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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 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: 001-35706
APOLLO ENDOSURGERY, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of
incorporation or organization)
16-1630142
(I.R.S. Employer
Identification No.)
 
1120 S. Capital of Texas Highway, Building 1, Suite #300, Austin, Texas
(Address of principal executive offices)
78746
(Zip Code)
Registrant’s telephone number, including area code (512) 279-5100

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.001 per shareAPENThe Nasdaq Stock Market LLC
 
Indicate by check mark whether the registrant (1) 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, or a smaller reporting 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. (Check one):
Large accelerated filer o
Accelerated filer  o
Non-accelerated filer x
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No x

As of October 29, 2021, there were 39,492,526 shares of the issuer’s $0.001 par value common stock issued and outstanding.





APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
 
Page
Item 1. 
Item 2. 
Item 4. 
Controls and Procedures
Item 1. 

i


PART I - FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except for share data)
September 30, 2021December 31, 2020
(unaudited)
Assets
Current assets:
Cash and cash equivalents$27,353 $36,235 
Accounts receivable, net of allowance for doubtful accounts of $668 and $634, respectively
10,290 8,218 
Inventory11,317 10,306 
Prepaid expenses and other current assets4,952 3,771 
Total current assets53,912 58,530 
Restricted cash1,121 965 
Property, equipment and right-of-use assets, net5,586 6,221 
Goodwill5,290 5,290 
Intangible assets, net of accumulated amortization of $14,434 and $13,231, respectively
4,821 6,017 
Other assets352 414 
Total assets$71,082 $77,437 
Liabilities and Stockholders' (Deficit) Equity
Current liabilities:
Accounts payable$4,512 $3,675 
Accrued expenses9,251 7,357 
Current portion of long-term debt1,129 636 
Total current liabilities14,892 11,668 
Long-term debt34,644 37,192 
Convertible debt19,463 19,387 
Long-term liabilities2,175 2,439 
Total liabilities71,174 70,686 
Commitments and contingencies
Stockholders' (deficit) equity:
Common stock; $0.001 par value; 100,000,000 shares authorized; 29,829,697 and 25,819,329 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
30 26 
Additional paid-in capital285,013 276,569 
Accumulated other comprehensive income1,915 2,929 
Accumulated deficit(287,050)(272,773)
Total stockholders' (deficit) equity(92)6,751 
Total liabilities and stockholders' (deficit) equity$71,082 $77,437 

See accompanying notes to the condensed consolidated financial statements.
1


APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except for share data)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Revenues$16,351 $12,826 $46,818 $29,188 
Cost of sales7,124 5,840 20,961 14,136 
Gross margin9,227 6,986 25,857 15,052 
Operating expenses:
Sales and marketing6,123 4,178 16,918 12,773 
General and administrative4,574 2,374 13,981 7,870 
Research and development2,567 1,522 7,045 5,484 
Amortization of intangible assets467 486 1,412 1,472 
Total operating expenses13,731 8,560 39,356 27,599 
Loss from operations(4,504)(1,574)(13,499)(12,547)
Other (income) expenses:
Interest expense, net1,342 1,335 4,028 3,895 
Gain on forgiveness of PPP loan  (2,852) 
Other (income) expense, net721 (353)(618)2,574 
Net loss before income taxes(6,567)(2,556)(14,057)(19,016)
Income tax expense90 41 220 90 
Net loss$(6,657)$(2,597)$(14,277)$(19,106)
Other comprehensive (loss)/income:
Foreign currency translation388 (253)(1,014)2,150 
Comprehensive loss$(6,269)$(2,850)$(15,291)$(16,956)
Net loss per share, basic and diluted$(0.23)$(0.11)$(0.52)$(0.88)
Shares used in computing net loss per share, basic and diluted29,020,443 23,110,524 27,542,182 21,798,336 
 
