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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

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: 001-40545

CVRx, Inc.

(Exact name of registrant as specified in its charter)

Delaware

41-1983744

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

9201 West Broadway Avenue

Suite 650

Minneapolis, MN 55445

(Address of Principal Executive Offices)

(763) 416-2840

(Registrant’s telephone number)

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,

par value $0.01 per share

CVRX

The Nasdaq Global Select Market

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  

As of August 02, 2021, there were 20,345,926 shares of the registrant’s common stock, par value $0.01 per share outstanding.

TABLE OF CONTENTS

`

    

    

    

    

 

    

    

Page

Part I

Financial Information

Item 1.

Financial Statements

5

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (Unaudited)

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020 (Unaudited)

6

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders Deficit for the three and six months ended June 30, 2021 and 2020 (Unaudited)

7

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (Unaudited)

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

36

Part II

Other Information

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

78

Item 3.

Defaults Upon Senior Securities

78

Item 4.

Mine Safety Disclosures

78

Item 5.

Other Information

78

Item 6.

Exhibits

79

Exhibit Index

Signatures

2

CVRx, Inc.

Quarterly Report on Form 10-Q

For the quarterly period ended June 30, 2021

Cautionary Note on Forward-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. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements, including statements regarding our future results of operations and financial position, business strategy, the impact of the ongoing and global COVID-19 pandemic on our business, financial results and financial position, clinical trial results, prospective products, product approvals, research and development costs, timing and likelihood of success, and the plans and objectives of management for future operations.

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. 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, but not limited to, the important factors discussed in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q, which are summarized below. Moreover, we operate in an evolving environment. 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.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. 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.

Summary Risk Factors

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include, but are not limited to, the following:

we have a history of significant losses, which we expect to continue, and we may not be able to achieve or sustain profitability;
our principal stockholders, management and directors (four of whom are affiliated with our principal stockholders) own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval;
we have a limited history operating as a commercial company and are highly dependent on a single product, BAROSTIM NEO, and the failure to obtain market acceptance in the U.S. for BAROSTIM NEO would negatively impact our business, liquidity and results of operations;

3

we have limited commercial sales experience marketing and selling our BAROSTIM NEO, and if we are unable to establish and maintain sales and marketing capabilities, we will be unable to successfully commercialize our BAROSTIM NEO or generate sustained and increasing product revenue;
we must demonstrate to physicians and patients the merits of our BAROSTIM NEO;
if third-party payors do not provide adequate coverage and reimbursement for the use of BAROSTIM NEO, our revenue will be negatively impacted;
our industry is competitive; if our competitors, many of which are large, well-established companies with substantially greater resources than us and have a long history of competing in the HF market, are better able to develop and market products that are safer, more effective, less costly, easier to use or otherwise more attractive than BAROSTIM NEO, our business will be adversely impacted;
if we fail to receive access to hospitals, our sales may decrease;
we are dependent upon third-party manufacturers and suppliers, and in some cases a limited number of suppliers, making us vulnerable to supply shortages, loss or degradation in performance of the suppliers and price fluctuations, which could harm our business;
manufacturing risks may adversely affect our ability to manufacture our product and could reduce our gross margin and profitability;
a pandemic, epidemic or outbreak of an infectious disease in the U.S. or worldwide, including the outbreak of the novel strain of coronavirus disease, COVID-19, could adversely affect our business;
we may face product liability claims that could be costly, divert management’s attention and harm our reputation;
we may in the future become involved in lawsuits to protect or enforce our intellectual property, which could be expensive and time consuming, and ultimately unsuccessful, and could result in the diversion of significant resources, thereby hindering our ability to effectively commercialize our existing or future products;
if we fail to retain our key executives or recruit and hire new employees, our operations and financial results may be adversely affected while we attract other highly qualified personnel; and
we will continue to obtain long-term clinical data regarding the safety and efficacy of our products, which could impact future adoption and regulatory approvals.

