 

87.7

%

 

 

17,428

 

 

 

91.2

%

 

 

10,892

 

 

 

62.5

%

Lease Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Equipment

 

$

644

 

 

 

3.4

%

 

$

663

 

 

 

5.4

%

 

$

(19

)

 

 

(2.9

)%

 

$

1,610

 

 

 

5.0

%

 

$

644

 

 

 

3.4

%

 

$

966

 

 

 

150.0

%

Other

 

 

392

 

 

 

2.0

%

 

 

-

 

 

-

 

 

 

392

 

 

 

100.0

%

 

 

680

 

 

 

2.1

%

 

 

392

 

 

 

2.0

%

 

 

288

 

 

 

73.5

%

Service and Other Revenue

 

 

651

 

 

 

3.4

%

 

 

602

 

 

 

4.9

%

 

 

49

 

 

 

8.1

%

 

 

1,698

 

 

 

5.2

%

 

 

651

 

 

 

3.4

%

 

 

1,047

 

 

 

160.8

%

Total Revenue

 

$

19,115

 

 

 

100.0

%

 

$

12,299

 

 

 

100.0

%

 

$

6,816

 

 

 

55.4

%

Total Net Revenue

 

$

32,308

 

 

 

100.0

%

 

$

19,115

 

 

 

100.0

%

 

$

13,193

 

 

 

69.0

%

 

RevenueNet revenue increased $6.8$13.2 million, or 55.4%69.0%, to $32.3 million for the first quarter of 2021 compared to $19.1 million for the first quarter of 2020 compared to $12.3 million for the first quarter of 2019.2020. The increase in net revenue was primarily attributable to a $3.4$6.2 million and $3.0$4.7 million increase in disposable revenuecapital equipment and capital equipmentdisposable revenue, respectively. Capital equipment revenue increased 148.0%123.4% in the first quarter of 20202021 primarily due to increased sales of our Precision Flow units as a result of increased demand related to the COVID-19 pandemic and increased average selling prices in the United States and increased demand due to COVID-19.States. Disposable revenue increased 37.8%38.0% in the first quarter of 20202021 primarily driven by an increase in the worldwide installed base of Precision Flow units, and increased utilizationhigher volume due to COVID-19.the COVID-19 pandemic and higher average selling prices in the United States. Lease revenue also increased primarily due to a higher volume of leases of our Precision Flow units and, to a lesser extent, due to higher utilization of disposables for Precision Flow units under placement arrangements. The increase in service and other revenue in the first quarter of 2021 is primarily the result of HGE revenue as a result of the acquisition in the fourth quarter of 2020.


RevenueNet revenue information by geography is summarized as follows:

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

 

2021

 

 

2020

 

 

Change

 

 

(in thousands, except percentages)

 

 

 

 

 

 

 

 

 

 

(in thousands, except percentages)

 

 

 

 

 

 

 

 

 

 

Amount

 

 

% of Revenue

 

 

Amount

 

 

% of Revenue

 

 

$

 

 

%

 

 

Amount

 

 

% of Revenue

 

 

Amount

 

 

% of Revenue

 

 

$

 

 

%

 

United States

 

$

14,341

 

 

 

75.0

%

 

$

10,049

 

 

 

81.7

%

 

$

4,292

 

 

 

42.7

%

 

$

22,069

 

 

 

68.3

%

 

$

14,341

 

 

 

75.0

%

 

$

7,728

 

 

 

53.9

%

International

 

 

4,774

 

 

 

25.0

%

 

 

2,250

 

 

 

18.3

%

 

 

2,524

 

 

 

112.2

%

 

 

10,239

 

 

 

31.7

%

 

 

4,774

 

 

 

25.0

%

 

 

5,465

 

 

 

114.5

%

Total Revenue

 

$

19,115

 

 

 

100.0

%

 

$

12,299

 

 

 

100.0

%

 

$

6,816

 

 

 

55.4

%

Total Net Revenue

 

$

32,308

 

 

 

100.0

%

 

$

19,115

 

 

 

100.0

%

 

$

13,193

 

 

 

69.0

%

 


Revenue generated in the United States increased $4.3$7.7 million, or 42.7%53.9%, to $22.1 million for the first quarter of 2021, compared to $14.3 million for the first quarter of 2020, compared to $10.0 million for the first quarter of 2019.2020. Revenue generated in our International markets increased $2.5$5.5 million, or 112.2%114.5%, to $10.2 million for the first quarter of 2021, compared to $4.8 million for the first quarter of 2020, compared to $2.3 million for the first quarter of 2019.2020. Both United States and International revenue growth was primarily driven by an increase in single-usethe number of Precision Flow units sold period over period due to the COVID-19 pandemic and an increase in disposable sales due to higher installed bases of Precision Flow units and increased utilization as well asunits. Revenue growth in the United States was also driven by an increase in average selling prices on capital equipment and disposables for the numberfirst quarter of Precision Flow units sold year over year due2021 compared to COVID-19.the first quarter of 2020.

Cost of Revenue and Gross Profit

 

Cost of revenue increased $2.8$5.2 million, or 39.0%53.0%, to $15.1 million in the first quarter of 2021 compared to $9.9 million in the first quarter of 2020 compared to $7.1 million in the first quarter of 2019. These increases were2020. This increase was primarily due to higher materials and labor costs due to increasedan increase in sales volumes of our Precision Flow units and disposables in order to meet demand related to the COVID-19 demand.pandemic.

 

Gross profit increased to 53.1% in the first quarter of 2021 compared to 48.2% in the first quarter of 2020 compared to 42.1% in the first quarter of 2019. 2020. Gross profit was positively impacted by improved overhead and labor absorption due to higher production capacity and reduced scrap costs due to improved quality control. Partially offsetting these positive factors werevolumes, partially offset by higher labor costs, and increased supplier freight and expediting fees to meet the rapid increase in production capacity, and to a lesser extent a higher mix of capital equipment and International revenue.Precision Flow system sales. Gross profit was also positively impacted by higher average selling prices of capital equipment and disposables in the United States, and capital equipment in International markets, partially offset by lower average selling prices of capital equipment in the United States and disposables in International markets.

