0001564590-19-018547.txt : 20190510 0001564590-19-018547.hdr.sgml : 20190510 20190510161434 ACCESSION NUMBER: 0001564590-19-018547 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 89 CONFORMED PERIOD OF REPORT: 20190331 FILED AS OF DATE: 20190510 DATE AS OF CHANGE: 20190510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAPOTHERM INC CENTRAL INDEX KEY: 0001253176 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38740 FILM NUMBER: 19815080 BUSINESS ADDRESS: STREET 1: 100 DOMAIN DRIVE CITY: EXETER STATE: NH ZIP: 03833 BUSINESS PHONE: 603-658-0411 MAIL ADDRESS: STREET 1: 100 DOMAIN DRIVE CITY: EXETER STATE: NH ZIP: 03833 10-Q 1 vapo-10q_20190331.htm 10-Q vapo-10q_20190331.htm

 

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, 2019

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)

 

100 Domain Drive

Exeter, NH 03833

(Address of principal executive offices, including zip code)

(603) 658-0011

(Registrant’s telephone number, including area code)

 

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, 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 

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

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

 

As of May 7, 2019, there were 17,387,489 outstanding common shares of Vapotherm, Inc.

 


Vapotherm, Inc.

Form 10-Q

For the Quarterly Period Ended March 31, 2019

 

TABLE OF CONTENTS

 

 

Page No.

Note Regarding Forward-Looking Statements

3

 

PART I. FINANCIAL INFORMATION

Item 1

Financial Statements (unaudited)

5

 

Consolidated Balance Sheets - March 31, 2019 and December 31, 2018

5

 

Consolidated Statements of Operations - Three Months Ended March 31, 2019 and 2018

6

 

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) - Three Months Ended March 31, 2019 and March 2018

7

 

Consolidated Statements of Cash Flows - Three Months Ended March 31, 2019 and 2018

8

 

Notes to Consolidated Financial Statements

9

Item 2

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

27

Item 3

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4

Controls and Procedures

34

 

 

 

PART II. OTHER INFORMATION

Item 1

Legal Proceedings

35

Item 1A

Risk Factors

35

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 6

Exhibits

36

Exhibit Index

36

Signatures

37

 

2


NOTE REGARDING 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. 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. Forward-looking statements include, but are not limited to, statements concerning:

 

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 and any future products we may seek to commercialize;

 

competitive companies and technologies in our industry;

 

our ability to enhance our Hi-VNI Technology, 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 ability to accurately forecast customer demand for our products and manage our inventory;

 

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

 

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 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;

 

the timing or likelihood of regulatory filings and approvals;

 

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

 

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

 

our expectations about market trends.

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 22, 2019, Part I, “Item 1A. Risk Factors” 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

3


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,” and “Hi-VNI” 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. 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.

4


PART I. FINANCIAL INFORMATION

 

ITEM 1.        FINANCIAL STATEMENTS

 

VAPOTHERM, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

56,666

 

 

$

58,223

 

Accounts receivable, net

 

 

6,658

 

 

 

7,107

 

Inventory

 

 

12,420

 

 

 

13,710

 

Prepaid expenses and other current assets

 

 

2,456

 

 

 

2,683

 

Total current assets

 

 

78,200

 

 

 

81,723

 

Property and equipment, net

 

 

13,901

 

 

 

13,416

 

Restricted cash

 

 

1,852

 

 

 

1,799

 

Goodwill

 

 

584

 

 

 

-

 

Intangible assets, net

 

 

455

 

 

 

-

 

Other long-term assets

 

 

350

 

 

 

308

 

Total assets

 

$

95,342

 

 

$

97,246

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,508

 

 

$

3,148

 

Contract liability

 

 

176

 

 

 

79

 

Accrued expenses and other liabilities

 

 

6,657

 

 

 

7,653

 

Short term line of credit

 

 

3,982

 

 

 

3,163

 

Total current liabilities

 

 

12,323

 

 

 

14,043

 

Long-term loans payable

 

 

41,574

 

 

 

31,317

 

Deferred tax liability

 

 

97

 

 

 

-

 

Other long-term liabilities

 