See accompanying notes to the condensed consolidated financial statements.
2


APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity
(In thousands, except for share data)
(unaudited) 
Three Months Ended September 30, 2021 and 2020
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated
Deficit
Total
SharesAmount
Balances at June 30, 202021,196,387 $21 $252,038 $4,033 $(266,671)$(10,579)
Issuance of restricted stock units1,289 — — — — — 
Issuance of common stock, net of issuance costs of $1,721
2,480,000 3 23,259 — — 23,262 
Stock-based compensation— — 586 — — 586 
Foreign currency translation— — — (253)— (253)
Net loss— — — — (2,597)(2,597)
Balances at September 30, 202023,677,676 $24 $275,883 $3,780 $(269,268)$10,419 
Balances at June 30, 202128,624,979 $29 $281,551 $1,527 $(280,393)$2,714 
Exercise of common stock options330,564 1 1,303 — — 1,304 
Exercise of common stock warrants624,436 — — — — — 
Issuance of restricted stock and performance stock units178,109 — — — — — 
Issuance of common stock for convertible debt interest71,609 — 614 — — 614 
Stock-based compensation— — 1,545 — — 1,545 
Foreign currency translation— — — 388 — 388 
Net loss— — — — (6,657)(6,657)
Balances at September 30, 202129,829,697 $30 $285,013 $1,915 $(287,050)$(92)

 See accompanying notes to the condensed consolidated financial statements.
3


APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity
(In thousands, except for share data)
(unaudited) 
Nine Months Ended September 30, 2021 and 2020
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated
Deficit
Total
SharesAmount
Balances at December 31, 201920,951,963 $21 $250,634 $1,630 $(250,162)$2,123 
Exercise of common stock options1,150 — 2 — — 2 
Issuance of restricted stock units79,766 — — — — — 
Issuance of common stock for convertible debt interest164,797 — 467 — — 467 
Issuance of common stock, net of issuance costs of $1,721
2,480,000 3 23,259 — — 23,262 
Stock-based compensation— — 1,521 — — 1,521 
Foreign currency translation— — — 2,150 — 2,150 
Net loss— — — — (19,106)(19,106)
Balances at September 30, 202023,677,676 $24 $275,883 $3,780 $(269,268)$10,419 
Balances at December 31, 202025,819,329 $26 $276,569 $2,929 $(272,773)$6,751 
Exercise of common stock options643,569 1 2,351 — — 2,352 
Exercise of common stock warrants2,668,247 3 (1)— — 2 
Issuance of restricted stock and performance stock units431,047 — — — — — 
Issuance of common stock for convertible debt interest244,861 — 1,229 — — 1,229 
Conversion of convertible debt22,644 — 74 — — 74 
Stock-based compensation— — 4,791 — — 4,791 
Foreign currency translation— — — (1,014)— (1,014)
Net loss— — — — (14,277)(14,277)
Balances at September 30, 202129,829,697 $30 $285,013 $1,915 $(287,050)$(92)

 See accompanying notes to the condensed consolidated financial statements.
4


APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Nine Months Ended September 30,
20212020
Cash flows from operating activities:
Net loss$(14,277)$(19,106)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization2,484 2,820 
Gain on forgiveness of PPP loan(2,852) 
Amortization of deferred financing costs377 487 
Non-cash interest 1,304 1,104 
Provision for doubtful accounts receivable62 34 
Inventory impairment50  
Stock-based compensation4,791 1,521 
Unrealized foreign exchange on intercompany payables(856)2,366 
Changes in operating assets and liabilities:
Accounts receivable(2,312)930 
Inventory(1,077)(1,286)
Prepaid expenses and other assets(951)387 
Accounts payable and accrued expenses3,142 (7,274)
Net cash used in operating activities(10,115)(18,017)
Cash flows from investing activities:
Purchases of property and equipment(743)(431)
Purchases of intangibles and other assets(218)(117)
Net cash used in investing activities(961)(548)
Cash flows from financing activities:
Proceeds from exercise of stock options2,352 2 
Proceeds from exercise of warrants2  
Proceeds from issuance of common stock 23,262 
Proceeds from long-term debt 2,824 
Payments of deferred financing costs (260)
Net cash provided by financing activities2,354 25,828 
Effect of exchange rate changes on cash(4)11 
Net change in cash, cash equivalents and restricted cash(8,726)7,274 
Cash, cash equivalents and restricted cash at beginning of year37,200 30,921 
Cash, cash equivalents and restricted cash at end of period$28,474 $38,195 
Supplemental disclosure of cash flow information:
Cash paid for interest$2,359 $2,398 
Cash paid for income taxes36 52 
Right-of-use assets recognized in exchange for lease obligations (non-cash)(577)1,152 
Gain on forgiveness of PPP loan (non-cash)2,852  
Issuance of common stock for convertible debt interest (non-cash)1,229 467 
Issuance of common stock from conversion of convertible debt (non-cash)74  