Research and Development Expenses

Research and development expenses increased $0.1$1.5 million, or 2.7%46.0%, to $4.9 million in the first quarter of 2021 compared to $3.4 million in the first quarter of 2020 compared to $3.3 million in the first quarter of 2019.2020. As a percentage of revenue, research and development expenses decreased to 15.2% in the first quarter of 2021 compared to 17.6% in the first quarter of 2020 compared2020. The increase in research and development expenses was due to 26.6%increased product development, prototype, and patent-related costs associated with the development of our future generation High Velocity systems and increased employee-related expenses and stock-based compensation.

Sales and Marketing Expenses

Sales and marketing expenses increased $0.6 million, or 4.4%, to $13.9 million in the first quarter of 2019. Research and development expenses were consistent year over year as increased development costs for the Oxygen Assist Module and the Next Generation Hi-VNI system in the first quarter of 2020 were largely offset by the completion of our ProSoft cannulas and Aerosolized Disposable Patient Circuit which were launched in the first quarter of 2020.

Sales and Marketing Expenses

Sales and marketing expenses increased $4.2 million, or 45.4%,2021 compared to $13.3 million in the first quarter of 2020 compared to $9.2 million in the first quarter of 2019.2020. As a percentage of revenue, sales and marketing expenses decreased to 43.0% in the first quarter of 2021 compared to 69.7% in the first quarter of 2020 compared to 74.5% in the first quarter of 2019.2020. The increase in sales and marketing expenses werewas primarily due to increased sales commissionsemployee-related expenses as a result of increased revenue along with increasesan increase in the size of the sales and marketing organization. The increase in salesorganization and marketing expenses wasincreased stock-based compensation, partially offset by a reduction in travel expenses and certain marketing initiatives, such as trade shows, due to COVID-19.the COVID-19 pandemic.

General and Administrative Expenses

General and administrative expenses increased $0.4$2.8 million, or 7.6%53.5%, to $8.1 million in the first quarter of 2021 compared to $5.3 million in the first quarter of 2020 compared to $4.9 million in the first quarter of 2019.2020. As a percentage of revenue, general and administrative expenses decreased to 24.9% in the first quarter of 2021 compared to 27.5% in the first quarter of 2020 compared to 39.7% in the first quarter of 2019.2020. The increase in general and administrative expenses was primarily due to increases in employee-related expenses, stock-based compensation, audit and compliance related costs, changes in the value of contingent consideration, and increased insurance, legal costs, bank services charges and reserves for bad debtrent, partially offset by a reduction in stock-based compensation and travel expenses.reserves for uncollectible accounts receivable.


Other Expense, Net

Other expense, net increased $0.3decreased $0.4 million, or 36.3%37.6%, to $0.7 million in the first quarter of 2021 compared to $1.1 million in the first quarter of 2020 compared2020. The decrease in other expense, net was primarily due to $0.8 milliona decrease in interest expense due to lower average interest rates on outstanding borrowings in the first quarter of 2019. The increase in other expense, net was due to an increase in interest expense related to additional borrowings under our credit facilities and, to a lesser extent, a decrease in interest income due to lower interest rates in the first quarter of 20202021 compared to the first quarter of 2019.2020.


Liquidity and Capital Resources

As of March 31, 2020,2021, we had cash, cash equivalents and restricted cash of $62.2$94.1 million and an accumulated deficit of $279.3$327.4 million. Our primary sources of capital to date have been from public offeringssales of our common stock, private placements of our convertible preferred stock,equity securities, sales of our Precision Flow systems and their associated disposables and amounts borrowed under credit facilities. Since inception, we have raised a total of $162.6 million in net proceeds from private placementssales of our convertible preferred stock. On November 16, 2018, we completed an initial public offering of 4,600,000 shares of common stock at a price of $14.00 per share, which raised net proceeds of $57.4 million. In August 2019, we completed a public offering of 3,570,750 shares of common stock, which included the full exercise by the underwriters of their option to purchase 465,750 shares of common stock, at a price of $14.50 per share, which raised net proceeds of $48.3 million after deducting the underwriting discount of $3.1 million and offering expenses of $0.4 million. Subsequent to March 31, 2020, we have raised gross proceeds of $10.2 million, or $9.9 million net of commissions, through our ATM Agreement.

As of March 31, 2020, we had $4.5 million of outstanding borrowings and $2.3 million availability under the Amended Revolver Agreement. As of March 31, 2020, we had $42.6 million of term debt outstanding under our Credit Agreement and Guaranty.equity securities.

We believe that our existing cash resources and availability under our line of creditrevolving facility described below will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months. If these sources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or make additional borrowings under our existing line of credit facility or enter new debt financing arrangements. If we raise additional funds by issuing equity securities, our stockholders would experience dilution. DebtAdditional debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Additional financing may not be available at all or may be available only in amounts or on terms unacceptable to us. If we are unable to obtain additional financing, we may be required to delay the development, commercialization and marketing of our Precision Flow systems.products and services.

Cash Flows

The following table presents a summary of our cash flows for the periods indicated:

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

(in thousands)

 

 

(in thousands)

 

Net cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

(10,722

)

 

$

(9,831

)

 

$

(19,962

)

 

$

(10,722

)

Investing activities

 

 

(1,558

)

 

 

(2,688

)

 

 

(2,256

)

 

 

(1,558

)

Financing activities

 

 

1,035

 

 

 

11,015

 

 

 

761

 

 

 

1,035

 

Effect of exchange rate changes on cash, cash equivalents

and restricted cash

 

 

(17

)

 

 

-

 

Net decrease in cash, cash equivalents and restricted cash

 

$

(11,262

)

 

$

(1,504

)

Effect of exchange rate on cash, cash equivalents and restricted cash

 

 

2

 

 

 

(17

)

Net increase in cash, cash equivalents and restricted cash

 

$

(21,455

)

 

$

(11,262

)

 

Operating Activities

The net cash used in operating activities was $20.0 million in the first quarter of 2021 and consisted primarily of a net loss of $10.4 million and an increase in net operating assets of $14.3 million partially offset by $4.7 million in non-cash charges. Non-cash charges consisted primarily of stock-based compensation expense and depreciation and amortization expense.