4

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

CVRx, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

    

June 30, 

    

December 31, 

2021

2020

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

47,128

$

59,112

Accounts receivable, net

 

2,243

 

1,281

Inventory

 

3,161

 

3,343

Prepaid expenses and other current assets

 

1,684

 

605

Total current assets

 

54,216

 

64,341

Property and equipment, net

 

820

 

410

Other non-current assets

 

26

 

26

Total assets

$

55,062

$

64,777

Liabilities and Stockholders’ Equity (Deficit)

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

888

$

483

Accrued expenses

 

3,772

 

3,583

Warrant liability

 

19,051

 

3,911

Current portion of long-term debt

1,333

Total current liabilities

 

25,044

 

7,977

Long-term debt

 

18,082

 

19,278

Other long-term liabilities

 

884

 

777

Total liabilities

 

44,010

 

28,032

Commitments and contingencies

 

  

 

  

Convertible preferred stock, $0.01 par value, 237,370,645 authorized as of June 30, 2021 and December 31, 2020; 223,541,754 shares issued and outstanding as of June 30, 2021 and December 31, 2020

 

329,983

 

329,983

Stockholders’ equity (deficit):

 

  

 

  

Common stock, $0.01 par value, 625,217,795 authorized as of June 30, 2021 and December 31, 2020; 366,342 and 360,412 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

4

 

4

Additional paid-in capital, common stock

 

59,311

 

58,624

Accumulated deficit

 

(378,051)

 

(351,676)

Accumulated other comprehensive loss

 

(195)

 

(190)

Total stockholders’ deficit

 

(318,931)

 

(293,238)

Total liabilities, convertible preferred stock, and stockholders’ deficit

$

55,062

$

64,777

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

5

CVRx, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

    

Three months ended

Six months ended

June 30, 

June 30, 

2021

    

2020

    

2021

    

2020

Revenue

$

3,123

$

1,250

$

5,983

$

2,968

Cost of goods sold

 

913

 

345

 

1,780

 

777

Gross profit

 

2,210

 

905

 

4,203

 

2,191

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

2,255

 

2,131

 

4,005

 

4,400

Selling, general and administrative

 

5,627

 

1,834

 

10,087

 

4,128

Total operating expenses

 

7,882

 

3,965

 

14,092

 

8,528

Loss from operations

 

(5,672)

 

(3,060)

 

(9,889)

 

(6,337)

Interest expense

 

(608)

 

(618)

 

(1,209)

 

(1,235)

Other income (expense), net

 

(11,442)

 

33

 

(15,234)

 

137

Loss before income taxes

 

(17,722)

 

(3,645)

 

(26,332)

 

(7,435)

Provision for income taxes

 

(26)

 

(22)

 

(43)

 

(45)

Net loss

 

(17,748)

 

(3,667)

 

(26,375)

 

(7,480)

Cumulative translation adjustment

 

(1)

 

(11)

 

(5)

 

(21)

Comprehensive loss

$

(17,749)

$

(3,678)

$

(26,380)

$

(7,501)

Net loss per share, basic and diluted

$

(48.48)

$

(10.18)

$

(72.58)

$

(18.06)

Weighted-average common shares used to compute net loss per share, basic and diluted

 

366,066

 

360,238

 

363,397

 

414,225

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

6

CVRx, INC.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

(In thousands, except share data)

(Unaudited)

Accumulated

Total

Convertible

Additional

other

stockholders’

preferred stock

Common stock

paid-in

Accumulated

comprehensive

(deficit)

    

Shares

    

Amount

    

Shares

    

Amount

    

capital

    

deficit

    

loss

    

equity

Balances as of March 31, 2021

 

223,541,754

$

329,983

 

365,274

 

$

4

$

58,687

$

(360,303)

$

(194)

$

(301,806)

Exercise of stock options

 

 

 

1,068

 

 

 

 

 

 

Employee stock compensation

 

 

 

 

 

 

624

 

 

 

624

Net loss for the three months ended June 30, 2021

 

 

 

 

 

 

 

(17,748)

 

 

(17,748)

Cumulative translation adjustment

 

 

 

 

 

 

 

 

(1)

 

(1)

Balances as of June 30, 2021

 

223,541,754

$

329,983

 

366,342

 

$

4

$

59,311

$

(378,051)

$

(195)

$

(318,931)

Balances as of March 31, 2020

 

161,041,754

$

279,983

 

360,237

 

$

4

$

58,741

$

(341,380)

$

(199)

$

(282,834)

Employee stock compensation

 

 

 

 

 

 

32

 

 

 

32

Net loss for the three months ended June 30, 2020

 

 

 

 

 