 

329

 

 

 

325

 

Total liabilities

 

 

54,323

 

 

 

45,685

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred stock ($0.001 par value) 25,000,000 shares authorized as of

   March 31, 2019 and December 31, 2018, respectively; 0 shares issued

   and outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

-

 

 

 

-

 

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

   March 31, 2019 and December 31, 2018, respectively; 16,899,685

   and 16,782,837 shares issued and outstanding as of March 31, 2019

   and December 31, 2018, respectively

 

 

17

 

 

 

17

 

Additional paid-in capital

 

 

268,348

 

 

 

265,926

 

Accumulated deficit

 

 

(227,346

)

 

 

(214,382

)

Total stockholders' equity

 

 

41,019

 

 

 

51,561

 

Total liabilities and stockholders’ equity

 

$

95,342

 

 

$

97,246

 

 

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

5


Vapotherm, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Net revenue

 

$

12,299

 

 

$

10,739

 

Cost of goods sold

 

 

7,120

 

 

 

6,494

 

Gross profit

 

 

5,179

 

 

 

4,245

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

 

3,273

 

 

 

2,225

 

Sales and marketing

 

 

9,161

 

 

 

8,051

 

General and administrative

 

 

4,879

 

 

 

2,382

 

Loss on disposal of fixed assets

 

 

-

 

 

 

3

 

Total operating expenses

 

 

17,313

 

 

 

12,661

 

Loss from operations

 

 

(12,134

)

 

 

(8,416

)

Other (expense) income

 

 

 

 

 

 

 

 

Foreign currency loss

 

 

(9

)

 

 

(3

)

Interest income

 

 

203

 

 

 

1

 

Interest expense

 

 

(1,024

)

 

 

(616

)

Gain on change in fair value of warrant liabilities

 

 

-

 

 

 

128

 

Net loss

 

$

(12,964

)

 

$

(8,906

)

Net loss per share basic and diluted

 

$

(0.76

)

 

$

(11.33

)

Weighted-average number of shares used in calculating net

   loss per share, basic and diluted

 

 

16,949,027

 

 

 

786,184

 

 

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

 

6


 

VAPOTHERM, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

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 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

 

 

 

 

 

Redeemable Convertible

 

 

 

 

 

Additional

 

 

 

 

 

 

Stockholders'

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance at December 31, 2017

 

 

10,515,351

 

 

$

152,637

 

 

 

672,321

 

 

$

1

 

 

$

45,056

 

 

$

(171,914

)

 

$

(126,857

)

Issuance of stock upon exercise of options

 

 

-

 

 

 

-

 

 

 

13,492

 

 

 

-

 

 

 

18

 

 

 

-

 

 

 

18

 

Issuance of restricted stock

 

 

-

 

 

 

-

 

 

 

50,385

 

 

 

-

 

 

 

83

 

 

 

-

 

 

 

83

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

116

 

 

 

-

 

 

 

116

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,906

)

 

 

(8,906

)

Balance at March 31, 2018

 

 

10,515,351

 

 

$

152,637

 

 

 

736,198

 

 

$

1

 

 

$

45,273

 

 

$

(180,820

)

 

$

(135,546

)

 

 

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

 

7


 

VAPOTHERM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(12,964

)

 

$

(8,906

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

621

 

 

 

466

 

Stock-based compensation expense

 

 

1,903

 

 

 

116

 

Loss on disposal of fixed assets

 

 

23

 

 

 

150

 

Provision for bad debts

 

 

13

 

 

 

2

 

Amortization of discount on debt

 

 

44

 

 

 

14

 

Change in fair value of warrants

 

 

-

 

 

 

(128

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

847

 

 

 

189

 

Inventory

 

 

1,782

 

 

 

691

 

Prepaid expenses and other assets

 

 

197

 

 

 

75

 

Accounts payable

 

 

(1,658

)

 

 

(597

)

Contract liability

 

 

22

 

 

 

18

 

Accrued expenses and other liabilities

 

 

(661

)

 

 

(2,570

)

Net cash used in operating activities

 

 

(9,831

)

 

 

(10,480

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Acquisition of business, net of cash acquired