See accompanying notes to the condensed consolidated financial statements.
5

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Notes to Unaudited Interim Condensed Consolidated Financial Statements
(In thousands, except for share data)

(1) Organization and Business Description
Apollo Endosurgery, Inc. is a Delaware corporation with both domestic and foreign wholly-owned subsidiaries. Throughout these Notes, "Apollo" and the "Company" refer to Apollo Endosurgery, Inc. and its consolidated subsidiaries.
Apollo is a medical technology company primarily focused on the development of next-generation, less invasive medical devices to advance gastrointestinal therapeutic endoscopy. The Company develops and distributes devices that are used by surgeons and gastroenterologists for a variety of procedures related to gastrointestinal conditions including closure of gastrointestinal defects, managing gastrointestinal complications and the treatment of obesity.
The Company's core products include the OverStitch® Endoscopic Suturing System, the OverStitch Sx® Endoscopic Suturing System, X-Tack® Endoscopic HeliX Tacking System (collectively "ESS") and the ORBERA® Intragastric Balloon ("IGB").
The Company has offices in the United Kingdom and Italy that oversee commercial activities outside the U.S. and a products manufacturing facility in Costa Rica. All other activities are managed and operated from facilities in Austin, Texas.

(2) Significant Accounting Policies
(a) Basis of Presentation
The Company prepared its interim condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). They do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements include the Company's accounts and the accounts of its wholly-owned subsidiaries. The Company has eliminated all intercompany balances and transactions.
The Company has made estimates and judgments affecting the amounts reported in its condensed consolidated financial statements and the accompanying notes. The actual results that the Company experiences may differ materially from the Company's estimates. The accounting estimates that require the Company's most significant, difficult and subjective judgments include revenue recognition and inventory valuation.
(b) Unaudited Interim Results
In management's opinion, the unaudited financial information for the interim periods presented includes all adjustments necessary for a fair presentation of the results of operations, financial position, and cash flows. All adjustments are of a normal recurring nature unless otherwise disclosed. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. This interim information should be read in conjunction with the audited consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
(c) Recent Accounting Pronouncements
In March 2020, ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, was issued to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients for contracts that reference LIBOR, if certain criteria are met, that can be applied through December 31, 2022. As reference rate reform is still an ongoing process, the Company will continue to evaluate the timing and potential impact of adoption for optional expedients when deemed necessary.

(3) Concentrations
Consolidated financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents and accounts receivable. At September 30, 2021, the Company's cash, cash equivalents and restricted cash are held in deposit accounts at five different banks totaling $28,474. The Company has not experienced any losses in such accounts, and management does not believe the Company is exposed to any significant credit risk. Management further believes that credit risk in the Company's accounts receivable is substantially mitigated by the Company's evaluation process, relatively short collection terms, and the high level of creditworthiness of its customers. The Company continually monitors the compliance of its customers with the Company's payment terms, but generally requires no collateral.
6

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Notes to Unaudited Interim Condensed Consolidated Financial Statements (continued)
(In thousands, except for share data)
The Company had one distributor customer representing 11% of the Company's net accounts receivable as of September 30, 2021, and no concentrations greater than 10% as of December 31, 2020. The Company had no single customer that comprised more than 10% of the Company's total revenues for the three and nine months ended September 30, 2021 or 2020.

(4) Inventory
Inventory consists of the following as of:
September 30, 2021December 31, 2020
(unaudited)
Raw materials$3,037 $2,344 
Work in progress1,141 558 
Finished goods7,139 7,404 
Total inventory$11,317 $10,306 
Finished goods included $117 of consigned inventory at September 30, 2021.