 

 

(3,667)

 

 

(3,667)

Cumulative translation adjustment

 

 

 

 

 

 

 

 

(11)

 

(11)

Balances as of June 30, 2020

 

161,041,754

$

279,983

 

360,237

 

$

4

$

58,773

$

(345,047)

$

(210)

$

(286,480)

Accumulated

Total

Convertible

Additional

other

stockholders’

preferred stock

Common stock

paid-in

Accumulated

comprehensive

(deficit)

    

Shares

    

Amount

    

Shares

    

Amount

    

capital

    

deficit

    

loss

    

equity

Balances as of December 31, 2020

 

223,541,754

$

329,983

 

360,412

 

$

4

$

58,624

$

(351,676)

$

(190)

$

(293,238)

Exercise of stock options

 

 

5,930

 

 

 

2

 

 

 

2

Employee stock compensation

 

 

 

 

 

 

685

 

 

 

685

Net loss for the six months ended June 30, 2021

 

 

 

 

 

 

 

(26,375)

 

 

(26,375)

Cumulative translation adjustment

 

 

 

 

 

 

 

 

(5)

 

(5)

Balances as of June 30, 2021

 

223,541,754

$

329,983

 

366,342

 

$

4

$

59,311

$

(378,051)

$

(195)

$

(318,931)

Balances as of December 31, 2019

 

161,041,754

$

279,983

 

483,931

 

$

5

$

58,708

$

(337,567)

$

(189)

$

(279,043)

Repurchase of common stock

 

 

 

(123,694)

 

 

(1)

 

1

 

 

 

Employee stock compensation

 

 

 

 

 

 

64

 

 

 

64

Net loss for the six months ended June 30, 2020

 

 

 

 

 

 

 

(7,480)

 

 

(7,480)

Cumulative translation adjustment

 

 

 

 

 

 

 

 

(21)

 

(21)

Balances as of June 30, 2020

 

161,041,754

$

279,983

 

360,237

 

$

4

$

58,773

$

(345,047)

$

(210)

$

(286,480)

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

7

CVRx, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

    

Six months ended

June 30, 

2021

    

2020

Cash flows from operating activities:

 

  

 

  

Net loss

$

(26,375)

$

(7,480)

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

 

  

 

  

Stock-based compensation

 

685

 

64

Depreciation of property and equipment

 

70

 

35

Amortization of deferred financing costs and loan discount

 

137

 

149

Changes in fair value of convertible preferred stock warrants

 

15,140

 

(17)

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

(963)

 

(337)

Inventory

 

181

 

(678)

Prepaid expenses and other current assets

 

(1,080)

 

(378)

Accounts payable

 

405

 

413

Accrued expenses

 

298

 

1,374

Net cash used in operating activities

 

(11,502)

 

(6,855)

Cash flows from investing activities:

 

  

 

  

Purchase of property and equipment

 

(480)

 

(92)

Net cash used in investing activities

 

(480)

 

(92)

Cash flows from financing activities:

 

  

 

  

Proceeds from the exercise of common stock options

 

2

 

Net cash provided by financing activities

 

2

 

Effect of currency exchange on cash and cash equivalents

 

(4)

 

(21)

Net change in cash and cash equivalents

 

(11,984)

 

(6,968)

Cash and cash equivalents at beginning of year

 

59,112

 

25,741

Cash and cash equivalents at end of period

$

47,128

$

18,773

Supplemental Information:

 

  

 

  

Cash paid for interest

$

1,011

$

1,017

Cash paid for income taxes

 

1

 

10

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

8

CVRx, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

Business organization

CVRx, Inc. (the “Company”) was incorporated in Delaware and is headquartered in Minneapolis, Minnesota. The Company has developed and is marketing a medical device, BAROSTIM NEO, for heart failure (“HF”) and resistant hypertension. The Company is focused on the sale of its product in the U.S. and Europe.

Management expects that operating losses and negative cash flows from operations could continue in the foreseeable future. There is no assurance that the Company will generate sufficient product sales to produce positive earnings or cash flows.

The Company anticipates that the existing cash balance together with cash generated from the collections of existing accounts receivable and revenue resulting from new and existing customers will be adequate to meet its working capital requirements for at least the next twelve months.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

2.