The net cash used in operating activities was $10.7 million in the first quarter of 2020 and consisted primarily of a net loss of $13.8 million, partially offset by $2.7 million in non-cash charges and a decrease of $0.4 million in net operating assets. Non-cash charges consisted primarily of stock-based compensation expense and depreciation and amortization expense.

The net cash used in operating activities was $9.8 million in the first quarter of 2019 and consisted primarily of a net loss of $13.0 million, offset by $2.6 million in non-cash charges and a decrease of $0.6 million in net operating assets. Non-cash charges consisted primarily of stock-based compensation expense and depreciation and amortization expense.

Investing Activities

Net cash used in investing activities for the first quarter of 20202021 and 20192020 consisted of purchases of property and equipment of $2.3 million and $1.6 million, and $1.1respectively.

Financing Activities

Net cash provided by financing activities was $0.7 million respectively. In addition, the net cash used in investing activities in the first quarter of 2019 included $1.6 million to acquire Solus.


Financing Activities2021 and consisted of proceeds received from the exercise of stock options.

Net cash provided by financing activities was $1.0 million in the first quarter of 2020 and consisted primarily of borrowings of $1.0 million under our short-term line of credit.

Net cash provided by financing activities was $11.0 million in the first quarter of 2019 and consisted of borrowings of $11.3 million under our credit facilities offset by $0.3 million in debt issuance costs.


 

IndebtednessCredit Facilities

Revolving Line of Credit

In November 2016,On October 21, 2020, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Canadian Imperial Bank of Commerce Innovation Banking (“CIBC”) which provides for a revolving loan facility of $12.0 million (the “Revolving Facility”) and a term loan facility of $40.0 million (the “Term Facility” and, together with the Revolving Facility, the “Facilities”). The proceeds of the Facilities were used to repay our former term loan facility and revolving line of credit, which provided for $7.0are described in more detail below. As of March 31, 2021, we had $4.9 million and $40.0 million of available borrowings.outstanding borrowings under our Revolving Facility and Term Facility, respectively.

The Revolving Facility will mature on October 21, 2022 and may be renewed on an annual basis thereafter by mutual agreement of us and CIBC. The Revolving Facility bears interest at a floating rate per annum equal to the Wall Street Journal (“WSJ”) Prime Rate plus 1.0% and is subject to a floor of 3.25%. At March 31, 2021, the interest rate was 4.25%. The outstanding balance under the Revolving Facility was $4.9 million at March 31, 2021 and there were letters of credit of $1.2 million outstanding at March 31, 2021. Availability under the Revolving Facility is calculateddetermined based upon 80% of theon eligible receivables (netreduced by letters of pre-paid deposits, pre-billed invoices, other offsets, and contras relatedcredit outstanding. At March 31, 2021, there were no additional borrowings available under the Revolving Facility.

The Term Facility will mature on October 21, 2025. Advances under the Term Facility bear interest at a floating rate equal to each specific account debtor).

Interest is paid monthly on the average outstanding balance at the Wall Street JournalWSJ Prime Rate plus 1.75%, floating,2.5% and is subject to a floor of 3.5%3.25%. TheAt March 31, 2021, the interest rate was 5.25% at March 31, 2020.

On April 6, 2018, we amended and restated the Revolving Facility (the “Amended Revolving Facility”) to primarily extend the maturity date from September 30, 2018 to September 30, 2020 and increase the revolving line of credit to $7.5 million. On March 22, 2019, we amended and restated the Amended Revolving Facility, which increased the allowable permitted indebtedness under the agreement in connection with our credit card program from $0.3 million to $0.5 million.

5.75%. The outstanding balance under the Amended Revolving Facility, as amended, was $4.5$40.0 million at March 31, 2020. 2021. The remaining amount availableLoan Agreement provides for interest-only payments on the Term Facility for the first 36 months through October 21, 2023. Thereafter, amortization payments on the Term Facility will be payable monthly in 24 equal installments. The Term Facility may not be prepaid prior to borrow basedOctober 21, 2021 without prepaying all of the interest that otherwise would have been payable on eligible receivables was $2.3 million at March 31, 2020.the Term Facility during the period commencing on October 21, 2020 and ending on October 21, 2021, plus a prepayment charge of 2.0%. Thereafter, the Term Facility may be prepaid in full, subject to a prepayment charge of (i) 2.0%, if such prepayment occurs after October 21, 2021 but on or prior to October 21, 2022, and (ii) 1.0%, if such prepayment occurs after October 21, 2022 but on or prior to October 21, 2023. The AmendedTerm Facility and Revolving Facility as amended, isare secured by a lien on substantially all of our assets, excludingincluding intellectual property.


Term DebtThe Loan Agreement contains customary covenants and representations, including, without limitation, a minimum revenue covenant equal to 80% of each year’s annual operating plan (tested on a trailing twelve month basis at the end of each fiscal quarter) and other financial covenants, reporting obligations, and limitations on dispositions, changes in business or ownership, mergers or acquisitions, indebtedness, encumbrances, distributions and investments, transactions with affiliates and capital expenditures.