 

 

(1,560

)

 

 

-

 

Purchases of property and equipment

 

 

(1,128

)

 

 

(1,245

)

Net cash used in investing activities

 

 

(2,688

)

 

 

(1,245

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds on loans

 

 

10,500

 

 

 

-

 

Debt issuance costs

 

 

(322

)

 

 

(1

)

Short term line of credit

 

 

837

 

 

 

-

 

Proceeds from exercise of stock options and purchase of restricted stock

 

 

-

 

 

 

393

 

Net cash provided by financing activities

 

 

11,015

 

 

 

392

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(1,504

)

 

 

(11,333

)

Cash, cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Beginning of period

 

 

60,022

 

 

 

28,360

 

End of period

 

$

58,518

 

 

$

17,027

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Interest paid during the period

 

$

939

 

 

$

576

 

Issuance of warrants in conjunction with debt draw down

 

$

293

 

 

$

-

 

Property and equipment purchases in accrued expenses at period end

 

$

42

 

 

$

59

 

 

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

 

8


VAPOTHERM, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(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 has focused on the development and commercialization of its proprietary Hi-VNI Technology products that are used to treat patients of all ages suffering from respiratory distress. The Company’s Hi-VNI Technology 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, 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 four versions of its Precision Flow systems: Precision Flow Hi-VNI, Precision Flow Plus, Precision Flow Classic and Precision Flow Heliox. The Company generates revenue primarily from sales of its Precision Flow systems, which include capital units and single-use disposables, and to a lesser extent, sales of its companion products, which include the Vapotherm Transfer Unit 2.0, the Q50 compressor and various adaptors. 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. In addition, the Company utilizes clinical educators who are experienced users of Hi-VNI Technology 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 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.

Since inception, the Company has financed its operations primarily through an initial public offering 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 devoted 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 growth and effectiveness of marketing by the Company and by third parties.

On November 16, 2018, the Company 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 after deducting the underwriting discount of $4.5 million and offering expenses of $2.5 million.

On February 28, 2019, the Company acquired its United Kingdom based distributor. See Note 18 “Business Combinations” to these consolidated financial statements for details of this transaction.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. 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, 2018 (the “2018 Form 10-K”). Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2018 Form 10-K and updated, as necessary, in this report. The year-end 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.

9


VAPOTHERM, INC.

Notes to Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

 

Principles of Consolidation

These 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 acquired in the first quarter of 2019. All intercompany accounts and transactions have been eliminated upon consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements include calculation of stock-based compensation, fair values of acquired assets and liabilities, including goodwill and intangibles assets, warrant liabilities, realizability of inventories, allowance for bad debt and accrued expenses. Actual results may differ from these estimates.

Unaudited Interim Financial Information

The accompanying consolidated balance sheet as of March 31, 2019, the consolidated statements of operations, redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows for the three months ended March 31, 2019 and 2018 are unaudited. The unaudited interim 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, 2019 and the results of its operations and its cash flows for the three months ended March 31, 2019 and 2018. The financial data and other information disclosed in these notes related to the three months ended March 31, 2019 and 2018 are also unaudited. The results of operations for the three months ended March 31, 2019, are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

 

Recently Adopted Accounting Pronouncements

Statement of Cash Flows (Topic 230): Restricted Cash

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The new standard requires cash and cash equivalents balances on the statement of cash flows to include restricted cash and cash equivalent balances. ASU 2016-18 requires the company to provide appropriate disclosures about its accounting policies pertaining to restricted cash in accordance with accounting principles generally accepted in the United States. Additionally, changes in restricted cash and restricted cash equivalents that result from transfers between cash, cash equivalents, and restricted cash and restricted cash equivalents should not be presented as cash flow activities in the statement of cash flows. A company with a material balance of amounts generally described as restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. The new standard is effective for interim and annual periods beginning after December 15, 2018. The Company had not previously included restricted cash as a component of cash and cash equivalents as presented on its consolidated statement of cash flows. The Company adopted the new standard in the first quarter of fiscal 2019, under the retrospective adoption method, and prior year restricted cash has been reclassified to conform to current year presentation.