Summary of significant accounting policies

Statement presentation and basis of consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) applicable to interim financial statements. In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the Company’s statements of financial position, results of operations and cash flows for the periods presented. The results of operations for the interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole or any other future period.

The condensed consolidated financial statements include the accounts of CVRx, Inc., its wholly owned subsidiary, CVRx Switzerland LLC, and its sales branch in Italy. All intercompany balances and transactions have been eliminated in consolidation.

JOBS Act accounting election

The Company is an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, the Company has elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies.

Use of estimates

Preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

9

Cash and cash equivalents

Cash and cash equivalents include highly liquid investments with an original maturity of three months or less. As of June 30, 2021 and 2020, cash equivalents consisted of money market funds, which are stated at cost and approximate fair value.

Inventory

Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company regularly reviews inventory quantities in consideration of actual loss experiences, projected future demand and remaining shelf life to record a provision for excess and obsolete inventory when appropriate.

Revenue recognition

The Company sells its products primarily through a direct sales force and to a lesser extent through a combination of sales agents and independent distributors. The Company’s revenue consists primarily of the sale of its BAROSTIM NEO, which consists of two implantable components: a pulse generator and a stimulation lead.

Under Accounting Standards Codification Topic 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 that the entity 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 performed 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 entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. The Company recognizes net revenue on product sales when the customer obtains control of the Company’s product, which generally occurs at a point in time upon delivery based on the contractual shipping terms of a contract.

Recent accounting pronouncements

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, Leases (“Topic 842”). The purpose of Topic 842 is to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet, including those previously classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. Topic 842 is effective for private companies and smaller reporting companies for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted, and the Company must elect whether the date of initial application is the beginning of the earliest comparative period presented in the financial statements, or the beginning of the period of adoption. While the Company is still in the process of determining the effect that the new standard will have on its financial position and results of operations, the Company expects to recognize additional assets and corresponding liabilities on its condensed consolidated balance sheets, as a result of its operating lease portfolio as disclosed in Note 10 — Commitments and Contingencies.

10

3.

Selected balance sheet information

Inventory consists of the following on:

    

June 30, 

    

December 31, 

(in thousands)

2021

2020

Raw material

$

925

$

1,361

Work-in-process

 

345

 

321

Finished goods

 

1,891

 

1,661

$

3,161

$

3,343

Property and equipment, net consists of the following on:

    

June 30, 

    

December 31, 

(in thousands)

2021

2020

Office furniture and equipment

$

189

$

189

Lab equipment

 

1,440

 

1,272

Computer equipment and software

 

516

 

516

Leasehold improvements

 

45

 

44

Capital equipment in process

 

400

 

89

 

2,590

 

2,110

Less: Accumulated depreciation and amortization

 

1,770

 

1,700

$

820

$

410

Depreciation expense was $37,000 and $18,000 for the three months ended June 30, 2021 and 2020, respectively, and $70,000 and $35,000 for the six months ended June 30, 2021 and 2020, respectively.

Accrued expenses consist of the following on:

    

June 30, 

    

December 31, 

(in thousands)

2021

2020

Clinical trial and other professional fees

$

1,574

$

1,690

Bonuses

 

847

 

794

Paid time off

 

693

 

552

Other

 

658

 

547

$

3,772

$

3,583

4.

Fair value measurements

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level 1 — Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.
Level 3 — Inputs are unobservable for the asset or liability.

11

The following table sets forth the Company’s liabilities that were measured at fair value on a recurring basis by level within the fair value hierarchy:

(in thousands)

Balance as of June 30, 2021

    

Level 1

    

Level 2

    

Level 3

    

Total

Liabilities:

 

  

 

  

 

  

 

  

Convertible preferred stock warrant liability

$

$

$

19,051

$

19,051

Total liabilities

$

$

$

19,051

$

19,051

Balance as of December 31, 2020

    

Level 1

    

Level 2

    

Level 3

    

Total

Liabilities:

 

  

 

  

 

  

 

  