The events of default under the Loan Agreement include, without limitation, and subject to customary grace periods, (1) our failure to make any payments of principal or interest under the Loan Agreement or other loan documents, (2) our breach or default in the performance of any covenant under the Loan Agreement, (3) the occurrence of a material adverse effect or an event that is reasonably likely to result in a material adverse effect, (4) the existence of an attachment or levy on a material portion of our or our subsidiaries’ funds, (5) our insolvency or bankruptcy, or (6) the occurrence of certain material defaults with respect to any other of our indebtedness in excess of $500,000. If an event of default occurs, CIBC is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement. The Loan Agreement also contains other customary provisions, such as expense reimbursement and confidentiality. CIBC has indemnification rights and the right to assign the Facilities, subject to customary restrictions.

As of March 31, 2021, we were in compliance with all covenants under the Loan Agreement.

On April 6, 2018,October 21, 2020, we entered intoused $40 million of the Term Facility, approximately $4.9 million of the Revolving Facility, and approximately $6.3 million of cash on hand to pay off all obligations owing under, and to terminate, both our prior Credit Agreement and Guaranty, with Perceptive. Theas amended (the “Amended Credit Agreement and Guaranty initially provided forGuaranty”), with Perceptive Credit Holdings II, LP (“Perceptive”) and our Business Financing Agreement, as amended (the “Amended Revolver Agreement”) with Western Alliance Bank. As a term loan facility in the amount of $42.5 million, available in three tranches, of which the first tranche of $20.0 million was drawn upon closing. This first tranche paid off the borrowings under a former loan arrangement. A second tranche of $10.0 million was drawn on July 20, 2018. The availabilityresult of the final tranche of $12.5 million was dependent upon the Company achieving a minimum of $43.2 million in revenue in 2018. On September 27, 2018, the Credit Agreement and Guaranty was amended to remove this revenue requirement and extend the final draw down date to March 31, 2019. We borrowed $2.0 million from this third tranche on September 27, 2018. On March 22, 2019, we drew the remaining $10.5 million under the Amended Credit Agreement and Guaranty increasing the total outstanding balance to $42.5 million. We also entered into a second amendment to the Amended Credit Agreement and Guaranty increasing the allowable permitted indebtedness in connection with our credit card program from $0.3 million to $0.5 million.

The outstanding principal amounttermination of the Amended Credit Agreement and Guaranty accrues interest at an annual rate equal toand the applicable marginAmended Revolver Agreement, we recorded a loss on extinguishment of 9.06% plusdebt of $4.2 million, which included the greater of (a) one-month LIBOR and (b) 1.75% per year. The term loan is secured by substantially all our personal property including intellectual property. All unpaid and accrued unpaid interest with respect to each such term loan is due and payable in full on the maturity date at April 6, 2023. On the maturity date, in addition to the payment principal and accrued interest, we will be required to make a payment of 0.5%prepayment penalty, exit fees, write-off of the total amount borrowedremaining unamortized deferred financing costs, and legal fees, during the fourth quarter of 2020.

At-the-Market Agreement

On December 20, 2019, we entered into an Open Market Sales Agreement (the “ATM Agreement”) with Jefferies LLC (“Jefferies”) under the Amended Credit Agreement and Guaranty, unless we have already made such payment in connection with an acceleration or prepayment of borrowings under the term loan. In the event we prepay all or part of this term loan facility prior to the maturity date,which we may be subjectoffer and sell our common stock having aggregate sales proceeds of up to additional prepayment fees which decrease as the$50.0 million from time to maturity decreases.

time through Jefferies as our sales agent. We issued warrants to Perceptive to purchase 37,693, 18,846 and 3,769did not sell any shares of our Series D convertible preferredcommon stock during the three months ended March 31, 2021 or 2020. The ATM Agreement will remain in full force and effect until terminated by either party pursuant to the terms of the agreement or such date that the maximum offering amount has been sold in accordance with the terms of the agreement. As of March 31, 2021, there was approximately $39.8 million in remaining capacity under this program.


Contractual Obligations

The following table presents a summary of our contractual obligations as of March 31, 2021:

 

Payments Due by Period

 

 

 

 

 

 

Less Than

 

 

 

 

 

 

 

 

 

 

More Than

 

 

Total

 

 

1 Year

 

 

1 - 3 Years

 

 

3-5 Years

 

 

5 Years

 

Amounts Reflected in Condensed Consolidated Balance Sheet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Credit Facility

$

4,888

 

 

$

1,158

 

 

$

3,730

 

 

$

-

 

 

$

-

 

Term Facility

 

40,000

 

 

 

-

 

 

 

6,400

 

 

 

33,600

 

 

 

-

 

Operating Leases

 

9,427

 

 

 

2,354

 

 

 

4,741

 

 

 

2,332

 

 

 

-

 

Amounts Not Reflected in Condensed Consolidated Balance Sheet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on Debt (a)

 

8,438

 

 

 

2,300

 

 

 

4,685

 

 

 

1,453

 

 

 

-

 

Total

$

62,753

 

 

$

5,812

 

 

$

19,556

 

 

$

37,385

 

 

$

-

 

(a)

Represents interest on our Revolving Credit Facility and Term Facility. See further discussion in Note 8 to our condensed consolidated financial statements.

The amounts reflected in the table above exclude estimated contingent consideration of up to $11.1 million related to the HGE  acquisition which is payable in cash or Vapotherm common stock, at an exercise price of $15.92 per share in April 2018, July 2018 and September 2018, respectively. In connection with our initial public offering in November 2018 these warrants converted to common stock warrants at an exercise price of $15.92. Eachthe sole discretion of the warrants has a termCompany, and will be remitted in future milestone payments, one following calendar year 2021, one following calendar year 2022, and one following calendar year 2023. The three payments will be adjusted up or down based on the revenue performance of 10certain HGE service offerings during those three years. In connection withSee further discussion in Note 3 to our condensed consolidated financial statements.

Portions of these payments are denominated in foreign currencies and were translated in the draw downtable above based on March 22, 2019, we granted warrants to purchase 19,790 shares of common stock. The warrants have an exercise price of $15.92 per share, were fully vested upon issuance, are exercisable at the option of the holder, in whole or in part, and expire in March 2029.