(5) Prepaid Expenses and Other Current Assets
Included in prepaid expenses and other current assets as of September 30, 2021 and December 31, 2020 is $2,947 and $2,760 for the final installment due in December 2021 from the sale of the surgical product line.

(6) Property, Equipment and Right-of-Use Assets
Property, equipment and right-of-use assets consists of the following:
Depreciable LivesSeptember 30, 2021December 31, 2020
(unaudited)
Equipment
5 years
$7,483 $7,452 
Right-of-use assets
1-8 years
3,449 4,031 
Furniture, fixtures and tooling
4-8 years
2,471 2,156 
Computer hardware
3-5 years
1,305 1,244 
Leasehold improvements
3-7 years
2,052 1,744 
Construction in process408 466 
17,168 17,093 
Less accumulated depreciation(11,582)(10,872)
Property, equipment and right-of-use assets, net$5,586 $6,221 
The Company recorded depreciation expense of $285 and $1,071 for the three and nine months ended September 30, 2021 and $435 and $1,346 for the three and nine months ended September 30, 2020, respectively. There were no impairment charges for the three and nine months ended September 30, 2021 or 2020.
The Company has operating leases for office space in Texas, the United Kingdom, and Italy, and for the manufacturing facility in Costa Rica. The Company also has various operating lease agreements for vehicles.
7

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Notes to Unaudited Interim Condensed Consolidated Financial Statements (continued)
(In thousands, except for share data)
As of September 30, 2021, the maturities of the Company's operating lease liabilities are as follows:
2021$340 
2022791 
2023492 
2024443 
2025404 
Thereafter1,172 
Total lease payments3,642 
Less imputed interest(923)
Total operating lease liabilities$2,719 
Operating lease liabilities of $653 are included in accrued expenses and $2,066 are included in long-term liabilities as of September 30, 2021. Operating lease expense and cash paid within operating cash flows for operating leases was $174 and $723 for the three and nine months ended September 30, 2021 and $286 and $870 for the three and nine months ended September 30, 2020, respectively. As of September 30, 2021, the weighted average remaining lease term was 5.1 years and the weighted average discount rate used to estimate the value of the operating lease liabilities was 8.9%. In June 2021, the Company extended the office lease in Texas for one year.

(7) Accrued Expenses
Accrued expenses consists of the following as of:
September 30, 2021December 31, 2020
(unaudited)
Accrued employee compensation and expenses$5,449 $3,946 
Accrued professional service fees604 358 
Lease liability653 675 
Accrued taxes779 442 
Accrued interest307 616 
Accrued returns and rebates220 129 
Other1,239 1,191 
Total accrued expenses$9,251 $7,357 

8

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Notes to Unaudited Interim Condensed Consolidated Financial Statements (continued)
(In thousands, except for share data)
(8) Long-Term Debt
Long-term debt consists of the following as of:
September 30, 2021December 31, 2020
(unaudited)
Term loan facility$35,000 $35,000 
PPP loan 2,824 
Deferred interest1,759 1,217 
Deferred financing costs(986)(1,213)
Less current portion(1,129)(636)
Long-term debt$34,644 $37,192 
Term Loan Facility
In March 2019, the Company entered into a Term Loan Facility (the "Credit Agreement") with Solar Capital Ltd. ("Solar") to borrow $35,000. The Credit Agreement, as amended by the Seventh Amendment, provided a six-month extension of the interest only period and the maturity date if certain revenue milestones were achieved before December 2021. These revenue milestones were achieved as of March 31, 2021 and thus the Credit Agreement maturity was extended to March 1, 2025 with principal payments beginning in September 2022. The Credit Agreement bears interest at LIBOR, subject to a minimum floor, plus 7.5%. Principal payments are due on a straight-line basis after the interest-only period concludes. An additional 7.0% of the outstanding amount will be due at end of the loan term and an additional 5.5% fee will be due at the earlier of certain exit events specified in the Credit Agreement or if the Company achieves trailing twelve-month revenue of $100,000 before December 4, 2030. The Credit Agreement includes customary affirmative covenants, negative covenants and financial covenants, including a minimum liquidity requirement and minimum product revenues.
In February 2021, the Company entered into the Eighth Amendment to the Credit Agreement which established the revenue covenant requirements for the year ended December 31, 2021.
As of September 30, 2021, the Company was in compliance with all financial covenants.
PPP Loan
In March 2020, the CARES Act was signed into law providing certain economic aid packages for qualified entities. In April 2020, the Company was granted a loan of $2,824 under the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) established under the CARES Act.
In June 2021, the Company received forgiveness of the full amount of the $2,852 loan, inclusive of interest, from the SBA.
Interest expense on the Company's long-term debt was $1,048 and $3,147 for the three and nine months ended September 30, 2021 and $1,054 and $3,144 for the three and nine months ended September 30, 2020, respectively.
Principal payments of the Company's long-term debt are as follows:
2021$ 
20224,516 
202313,548 
202413,548 
20253,388 
Thereafter 
$35,000 