 

10


VAPOTHERM, INC.

Notes to Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

 

Clarifying the Definition of a Business (Topic 805):

 

In January 2017, the FASB issued ASU No. 2017-01 Clarifying the Definition of a Business (Topic 805) (“ASU 2017-01”). The new guidance changed the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The Company adopted ASU 2017-01 effective January 1, 2019. Adoption of ASU 2017-01 did not have a significant impact on our consolidated financial statements and related disclosures.

 

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. The Company will adopt the new standard during interim and annual periods beginning after December 15, 2019. 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. 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. The Company has not yet determined the effects, if any, that the adoptions of ASU 2016-02 and ASU 2018-11 may have on its financial position, results of operations, cash flows, or disclosures.

 

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. The new standard is effective for interim and annual periods beginning after December 15, 2019. 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.

 

Foreign Currency

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 our non-U.S. subsidiary that transacts 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 our foreign operations into U.S. dollars are excluded from the determination of net loss and are recorded in accumulated other comprehensive income, a separate component of stockholders’ equity.

There were no assets or liabilities of foreign subsidiaries that were translated at period-end exchange rates as of December 31, 2018. As of March 31, 2019, the Solus entity was included in our consolidated results due to the acquisition in February 2019. See Note 18 “Business Combinations” to these consolidated financial statements for details of this transaction. The functional currency for this entity is its local currency, Pound Sterling (GBP).

11


VAPOTHERM, INC.

Notes to Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

 

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

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. At March 31, 2019 and December 31, 2018, the Company had restricted cash related to certificates of deposits and collateral in relation to lease agreements. At March 31, 2019 and December 31, 2018, the Company did not hold any cash equivalents.

Intangible Assets

 

Intangible assets related to customer agreements are amortized on a straight-line basis, over their useful lives. Amortization is recorded within sales and marketing expenses in the consolidated statements of operations.

Goodwill

 

Goodwill represents the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired in a transaction accounted for using the purchase method of accounting. Goodwill is not amortized, but reviewed for impairment. Goodwill is reviewed annually, as of October 1, and whenever events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable.

 

The Company compares the fair value of its reporting units to their carrying values. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, the Company would record an impairment loss equal to the difference. As described in Note 17 “Segment Reporting”, the Company operates in one operating segment and has two reporting units, Vapotherm and Solus.

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:

 

 

 

Three Months Ended March 31, 2019

 

 

 

US

 

 

International

 

 

Total

 

Net revenue by:

 

 

 

 

 

 

 

 

 

 

 

 

Product Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

$

1,510

 

 

$

505

 

 

$

2,015

 

Disposable

 

 

7,547

 

 

 

1,472

 

 

 

9,019

 

Subtotal Product Revenue

 

 

9,057

 

 

 

1,977

 

 

 

11,034

 

Lease Revenue

 

 

663

 

 

 

-

 

 

 

663

 

Service and Other Revenue

 

 

329

 

 

 

273

 

 

 

602

 

Total Revenue

 

$

10,049

 

 

$

2,250

 

 

$

12,299

 

12


VAPOTHERM, INC.

Notes to Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

US

 

 

International

 

 

Total

 

Net revenue by:

 

 

 

 

 

 

 

 

 

 

 

 

Product Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

$

1,572

 

 

$

711

 

 

$

2,283

 

Disposable

 

 

6,343

 

 

 

1,226

 

 

 

7,569

 

Subtotal Product Revenue

 

 

7,915

 

 

 

1,937

 

 

 

9,852

 

Lease Revenue

 

 

185

 

 

 

-

 

 

 

185

 

Service and Other Revenue

 

 

522

 

 

 

180

 

 

 

702

 

Total Revenue

 

$

8,622

 

 

$

2,117

 

 

$

10,739

 

 

Service and other revenue includes sales of non-Vapotherm products sold by Solus. Net revenue by U.S. and International 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 revenue.

Product Returns

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 time of sale. The Company provides its customers with the right to return products for a refund of the purchase price or for an account credit, if the return is made within a specified number of days from the original invoice date. The Company records a product return liability based upon an estimate of specific returns and a review of historical returns experienced. Adjustments are made to the product return liability as returns data and historical experience change. The provision for product return estimates is recorded as a reduction of revenue. The product return liability of less than $0.1 million is included in other current liabilities.