We were in compliance with all debt covenants under both the Amended Revolving Facility and Amended Credit Agreement and Guarantytheir respective U.S. dollar exchange rates at March 31, 2020.2021. These future payments are subject to foreign currency exchange rate risk.

The amounts reflected in the table above for operating leases represent future minimum lease payments under non-cancelable operating leases primarily for certain office space and equipment.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by applicable regulations of the SEC, that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

This management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of thesethe condensed financial statements in conformity with accounting principles generally accepted in the United States requires usmanagement to make estimates and assumptions that affect the amounts reported amounts of assetsin the condensed financial statements and liabilitiesaccompanying notes included elsewhere in this Quarterly Report on Form 10-Q. Management believes that such estimates have been based on reasonable and supportable assumptions and the disclosure of contingent assets and liabilities atresulting estimates are reasonable for use in the datepreparation of the condensed financial statements,statements. Actual results could differ from these estimates.

Critical accounting policies are defined as well asthose that are reflective of significant judgements and uncertainties, the reported revenuemost important and expenses during the reporting periods. We monitorpervasive accounting policies used and analyze these items for changes in facts and circumstances, andareas most sensitive to material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factorsfrom external factors. The critical accounting policies that we believe affect our more significant judgements and estimates used in the preparation of our condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changesdescribed in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.

For further information regarding our critical accounting policies, see Note 2 “Summary of Significant Accounting Policies” of Notes to Consolidated Financial Statements and our critical accounting policies within the section entitled “Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations”Operations and in the Notes to our Consolidated Financial Statements included in our 2019Annual Report on Form 10-K. There have been no changes in our accounting policies except for certain new policies or enhanced policy descriptions, which are discussed below related to self-insurance, other lease revenues, and stock compensation expense related to our 2018 Employee Stock Purchase Program.

Insurance

Effective January 1, 2020, we are self-insured for certain obligations related to health insurance. We also purchase stop-loss insurance to protect us from material losses. Judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred, but have not been reported. Our estimates consider expected claim experience and other factors. Receivables for insurance recoveries are recorded as assets, on an undiscounted basis. Our liabilities are based on estimates, and, while we believe that our accruals are adequate, the ultimate liability may be significantly different from the amounts recorded. Changes in claims experience, our ability to settle claims or other estimates and judgments used by us could have a material impact on the amount and timing of expense for any period.


Lease Revenue

We enter into agreements to lease our capital equipment. For such sales, we account for revenue under ASC 840, Leases, and assess and classify these transactions as sales-type or operating leases based on whether the lease transfers ownership of the equipment to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides10-K for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title. Equipment included in arrangements including transfer of title are accounted for as sales-type leases and we recognize the total value of the lease payments due over the lease term to revenue at the inception of the lease. We record the current value of future lease payments under prepaid expenses and other current assets in the condensed consolidated balance sheets and these amounts totaled $1.0 and $0.9 million at March 31, 2020 andyear ended December 31, 2019, respectively. Equipment included in arrangements that do not include the transfer of title, nor any of the capital lease criteria, are accounted for as operating leases and revenue is recognized on a straight-line basis as it becomes receivable monthly over the term of the lease.

We also enter into agreements involving the placement of Precision Flow capital units for use by the customer at no upfront charge in connection with the customer’s ongoing purchase of disposable products. In these bundled arrangements, revenue recognized for the sale of the disposables is allocated between disposable revenue and other lease revenue based on the estimated relative stand-alone selling prices of the individual performance obligations.

Stock-Based Compensation

We maintain an equity incentive plan to provide long-term incentives for employees, consultants, and members of the board of directors. The plan allows for the issuance of non-statutory and incentive stock options to employees and non-statutory stock options to consultants and non-employee directors.

We recognize stock-based compensation expense for awards of equity instruments to employees and non-employees based on the grant date fair value of those awards in accordance with ASC Topic 718, Stock Compensation (ASC 718). ASC 718 requires all equity-based compensation awards, including grants of restricted shares and stock options, to be recognized as expense in the condensed consolidated statements of comprehensive loss based on their grant date fair values.

The fair value of each option grant is estimated on the grant date using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. For performance-based awards, the related compensation cost is amortized over the performance period on an accelerated attribution basis. Compensation cost associated with performance awards is based on fair value on the date of grant and the number of units expected to be earned after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved. Cumulative adjustments are recorded each quarter to reflect estimated outcomes of the performance-related conditions until the results are determined and settled. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including the expected life (weighted average period of time that the options granted are expected to be outstanding), the volatility of our common stock and an assumed risk-free interest rate. Expected volatility is calculated based on historical volatility of a group of publicly traded companies that we consider a peer group. The expected life is estimated using the simplified method for “plain vanilla” options. The risk-free interest rate is based on U.S. Treasury rates with a remaining term that approximates the expected life assumed at the date of grant. No dividend yield is assumed as we do not pay, and do not expect to pay, dividends on our common stock. We estimate forfeitures based on historical experience with pre-vested forfeitures. To the extent actual forfeitures differ from the estimate, the difference is recorded to compensation expense in the period of the forfeiture.

We recognize stock-based expense for shares issued pursuant to our 2018 Employee Stock Purchase Plan (“ESPP”) on a straight-line basis over the related offering period. We estimate the fair value of shares to be issued under the ESPP based on a combination of options valued using the Black-Scholes option-pricing model. The expected life is determined based on the contractual term. Expected volatility, dividend yield and forfeiture rates are estimated in a manner similar to option grants described above.2020.

 

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements is included in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

JOBS Act

As a company with (i) less than $1.07 billion in revenue during our last fiscal year (ii) a market value of our common stock of less than $700.0 million as of our most recently completed second quarter and (iii) less than $1.0 billion of non-convertible debt over a three-year period, we qualify as an “emerging growth company,” as defined in the JOBS Act. An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies.