Convertible preferred stock warrant liability

$

$

$

3,911

$

3,911

Total liabilities

$

$

$

3,911

$

3,911

The Company’s recurring fair value measurements using significant unobservable inputs (Level 3) relate solely to the Company’s convertible preferred stock warrant liability. In connection with the loan and security agreement entered into by the Company in September 2014 and the amendment in July 2015, the Company issued a warrant to purchase shares of Series F-2 convertible preferred stock. In connection with the loan and security agreement entered into in May 2016, the Company issued a warrant to purchase shares of Series G convertible preferred stock (“Series G Preferred Shares”). The Company issued to Biosense Webster, Inc. (“BWI”), an affiliate of Johnson & Johnson Innovation — JJDC, Inc., a warrant to purchase shares of Series E-2 convertible preferred stock that only becomes exercisable in the event of an acquisition or asset transfer involving the Company and it expires on the earlier of (i) a qualifying public company transaction, as defined, and (ii) 180 days after receipt of the data from the post-market stage of the BeAT-HF pivotal trial. In September of 2018, the Company also issued to BWI a warrant to purchase up to 10,000,000 Series G Preferred Shares with an exercise price of $0.01 per share. The warrant to purchase Series G Preferred Shares shall become exercisable if and only if a qualifying public company transaction is consummated and expires on the earlier of (i) an acquisition or asset transfer involving the Company or (ii) 180 days after receipt of the data from the post-market stage of the BeAT-HF pivotal trial. Accordingly, under no event will the BWI warrant to purchase Series E-2 convertible preferred stock and the BWI warrant to purchase Series G Preferred Shares both become exercisable. In connection with the closing of the initial public offering (“IPO”), the BWI warrant to purchase Series G Preferred Shares became exercisable for 607,725 shares of common stock in connection with the automatic conversion of the Series G Preferred Shares into common stock, with an exercise price of $0.16 per share. In connection with the loan and security agreement entered into in September 2019, the Company issued a warrant to purchase Series G Preferred Shares. The convertible preferred stock warrant liability is remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

The fair value of the convertible preferred stock warrant liability was determined using the Black-Scholes option pricing model with the following inputs during the six months ended:

June 30, 

    

2021

    

2020

Expected life in years

 

0.0 –  8.3

 

1.5 –  9.3

Expected volatility

 

00.0% – 57.9%

 

46.2%  – 60.7%

Expected dividend yield

 

0%

 

0%

Risk-free interest rate

 

0.00% – 1.21%

 

0.16% – 0.66%

12

The following table sets forth a summary of changes in the estimated fair value of the Company’s convertible preferred stock warrants during the six months ended:

June 30, 

(in thousands)

    

2021

    

2020

Beginning of the period

$

3,911

$

3,540

Issued

 

 

Change in fair value

 

15,140

 

(16)

End of the period

$

19,051

$

3,524

There were no transfers in or out of Level 1, Level 2 or Level 3 fair value measurements during the periods ended June 30, 2021 and December 31, 2020.

5.

Debt

Horizon loan agreement

In September 2019, the Company entered into a loan and security agreement with Horizon Technology Finance Corporation (“Horizon loan agreement”) under which it could borrow up to a total of $20 million at a floating per annum rate equal to 10% plus the amount by which the 30-day U.S. dollar LIBOR rate on the first business day of the month exceeds 2.2%. The Horizon loan agreement initially required interest only payments through October 2021 and then 36 monthly principal and interest payments beginning in November 2021. A final payment of $0.7 million, equal to 3.5% of the original principal, is due in October 2024. The Horizon loan agreement initially required the Company to maintain cash on deposit in accounts in which Horizon maintains an account control agreement of not less than $5.0 million. This minimum cash on deposit requirement was released in July 2020, following the satisfaction of a financing milestone. The borrowings are collateralized by all or substantially all of the assets of the Company. The Horizon loan agreement requires the payment of certain penalties if the loan is paid off prior to maturity for any reason, including pursuant to a subjective acceleration clause, and includes various restrictive covenants, including a restriction on the payment of dividends. The Company was in compliance with these covenants as of June 30, 2021.

In August 2020, the Company entered into an amended agreement with Horizon to extend the interest only period through April 2022, followed by 30 monthly principal and interest payments beginning in May 2022.

In connection with the Horizon loan agreement, the Company recorded $1.1 million of debt issuance costs and discounts as a reduction of long-term debt. Of this total, $0.5 million related to legal fees and an investment bank fee and $0.6 million related to the warrants to purchase Series G Preferred Shares issued by the Company. These warrants were exercisable on the grant date at a price of $0.80 per share and expire in September 2029. The Company used the Black-Scholes option pricing model to determine the grant date fair value of these warrants.