Stock Split

On November 2, 2018, the Company’s Board of Directors and stockholders approved a 14:1 reverse stock split. The effect of this event has been reflected in all of the share quantities and per share amounts throughout these financial statements. The shares of common stock retained a par value of $0.001.

Business Combinations

 

The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. The Company continues to collect information and re-evaluates these estimates and assumptions quarterly and records any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments will be recorded in the Company’s consolidated statement of operations.

 

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.

 

13


VAPOTHERM, INC.

Notes to Consolidated Financial Statements

(Unaudited, continued)

(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 our consolidated statements of cash flows:

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

2018

 

 

2017

 

Cash and cash equivalents

 

$

56,666

 

 

$

58,223

 

 

$

15,175

 

 

$

26,508

 

Restricted cash

 

 

1,852

 

 

 

1,799

 

 

 

1,852

 

 

 

1,852

 

Total cash, cash equivalents, and restricted cash

 

$

58,518

 

 

$

60,022

 

 

$

17,027

 

 

$

28,360

 

 

3. Accounts Receivable

Accounts receivable owed to the Company by its customers and distributors consist of the following:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

United States

 

$

4,738

 

 

$

4,948

 

International

 

 

2,203

 

 

 

2,493

 

Total accounts receivable

 

 

6,941

 

 

 

7,441

 

Less: Allowance for doubtful accounts

 

 

(283

)

 

 

(334

)

Accounts receivable, net of allowance for doubtful

   accounts

 

$

6,658

 

 

$

7,107

 

 

At March 31, 2019, the largest concentrations of accounts receivable, as a percentage of total accounts receivable, were with two distributors each representing 3% and one distributor representing 2% of total accounts receivable, respectively. At December 31, 2018, the largest concentrations of accounts receivable, as a percentage of total accounts receivable, were with one distributor representing 7% and two distributors representing 4% of total accounts receivable, respectively. No customers accounted for more than 10% of revenue or accounts receivable as of March 31, 2019 and December 31, 2018.

4. Financial Instruments

As of March 31, 2019 and December 31, 2018, the Company’s financial instruments were comprised of cash, accounts receivables, accounts payable and debt, the carrying amounts of which approximated fair value due to the short-term nature and market interest rates.

 

 

 

14


VAPOTHERM, INC.

Notes to Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

 

 

The Company’s warrant activity for the three months ended March 31, 2019 and March 31, 2018 are summarized as follows.

 

 

 

 

Series A Redeemable

 

 

Series B Redeemable

 

 

Series C Redeemable

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred

 

 

Convertible Preferred

 

 

Convertible Preferred

 

 

Total Warrants

 

 

 

Number

of

Shares

 

 

Estimated

Fair

Value

 

 

Weighted

Average

Exercise

Price

 

 

Number

of

Shares

 

 

Estimated

Fair

Value

 

 

Weighted

Average

Exercise

Price

 

 

Number

of

Shares

 

 

Estimated

Fair

Value

 

 

Weighted

Average

Exercise

Price

 

 

Number

of

Shares

 

 

Estimated

Fair

Value

 

Outstanding at December 31, 2017

 

 

158,202

 

 

$

415

 

 

$

14.00

 

 

 

12,857

 

 

$

72

 

 

$

14.00

 

 

 

4,285

 

 

$

42

 

 

$

14.00

 

 

 

175,344

 

 

$

529

 

Gain on change in fair value

 

 

-

 

 

 

(127

)

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(128

)

Outstanding at March 31, 2018

 

 

158,202

 

 

$

288

 

 

$

14.00

 

 

 

12,857

 

 

$

71

 

 

$

14.00

 

 

 

4,285

 

 

$

42

 

 

$

14.00

 

 

 

175,344

 

 

$

401

 

 

 

 

 

 

 

 

 

Common Stock Warrants

 

 

 

Number of Shares

 

 

Weighted Average

Exercise Price

 

Outstanding at December 31, 2018

 