ITEM 3.        QUANTITATIVE AND QUALITATIVEQUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to interest rate risk arises primarily from variable interest rates applicable to borrowings under our Revolving Facility and our Term Facility and interest rates associated with our invested cash balances. Borrowings under our Revolving Facility bear interest at a floating rate per annum equal to the WSJ Prime Rate plus 1.0% and is subject to a floor of 3.25%. At March 31, 2021, the interest rate was 4.25%. Borrowings under our Term Facility bear interest at a floating rate equal to the WSJ Prime Rate plus 2.5% and is subject to a floor of 3.25%. At March 31, 2021, the interest rate was 5.75%. As of March 31, 2021, borrowings under our Revolving Facility and Term Facility total $4.9 million and $40.0 million, respectively. Based on our outstanding borrowings and the WSJ Prime Rate, a 100 basis point increase in the annual interest rate on our outstanding borrowings would have a $0.5 million impact on our interest expense on an annual basis.

On March 31, 2021, we had cash invested in money market deposits of $77.3 million. We believe that a 10 basis point change in interest rates is reasonably possible in the near term. Certain of our cash and cash equivalents balances exceed FDIC insured limits. We place our cash and cash equivalents in what we believe to be credit-worthy financial institutions. Based on our current level of cash investments, an increase or decrease of 10 basis points in interest rates would have a $0.1 million impact to our interest income on an annual basis.

Foreign Currency Risk

For our non-U.S. subsidiary that transacts in a functional currency in British pound sterling, assets and liabilities are translated at current rates of exchange as of the balance sheet date. Adjustments resulting from the translation of the financial statements of its foreign operations into U.S. dollars are excluded from the determination of net loss and are recorded in accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Income and expense items are translated at the average foreign currency exchange rates for the period. As a “smaller reporting company,”result, our financial condition and operating results are affected by fluctuations in the value of the U.S. dollar as compared to the British pound sterling. Revenues denominated in currencies other than the U.S. dollar represented approximately 2.4% and 4.9% of consolidated net revenues for the three months ended March 31, 2021 and 2020, respectively. Total assets denominated in the British pound sterling represented less than 0.1% of our total assets at both March 31, 2021 and December 31, 2020, respectively. Given the immateriality of net revenues and assets denominated in currencies other than the U.S. dollar, a 10% fluctuation in exchange rates would have an immaterial impact to our consolidated net revenues and consolidated total assets. We do not use foreign exchange contracts or derivatives to hedge any foreign currency exposures.

Inflation Risk

Inflationary factors, such as increases in our cost of goods sold and selling and operating expenses, may adversely affect our operating results. Although we aredo not requiredbelieve that inflation has had a material impact on our financial position or results of operations to providedate, a high rate of inflation in the information required by this item.future may have an adverse effect on our ability to maintain and increase our gross margin and sales and marketing and operating expenses as a percentage of our revenue if the selling prices of our products do not increase as much as or more than these increased costs.


ITEM 4.        CONTROLS AND PROCEDURES

(a)

(b)

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (asas of March 31, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, of 1934, as amended (the “Exchange Act”) at the end of the period covered by this quarterly report.

Based on this evaluation, we concluded that, as of such date, our disclosuremeans controls and other procedures were effectiveof a company that are designed to provide reasonable assuranceensure that the information required to be disclosed by usa company in the reports we filethat it files or submitsubmits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms,forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including our Chief Executive Officerits principal executive and Chief Financial Officer,principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

We recognize Management recognizes that any controls system,and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving itstheir objectives and our management necessarily applies its judgment in evaluating the benefitscost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures relative to their costs.as of March 31, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b)

(c)

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this quarterly report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).


PART II. OTHER INFORMATION

From time to time, the Company may become involved in various legal proceedings, including those that may arise in the ordinary course of business. The Company believes there is currently no litigation pending that could have, individually, or in the aggregate, a material adverse effect on the results of its operations or financial condition.

ITEM 1A.     RISK FACTORS

In addition to the other information set forth in this quarterly report, you should carefully consider the factors discussed in “Risk Factors” in our 20192020 Form 10-K which could materially affect our business, financial condition or future results. Except as set forth below, thereThere have been no material changes from the risk factors previously disclosed in our 2019 Form 10-K.

A pandemic, epidemic or outbreak of an infectious disease, such as the novel coronavirus, or COVID-19, has and may in the future adversely affect our business.

If a pandemic, epidemic or outbreak of an infectious disease occurs, our business may be adversely affected. Such events may result in a period of business and manufacturing disruption or in an inability to scale our production to meet increased demand in a cost-effective manner or at all, any of which could materially affect our business, financial condition and results of operations. For example, in December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus has now spread globally, with epicenters in Europe and the Middle East early in the fiscal quarter ending March 31, 2020, and more recently, with epicenters in the United States. United States residents and businesses have been hit especially hard in major urban centers like New York City. The spread of COVID-19 has resulted in certain disruptions to our business and may in the future result in additional disruptions to our business. Examples of both include without limitation the following:

The health and wellbeing of our employees, including our sales representatives and clinical educators who may visit our hospital customers, as well as that of our distributors and suppliers, is at risk– if a critical threshold of our personnel, or the personnel of our distributors or suppliers, were to be diagnosed with COVID-19, placed in quarantine due to potential exposure to COVID-19, or need to care for family members diagnosed with COVID-19, it may result in significant business, manufacturing, or distribution disruption.

As we scale production to meet increased demand, we are asking employees and suppliers to work extended and unusual hours and we are, and our suppliers may be, onboarding a significant number of personnel. While we require these personnel to complete all required training and education before they begin working, and we believe our suppliers, to the extent applicable, do as well, many of the new personnel do not have prior experience with the specific production skills they are being hired to perform and/or otherwise do not have prior experience manufacturing medical devices, and any of the foregoing may result in a negative impact on our quality management system and product quality in the future.

As we scale production to meet increased demand, our employees or suppliers may in the future change production processes to keep up with our production needs in ways that have a negative impact on our quality management system and product quality in the future, or may fail to document such changes, which may result in a negative impact on our quality management system.