The annual principal maturities of debt as of June 30, 2021 are as follows (in thousands):

2021

    

$

2022

 

5,333

2023

 

8,000

2024

 

6,667

 

20,000

Less: Unamortized debt costs and discounts

 

(585)

Long-term debt

$

19,415

13

6.

Stockholders’ equity

Reverse Stock Split

In connection with the IPO, the Company’s Board of Directors and stockholders approved a 1-for-39.548 reverse stock split of the Company’s common stock. The reverse stock split became effective on June 22, 2021. The par value of the common stock was not adjusted as a result of the reverse stock split. Adjustments corresponding to the reverse stock split were made to the ratio at which the convertible preferred stock will convert into common stock in connection with the closing of the IPO. Accordingly, all share and per-share amounts for all periods presented in these financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split and the adjustment of the conversion ratio of the convertible preferred stock.

Series G Preferred stock issuance

During 2016, the Company issued 72,125,000 shares of Series G Preferred Shares at a price of $0.80 per share, for net proceeds to the Company of approximately $57.4 million after deducting offering expenses payable by the Company. The same Series G investors have agreed to purchase an additional $35.3 million of Series G Preferred Shares upon the Company’s achievement of a certain operational milestone, subject to limited closing conditions. In January 2019, May 2019, and August 2019, the Series G investors purchased additional Series G Preferred Shares, resulting in net proceeds to the Company of $24.7 million.

In July of 2020, the Company issued 62,500,000 additional Series G Preferred Shares, at a price of $0.80 per share, for net proceeds to the Company of $49.8 million after deducting offering expenses payable by the Company.

On May 31, 2016, holders of the requisite number of the Company’s then-outstanding convertible preferred stock approved the conversion of all preferred stock into shares of the Company’s common stock in connection with a new equity financing. Accordingly, all of the Company’s then-outstanding preferred stock was converted on a one-for-one basis into shares of the Company’s common stock. Under the terms of the equity financing, each prior holder of preferred stock who purchased a required amount of securities in the new financing was entitled to exchange certain of the shares of common stock received in the conversion described above into new prime series of preferred stock corresponding to the series of preferred stock from which the common stock was previously converted. All of the previously held Series A-1, B-1, C-1, D-1, E-1 and F preferred stock had similar features as the Series A-2 preferred stock (“Series A-2 Preferred Shares”), Series B-2 preferred stock (“Series B-2 Preferred Shares”), Series C-2 preferred stock (“Series C-2 Preferred Shares”), Series D-2 preferred stock (“Series D-2 Preferred Shares”), Series E-2 preferred stock (“Series E-2 Preferred Shares”), and Series F-2 preferred stock (“Series F-2 Preferred Shares”) described below. The Series A-2, Series B-2, Series C-2, Series D-2, Series E-2, Series F-2 and Series G Preferred Shares are referred to collectively as the “Preferred Shares.”

As of June 30, 2021, convertible preferred stock consists of the following (in thousands, except share data):

    

    

    

    

Aggregate 

Issued and 

Liquidation 

Authorized

Outstanding

Carrying Value

Preference

Series A‑2

 

2,454,686

 

2,454,686

$

4,909

$

4,909

Series B‑2

 

2,963,069

 

2,963,069

 

7,526

 

7,526

Series C‑2

 

4,308,394

 

4,308,394

 

13,141

 

13,141

Series D‑2

 

8,631,967

 

8,631,967

 

53,518

 

53,518

Series E‑2

 

12,114,211

 

10,135,320

 

76,826

 

91,806

Series F‑2

 

29,773,318

 

29,548,318

 

41,663

 

104,783

Series G

 

177,125,000

 

165,500,000

 

132,400

 

494,550

 

237,370,645

 

223,541,754

$

329,983

$

770,233

14

Conversion

All Preferred Shares were automatically converted into common stock upon the closing of the IPO on July 2, 2021. Series G Preferred Shares were converted into common stock on a 15.819-for-1 basis, and all other Preferred Shares were automatically converted into common stock on a 39.548-for-1 basis.

As of June 30, 2021, the Company had reserved 12,670,154 shares of unissued common stock for the purpose of effecting the conversion of the Preferred Shares.