9

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Notes to Unaudited Interim Condensed Consolidated Financial Statements (continued)
(In thousands, except for share data)
(9) Convertible Debt
Convertible debt consists of the following as of:
September 30, 2021December 31, 2020
(unaudited)
Convertible debt$20,445 $20,519 
Deferred financing costs(982)(1,132)
Total convertible debt$19,463 $19,387 
In August 2019, the Company issued $20,000 aggregate principal amount of 6.0% convertible senior debentures due 2026 (the "Convertible Debt"), primarily to existing stockholders and officers of the Company. Interest on the Convertible Debt is payable semi-annually in shares of the Company's common stock on January 1 and July 1 of each year at a rate of 6.0% per year. The number of shares of common stock required to settle the amount of interest payable will be based on the volume-weighted average price ("VWAP") of the Company's common stock for the 10 consecutive trading days immediately preceding the applicable interest payment date. However, in the event that the trailing 10-trading day VWAP of the Company's common stock is less than $2.50 per share, interest accrued and payable for the applicable interest payment period will accrete to the principal amount then outstanding. The Convertible Debt will mature on August 12, 2026 unless earlier converted or repaid in accordance with its terms.
The Company issued 161,184 shares and 12,068 shares of the Company's common stock to holders of the Convertible Debt in January 2021 and May 2021, respectively, in fulfillment of accrued interest as of December 31, 2020. In July 2021, the Company issued 71,609 additional shares of common stock for accrued interest as of June 30, 2021.
The Convertible Debt converts, at the option of the holders, into shares of the Company's common stock at an initial conversion price of $3.25 per share, subject to adjustment. If the VWAP of the Company's common stock has been at least $9.75 (subject to adjustment) for at least 20 trading days during any 30 consecutive trading day period, the Company may force the conversion of all or any part of the outstanding principal amount of the Convertible Debt, accrued and unpaid interest and any other amounts then owing, subject to certain conditions. In February 2021, $74 of the Convertible Debt, including accrued interest was converted into 22,644 shares of common stock.
Interest expense on the Convertible Debt was $356 and $1,070 for the three and nine months ended September 30, 2021 and $388 and $1,144 for the three and nine months ended September 30, 2020, respectively.

(10) Warrants
Warrants consist of the following as of September 30, 2021:
Warrant Expiration DateNumber of sharesExercise price per share
December 29, 202140,456 $13.70 
February 27, 2022163,915 $21.29 
No expiration13,744,504 $0.001 
Total number of warrants outstanding13,948,875 
Weighted average exercise price of warrants outstanding$0.29 
Pre-funded warrants were exercised into 2,668,247 shares of common stock in the nine months ended September 30, 2021.