Our demand has increased at the same time our supply chain has begun to face limitations, which has, and may in the future, result in a shortage of supply, increased costs of products, materials, and components and delays in the timely delivery thereof, which has required us in certain instances to pass through expenses or otherwise increase our pricing for our customers and distributors. Our customers and distributors may reject these pricing increases, negatively impacting our business. Similarly, the demand we place on our suppliers at the same time their sub-suppliers face limitations may in the future lead to our suppliers seeking to pass through expenses or otherwise increase pricing for products, materials, and components we require to meet our production needs. 

Some of our suppliers may in the future be limited, and at times, precluded, from delivering to us products, materials, and components in the quantities needed on a timely basis, for a variety of reasons, including without limitation an evolving understanding of how international, federal, and/or state authorities define “essential business”, their inability to remain open due to lost business in other parts of their portfolios, or because of international, federal, and/or state prioritization orders requiring our suppliers to produce for governmental entities and/or other manufacturers before they produce for us.


We have had to develop alternate sources of supply for certain products, materials, and components as a result of the limitations, or complete inability, of some of some of our suppliers to meet our production needs. Although we have successfully been able to develop and validate these alternate sources of supply to date, doing so is time consuming, difficult, and costly, and if we need to develop and validate alternate sources of supply in the future for any reason, including if any of our suppliers were to cease operations altogether, discontinue production of our key products, materials, and/or components, or go into extended backorder, we may not be able to do so in a timeframe acceptable to meet customer demand. Additionally, we have had to go to secondary broker markets for some of our alternative sourcing needs, which represent a greater risk for counterfeit products, materials and/or components. Although we were able to validate the products, materials and/or components we purchased from secondary broker markets to date, we may not be able to do so in the future which may result in a negative impact on our quality management system and product quality.

Current demand necessitates weekly and, in some cases, daily shipments of certain products, materials, and/or components from our suppliers to meet our production targets, and we have and may in the future need to shut down production temporarily if there are delays in the shipments of those products, materials and/or components.

Federal authorities may restrict our ability to export products outside the United States, which could negatively impact our business, operations, and relationships with our international distributors and customers in a significant and long-term way that we may not be able to rebuild for an extended period of time, or at all.

While we have priority shipping status with our carriers, we have experienced shipping delays throughout the United States and internationally, and as a result, there have been and may continue to be delays in our ability to ship our product to customers and distributors in a timely manner, potentially resulting in returned product, and we have and may continue to face extraordinary freight fees, including air freight fees and expedition fees for all modes of transportation.

Travel restrictions have impeded our ability to qualify and retain new suppliers or audit our existing suppliers, which might have a negative impact on our quality management system and our product quality in the future.

Travel restrictions and hospital limitations or denials of access for non-patients have impacted the ability of our direct sales team and clinical educators in the United States and United Kingdom and our distributors and suppliers in many other countries from accessing physicians and clinicians in order to train them on our products at a time when we are onboarding many new customers who have no prior experience using our products. We have been training our customers on our products through online training modules. We are not certain that these alternative means will be as effective as our standard training methods and in the future, we may see higher complaint rates as a result, particularly from new customers who are less familiar with our products.

Travel restrictions have prevented physicians and other caregivers from traveling to attend our training programs, which has resulted in fewer physicians trained on Hi-VNI Technology, and in the United Kingdom and in Europe, on our Oxygen Assist Module.

Travel restrictions have impeded our ability to meet with distributors, negatively impacting our business in a number of ways, including without limitation our ability to expand into new geographic territories and train our existing distributors on new products such as the Oxygen Assist Module.

Some of our hospital customers in the United States may no longer be able to continue in the future with business operations as usual or at all due to lost business in other parts of their operations, which may negatively impact or eliminate our business with these customers. Similarly, some of our distributors may no longer be able to continue in the future with business operations as usual or at all due to lost business in other parts of their portfolios, which may negatively impact or eliminate our business with these distributors and their customers in the countries they serve.

We have asked most employees who are not directly involved in our production, shipping, quality, regulatory, and product development efforts to work from home, which could impact our ability to effectively plan, execute, communicate and maintain our corporate culture. The increase in working remotely could increase our cyber security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations.

Stay at home orders have significantly limited the ability of individuals from traveling outside the home which may limit our ability to hire new employees or backfill terminated employees.


Our competitors, potentially including companies that we have not previously considered competitors due to their historical operation outside of the respiratory space or even outside of the medical device space entirely, may in the future secure significant purchase agreements from the federal government or various states before we are able to do so, or may be selected instead of us, precluding us from those commercial opportunities.

The transmission risk of different respiratory support modalities for COVID-19 has not been studied extensively. Our assessment of the issue suggests that the Precision Flow, its disposable patient circuits, and its accessories, including the Vapotherm Transfer Unit, the Q50 compressor, and, in the United Kingdom and Europe, the Oxygen Assist Module, do not represent a heightened risk, particularly when (1) used in COVID-19 cohorts or when adequately disinfected between patients, and (2) a simple surgical mask is placed over the patient’s nose and mouth while delivering high velocity nasal insufflation, could prove to be incorrect upon further analysis or new third party information.

The FDA or any foreign regulatory body may disagree with our interpretation that our promotional materials, sales practices, and training related to the use of our products on patients who are suffering from COVID-19 are on label and they could request we modify our promotional materials, sales practices, or training or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state, or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.

A significant disruption to our business resulting in an inability to build and ship product to customers for an extended period of time may impair our ability to maintain compliance with our debt covenants.

Equity and debt markets have experienced significant volatility since the spread of COVID-19 into the United States. Should significant volatility continue or they experience declines due to the economic impact of COVID-19, we may not be able to raise capital at a reasonable valuation or at all.