Voting rights

The holders of Preferred Shares were entitled to a number of votes equal to the number of shares of common stock into which such shares of Preferred Shares are convertible. In addition, an affirmative vote of the holders of a majority of the outstanding Preferred Shares, on an as-converted basis, is required to, among other things, sell the Company and approve certain amendments to the Company’s Certificate of Incorporation. Furthermore, each series of Preferred Shares has certain series voting rights on matters affecting that series.

Dividends

The holders of Preferred Shares were entitled to receive noncumulative dividends in preference to any dividend on the common stock. The dividend rate for the Preferred Shares is 8% of the applicable respective liquidation price per share. Dividends shall be payable on the Preferred Shares from funds legally available for declaration of dividends, only if and when declared by the Company’s Board of Directors. No such dividends have been declared.

Liquidation preference

In the event of any liquidation, dissolution or winding up of the Company, including a merger, acquisition or reorganization, where the beneficial owners of the Company’s common stock and Preferred Shares do not own a majority of the outstanding shares of the surviving, purchasing or newly resulting corporation, or where a sale occurs of all or substantially all of the assets of the Company, holders of Series G Preferred Shares are entitled to a per share distribution in preference to other holders of Preferred Shares and the common stockholders equal to $2.80, plus declared but unpaid dividends. After payment of these amounts to the holders of Series G Preferred Shares, Series F-2 stockholders are entitled to a per share distribution in preference to other holders of Preferred Shares and the common stockholders equal to $3.53, plus declared but unpaid dividends. After payment of these amounts to the holders of Series F-2 Preferred Shares, Series E-2 stockholders are entitled to a per share distribution in preference to other holders of Preferred Shares and the common stockholders equal to the original issue price per share of $7.58, plus declared but unpaid dividends. After payment of these amounts to the holders of Series E-2 Preferred Shares, Series D-2 stockholders are entitled to a per share distribution in preference to other holders of Preferred Shares and the common stockholders equal to the original issue price per share of $6.20, plus any declared but unpaid dividends. After payment of these amounts to the holders of Series D-2 Preferred Shares, holders of Series A-2 Preferred Shares, Series B-2 Preferred Shares and Series C-2 Preferred Shares are entitled to a per share distribution in preference to common stockholders equal to the original issue price per share of $2.00, $2.54 and $3.05, respectively, plus any declared but unpaid dividends. In the event that the remaining assets are insufficient to make a complete liquidation distribution to holders of the Series A-2 Preferred Shares, Series B-2 Preferred Shares and Series C-2 Preferred Shares, the holders shall share ratably in proportion to the applicable liquidation amount each holder is otherwise entitled to receive. After these distributions, the remaining assets, if any, shall be distributed pro rata among the holders of the common stock, Series F-2 Preferred Shares and Series G Preferred Shares (treating such Series F-2 Preferred Shares and Series G Preferred Shares on an as-converted basis).

15

The Company’s Board of Directors approved a Sale Bonus Plan (the “Plan”). Pursuant to the terms of the Plan, in certain circumstances constituting a change in control and/or partial sale or license of assets of the Company, the Company’s employees may be entitled to the payment of a bonus. This Plan is terminated upon the completion of an initial public offering. The payments under the Plan shall be made prior to the determination of any liquidation preferences payable to the holders of Preferred Shares. In connection with the IPO, which took place on July 2, 2021, this Plan was terminated.

7.

Stock-Based compensation

Summary of plans and activity

In June 2001, the Company’s Board of Directors and stockholders established the 2001 Stock Incentive Award Plan (“2001 Plan”). Under the 2001 Plan, as amended, 2,674,749 shares of common stock had been reserved for the issuance of incentive stock options granted to employees, nonemployee directors, consultants or independent contractors. Options granted under the 2001 Plan have vesting terms that range from the day of grant to four years and expire within a maximum term of 10 years from the grant date.