10

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Notes to Unaudited Interim Condensed Consolidated Financial Statements (continued)
(In thousands, except for share data)
(11) Stock-Based Compensation
A summary of the stock option activity as of September 30, 2021 is presented below.
OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Options outstanding, December 31, 20202,921,946 $3.86 7.6 years$1,664 
Options granted1,507,872 6.36 
Options exercised(643,569)3.66 
Options forfeited(226,356)3.27 
Options outstanding, vested and expected to vest, September 30, 20213,559,893 $4.99 8.2 years$14,853 
Options exercisable1,430,480 $4.63 6.9 years$6,705 
Shares subject to awards granted under the 2017 Plan which expire, are repurchased, or are canceled or forfeited will again become available for issuance under the 2017 Plan. The shares available will not be reduced by awards settled in cash or by shares withheld to satisfy tax withholding obligations. Only the net number of shares issued upon the exercise of options by means of a net exercise will be deducted from the shares available under the 2017 Plan.
The fair value of stock option grants has been estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
Nine Months Ended
September 30, 2021
Nine Months Ended
September 30, 2020
Risk free interest rate1.0%0.4%
Expected dividend yield%%
Estimated volatility81.1%73.8%
Expected life6.1 years5.8 years
The aggregate intrinsic value in the tables above represents the total pre-tax value of the options shown, calculated as the difference between the Company’s closing stock price on September 30, 2021 and the exercise prices of the options shown, multiplied by the number of in-the money options. This is the aggregate amount that would have been received by the option holders if they had all exercised their options on September 30, 2021 and sold the shares thereby received at the closing price of the Company’s common stock on that date. This amount changes based on the closing price of the Company’s common stock.
Additional information regarding options is as follows:
Nine Months Ended
September 30, 2021
Nine Months Ended
September 30, 2020
Weighted-average grant date fair value of options granted during the period$4.40 $1.31 
Aggregate intrinsic value of options exercised during the period$3,116 $ 
In March 2021, the Company awarded 848,733 stock options to the Company’s chief executive officer in connection with the commencement of his employment. In August 2021, the Company awarded 150,000 stock options to the Company's chief financial officer in connection with the commencement of his employment. The option grant will vest over a period of four years, with one-quarter of the shares underlying the option vesting on the first anniversary of the grant date and the remainder vesting in equal monthly installments thereafter.
In connection with the departure of two executive officers, the terms for the stock option vesting period and exercise period were modified which resulted in additional stock-based compensation of $26 and $222 for the three and nine months ended September 30, 2021, respectively.
Unrecognized compensation expense related to unvested options was approximately $6,724 at September 30, 2021, with a weighted average remaining amortization period of 3.1 years.
11

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Notes to Unaudited Interim Condensed Consolidated Financial Statements (continued)
(In thousands, except for share data)
A summary of the restricted stock unit activity, including performance-based stock units, under the Company's Equity Plans as of September 30, 2021 is presented below.
UnitsWeighted Average Grant Date Fair ValueAggregate Intrinsic Value
Restricted stock units outstanding, December 31, 2020664,666 $2.55 $2,260 
Restricted stock units granted1,111,437 6.53 
Restricted stock units released(431,047)3.97 
Restricted stock units forfeited(130,135)3.08 
Restricted stock units outstanding, September 30, 20211,214,921 $5.63 $11,007 
In March 2021, the Company awarded 707,278 performance-based restricted stock units to the Company’s chief executive officer in connection with the commencement of his employment. The performance-based restricted stock units vest in four equal tranches upon the achievement of revenue for the trailing four quarters equal to $50,000, $65,000, $80,000, and $95,000. The revenue milestone for the first tranche was achieved as of June 30, 2021.
In August 2021, the Company awarded 80,000 time-based restricted stock units and 120,000 performance-based restricted stock units to the Company's chief financial officer in connection with the commencement of his employment. The time-based restricted stock units vest in four equal tranches upon completion of each year of employment. The performance-based restricted stock units vest in three equal tranches upon the achievement of revenue for the trailing four quarters equal to $70,000, $90,000, and $110,000.
In connection with the departure of an executive officer, the vesting terms for restricted stock units outstanding were modified which resulted in additional stock-based compensation of $76 for the nine months ended September 30, 2021.
Unrecognized compensation expense related to unvested restricted stock units and performance-based stock units was approximately $2,278 and $3,008, respectively, at September 30, 2021, with a weighted average remaining amortization period of 2.0 years.