In addition, the increase in demand we are currently experiencing for our products to treat the respiratory distress of patients suffering from COVID-19 may not continue after the COVID-19 pandemic subsides. Moreover, the increase in demand may result in decreased demand for our products after the COVID-19 pandemic subsides as hospitals may have a large surplus of ventilators and other respiratory support equipment after the pandemic subsides. As a result, any present increase in our revenue may not be sustained and our revenue may significantly decrease after the COVID-19 pandemic subsides, which could have an adverse effect on our business. Any sudden and significant decrease in demand may result in a substantial inventory position, which could also have an adverse effect on our business.

The full extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to treat or contain COVID-19 or to otherwise limit its impact, among others. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section and inof our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, such as those relating to our significant amount of indebtedness, our need to generate sufficient cash flows to service our substantial indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, expeditiously and effectively evaluate product complaints and promotional matters, or otherwise prevent new or modified products indications from being developed, cleared or approved, or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA to hire, retain, or deploy key leadership and other personnel, expeditiously and effectively evaluate product complaints and promotional matters, or otherwise review and clear or approve new or modified products and indications can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, a dramatic increase in Emergency Use Authorizations or other regulatory submissions, a dramatic increase in the issuance of guidance documents, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may impede the FDA’s ability to expeditiously evaluate product complaints and promotional matters, and may also slow the time necessary for new medical devices or modifications to cleared or approved medical devices or indications to be reviewed and/or approved by necessary government agencies, which would adversely affect our business.


For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical employees and stop critical activities. As another example, following the FDA’s issuance of certain Emergency Use Authorization communications in March 2020 that identified the product code that includes our Precision Flow Hi-VNI system, QAV, on a list of ventilators and/or ventilatory support devices, we prepared a letter-to-file to modify the indications for use of the Precision Flow Hi-VNI system. We believe these modifications are consistent with the FDA’s recent communication and our clinical data. However, to the extent we market the Precision Flow Hi-VNI system using the modified labeling, the possibility exists that the FDA may not agree with the decision that a new clearance or approval was unnecessary for this label revision for any number of reasons, including, without limitation, that we used an inappropriate intended use statement, and as a result may require us to submit a new 510(k) notification, request for de novo classification, premarket approval (PMA) (or PMA supplements or amendments) or subject us to other consequences. In addition, on April 29, 2020 the FDA reached out with an informal inquiry regarding our marketing of the Precision Flow Hi-VNI system. We are in process of responding to that inquiry, but it is possible we will encounter delays or the FDA may ultimately determine that our website or other promotional materials, sales practices, or training constitute the improper promotion of a medical device.

Additionally, in response to the global pandemic of COVID-19, on March 10, 2020, the FDA announced its intention to postpone most foreign inspections of manufacturing facilities and products through April 2020, and subsequently, on March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our marketing applications, clinical trial authorizations, emergency use applications, or other regulatory submissions, which could have a material adverse effect on our business.

ITEM 2.        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Use of Proceeds

On November 13, 2018, the SEC declared effective our Registration Statement on Form S-1 (File No. 333-227897), as amended, filed in connection with our initial public offering, or the Registration Statement. Pursuant to the Registration Statement, we registered the offer and sale of 4,000,000 shares of our common stock with an aggregate offering price of approximately $56.0 million. Merrill Lynch, Pierce, Fenner & Smith Incorporated and William Blair & Company, L.L.C. acted as representatives of the underwriters for the offering. On November 13, 2018, the underwriters fully exercised their option to purchase 600,000 additional shares of common stock with an aggregate offering price of approximately $8.4 million pursuant to the underwriting agreement. On November 14, 2018, we issued and sold 4,600,000 shares of our common stock to the public at a price of $14.00 per share. Upon completion of the initial public offering on November 16, 2018, we received net proceeds of approximately $57.4 million, after deducting the underwriting discount of $4.5 million and offering expenses of $2.5 million. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates.

The offering terminated after the sale of all securities registered pursuant to the Registration Statement. The net proceeds of approximately $57.4 million from our initial public offering have been invested in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. There has been no material change in the expected use of the net proceeds from our initial public offering as described in our final prospectus, dated November 13, 2018, filed with the SEC pursuanton February 24, 2021.

ITEM 5.     OTHER INFORMATION

On April 21, 2021, the Board of Directors of the Company, upon recommendation of the Compensation Committee, approved an amendment to Rule 424(b) relatingthe Company’s 2018 Equity Incentive Plan (the “Plan”) providing for double-trigger vesting in the event of a change in control (as defined in the Plan). The addition of double-trigger vesting is consistent with prevailing market practice and is intended to our Registration Statementhelp attract and retain top talent. Under the amendment, if the acquirer in a change of control does not offer a Plan participant a substantially similar job and equity grant, all unvested equity awards held by such participant would accelerate and vest, and all unvested performance awards held by such participant (if any) would accelerate and vest and be paid out for the entire performance period based on the higher of target or actual performance.

The foregoing description of the Plan amendment does not purport to be complete and is qualified in its entirety by reference to the amended and restated Plan, itself, which is filed as Exhibit 10.1 to this Quarterly Report on Form S-1.10-Q and is incorporated herein by reference.

 


ITEM 6.        EXHIBITS

The exhibits filed as part of this quarterly report are set forth on the Exhibit Index, which is incorporated herein by reference.

EXHIBIT INDEX

 

Exhibit

Number

 

Description

 

 

 

  10.110.1

 

Employment Offer Letter between Vapotherm, Inc. Amended and John Coolidge, dated February 19, 2014Restated 2018 Equity Incentive Plan

 

 

 

  31.1

 

Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

  31.2

 

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

  32.1

 

Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

  32.2

 

Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted 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

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 


SIGNATURES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

VAPOTHERM, INC.

 

 

 

May 5, 20202021

By:

/s/ Joseph Army

 

 

Joseph Army

 

 

President and Chief Executive Officer

 

May 5, 20202021

By:

/s/ John Landry

 

 

John Landry

 

 

Senior Vice President and Chief Financial Officer

 

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