In connection with the IPO in 2021, the Company’s Board of Directors and stockholders established the 2021 Equity Incentive Plan (“2021 Plan”). The number of shares of common stock initially reserved for issuance under the 2021 Plan was 1,854,490 newly reserved shares in addition to the 600,373 shares that remained available for issuance under the 2001 Plan. The shares available for issuance under the 2021 Plan will automatically increase on the first day of each year, commencing January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to 5% of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of each automatic increase, or such lesser number of shares as determined by the Board of Directors. The 2021 Plan provides for the issuance of stock options, stock appreciation rights, restricted stock awards, stock unit awards and other stock-based awards and cash incentive awards to employees, consultants and non-employee directors of the Company and its subsidiaries. Awards granted under the 2021 Plan will have such vesting schedules and other terms as determined by the Compensation Committee and stock options and stock appreciation rights have a maximum term of 10 years from the grant date. No further awards can be made under the 2001 Plan following the adoption of the 2021 Plan. As of June 30, 2021, there were 1,801,032 shares available for future issuance under the 2021 Plan.

Options are granted at exercise prices not less than the fair market value (as determined by the Board of Directors) of the Company’s common stock on the date of grant.

During the years 2008 through June 30, 2021, the Board of Directors authorized the grant of stock options for the purchase of shares of common stock to the employers of certain nonemployee directors. The options were not granted under the 2001 Plan, but terms are substantially the same as the Company’s standard form of option agreement for nonemployee directors as they have an exercise price not less than the fair market value on the grant date and vest over 48 months from the date of grant.

The following is a summary of stock option activity:

    

    

Weighted 

    

Number 

Average 

Aggregate 

of 

Exercise 

Intrinsic 

Options

Price

Value

 

(in  thousands)

Balance as of December 31, 2020

 

1,473,359

$

2.77

 

  

Granted

 

1,205,236

 

12.80

 

  

Cancelled / Forfeited

 

(18,623)

 

5.65

 

  

Exercised

 

(5,930)

 

0.24

 

  

Balance as of June 30, 2021

 

2,654,042

$

7.24

$

55,107

Options exercisable as of June 30, 2021

 

541,614

$

1.18

$

14,525

16

As of June 30, 2021, stock options outstanding included 9,993 options that were not granted under the 2001 Plan. For options outstanding as of June 30, 2021, the weighted average remaining contractual life was 8.5 years. For options exercisable as of June 30, 2021, the weighted average remaining contractual life was 5.4 years.

In connection with the IPO, the Company’s Board of Directors and stockholders also established an Employee Stock Purchase Plan (the “ESPP”). The number of shares of common stock initially reserved for issuance under the ESPP was 278,170. The shares available for issuance under the ESPP will automatically increase on the first day of each year, commencing January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to 1% of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of each automatic increase, or such lesser number of shares as determined by the Board of Directors. The ESPP will permit certain of the Company’s U.S. employees to purchase shares of the Company’s common stock at a price per share not less than 85% of the lower of (i) the closing market price per share of the Company’s common stock on the first day of the applicable purchase period or (ii) the closing market price per share of the Company’s common stock on the purchase date at the end of the applicable six-month purchase period. The Company expects the first purchase period to commence in 2022. Accordingly, as of June 30, 2021 no shares of common stock have been purchased under the ESPP.

Stock-Based compensation expense

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options on the grant date. The Company measures stock-based compensation expense based on the grant date fair value of the award and recognizes compensation expense over the requisite service period, which is generally the vesting period. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates pre-vesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates.

The following table provides the weighted average fair value of options granted to employees and the related assumptions used in the Black-Scholes option pricing model for the six months ended June 30, 2021.

    

June 30, 

 

2021

 

Weighted average fair value of options granted

 

$

5.16

Expected term (in years) — non-officer employees

 

2.7

Expected term (in years) — officer employees

 

3.0

Expected volatility

 

61.6% to 63.4

%

Expected dividend yield

 

%

Risk-free interest rate

 

0.17% to 0.47

%

The Company reviews these assumptions on a periodic basis and adjusts them, as necessary. The expected term of an award was determined based on the Company’s analysis of historical exercise behavior while taking into consideration various participant demographics and option characteristics. The expected volatility is based upon observed volatility of comparable public companies. The expected dividend yield is assumed to be zero, as the Company has never paid dividends and has no current plans to do so. The risk-free interest rate is based on the yield on U.S. Treasury securities for a period approximating the expected term of the options being valued.

17

For the three and six months ended June 30, 2021 and 2020, the Company recognized stock-based compensation expense as follows:

    

Three Months Ended June 30, 

    

Six Months Ended June 30, 

(in thousands)

2021

2020

2021