(12) Income Taxes
The provision for income taxes for the three and nine months ended September 30, 2021 and 2020 primarily consists of foreign income taxes.
The Company has established a valuation allowance due to uncertainties regarding the realization of deferred tax assets based on the Company's lack of earnings history and potential limitations pursuant to changes in ownership under Internal Revenue Code Section 382.
As of September 30, 2021, the Company has no unrecognized tax benefits or accrued interest or penalties associated with uncertain tax positions.

(13) Net Loss Per Share
The basic and diluted net loss per common share presented in the condensed consolidated statements of operations and comprehensive loss is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Potentially dilutive shares, which include warrants for the purchase of common stock, convertible debt, restricted stock units, including performance-based stock units, and options outstanding under the Company's equity incentive plans, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.
12

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Notes to Unaudited Interim Condensed Consolidated Financial Statements (continued)
(In thousands, except for share data)
Potentially dilutive securities that are not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares on a weighted-average basis):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Warrants for common stock13,948,875 14,725,241 13,948,875 5,744,225 
Convertible debt6,299,433 6,385,483 6,293,791 6,292,599 
Common stock options3,494,676 3,009,913 3,039,021 2,459,202 
Restricted stock units1,127,964 677,605 847,081 437,640 
24,870,948 24,798,242 24,128,768 14,933,666 

(14) Fair Value Measurements
The carrying amounts of the Company's financial instruments, which primarily include cash, cash equivalents, and restricted cash, accounts receivable, accounts payable and accrued expenses, approximate their fair values due to their short maturities. The fair value of the Company's long-term debt and Convertible Debt is estimated by management to approximate $38,800 and $20,400, respectively at September 30, 2021. Management's estimates are based on comparisons of the characteristics of the Company's obligations, comparable ranges of interest rates on recently issued debt, and maturity. Such valuation inputs are considered a Level 3 measurement in the fair value valuation hierarchy.
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

(15) Segment and Geographic Information
Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company globally manages the business within one reportable segment. Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.
13

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Notes to Unaudited Interim Condensed Consolidated Financial Statements (continued)
(In thousands, except for share data)
Product sales by product group and geographic market, based on the location of the customer, whether the U.S. or outside the U.S. ("OUS") for the periods shown were as follows:
Three Months Ended September 30, 2021Three Months Ended September 30, 2020
(unaudited)
U.S.OUSTotal Revenues% Total RevenuesU.S.OUSTotal Revenues% Total Revenues
ESS$6,722 $3,504 $10,226 62.5 %$4,734 $2,928 $7,662 59.7 %
IGB2,006 3,890 5,896 36.1 %1,853 3,021 4,874 38.0 %
Other215 14 229 1.4 %272 18 290 2.3 %
Total revenues$8,943 $7,408 $16,351 100.0 %$6,859 $5,967 $12,826 100.0 %
% Total revenues54.7 %45.3 %53.5 %46.5 %
Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020
(unaudited)
U.S.OUSTotal Revenues% Total RevenuesU.S.OUSTotal Revenues% Total Revenues
ESS$18,977 $10,512 $29,489 63.0 %$10,873 $7,211 $18,084 62.0 %
IGB5,570 11,042 16,612 35.5 %3,511 6,688 10,199 34.9 %
Other689 28 717 1.5 %854 51 905 3.1 %
Total revenues$25,236 $21,582 $46,818 100.0 %$15,238 $13,950 $29,188 100.0 %
% Total revenues53.9 %46.1 %52.2 %47.8 %
Total distributor sales were 46.4% and 42.4% of total OUS revenues for the three and nine months ended September 30, 2021 and 30.4% and 31.4% for the three and nine months ended September 30, 2020, respectively. Sales in the next largest individual country outside the U.S. were 6.0%-7.0% of total revenues for the three and nine months ended September 30, 2021 compared to 8.0%-9.0% for the three and nine months ended September 30, 2020.
The following table represents property, equipment and right-of-use assets based on the physical location of the asset:
September 30, 2021December 31, 2020
(unaudited)
U.S.$1,832 $2,149 
Costa Rica3,485 3,641 
Other269 431 
Total property, equipment and right-of-use assets, net$5,586 $6,221