 

230,295

 

 

$

14.50

 

Warrants granted

 

 

19,790

 

 

 

15.92

 

Outstanding at March 31, 2019

 

 

250,085

 

 

$

14.61

 

 

The Company did not grant any warrants in the three months ended March 31, 2018. During the three months ended March 31, 2019, in connection with an amendment to the Credit Agreement and Guaranty as further described in Note 8 “Debt”, the Company 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, exercisable at the option of the holder, in whole or in part, and expire in March 2029. The estimated fair value at the time of issuance was less than $0.3 million, and is recorded as a discount against the principal owed on the related debt, to be amortized over the contractual term of the debt instrument.

 

 

15

 


VAPOTHERM, INC.

Notes to Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

 

 

5. Inventories

Inventories as of March 31, 2019 and December 31, 2018 consist of the following:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Component parts

 

$

5,464

 

 

$

5,601

 

Finished goods

 

 

6,956

 

 

 

8,109

 

Total inventory

 

$

12,420

 

 

$

13,710

 

 

6. Property and Equipment

Property and equipment are carried at cost, less accumulated depreciation and amortization. A summary of the components of property and equipment, placed in service as of March 31, 2019 and December 31, 2018, is as follows:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Equipment

 

$

939

 

 

$

924

 

Furniture

 

 

962

 

 

 

957

 

Manufacturing equipment

 

 

4,175

 

 

 

4,166

 

Software

 

 

656

 

 

 

655

 

Demonstration, placements and evaluation units

 

 

8,013

 

 

 

7,135

 

Leasehold improvements

 

 

2,025

 

 

 

2,025

 

Construction in process

 

 

4,822

 

 

 

4,663

 

Total property and equipment

 

 

21,592

 

 

 

20,525

 

Less: Accumulated depreciation and amortization

 

 

(7,691

)

 

 

(7,109

)

Total property and equipment, net

 

$

13,901

 

 

$

13,416

 

 

Depreciation and amortization of property and equipment was $0.6 million and $0.5 million during the three months ended March 31, 2019 and March 31, 2018, respectively.

7. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities as of March 31, 2019 and December 31, 2018 consist of the following:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Accrued inventory

 

$

860

 

 

$

1,070

 

Accrued commissions

 

 

747

 

 

 

1,464

 

Accrued bonuses

 

 

670

 

 

 

1,692

 

Accrued professional fees

 

 

644

 

 

 

253

 

Accrued payroll liability

 

 

435

 

 

 

86

 

Accrued vacation liability

 

 

431

 

 

 

427

 

Product warranty reserve

 

 

329

 

 

 

329

 

Accrued taxes

 

 

271

 

 

 

305

 

Refundable purchase price of unvested stock

 

 

265

 

 

 

346

 

Accrued employee reimbursement

 

 

177

 

 

 

178

 

Accrued rent and restoration costs

 

 

170

 

 

 

174

 

Accrued freight

 

 

85

 

 

 

52

 

Clinical studies

 

 

75

 

 

 

67

 

Accrued capital equipment

 

 

42

 

 

 

21

 

Other

 

 

1,456

 

 

 

1,189

 

Total accrued expenses and other liabilities

 

$

6,657

 

 

$

7,653

 

 

16


VAPOTHERM, INC.

Notes to Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

 

8. Debt

Revolving Credit Line

On November 16, 2016, the Company entered a Business Financing Agreement (the “Revolver Agreement”) with Western Alliance Bank, an Arizona Corporation, which replaced its then existing revolving line of credit. The Revolver Agreement made available $7.0 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. The Company refinanced the Revolver Agreement in April 2018, increasing the credit line to $7.5 million and extending the maturity date to September 30, 2020.  The principal is due upon maturity. On March 22, 2019, the Company entered into an amendment to the Revolver Agreement (as amended, the “Amended Revolver Agreement”), which increased the allowable permitted indebtedness under the Amended Revolver Agreement in connection with the Company’s credit card program from $0.3 million to $0.5 million.

At March 31, 2019 the interest rate was 7.3%. The outstanding balance under the Amended Revolver Agreement was $4.0 million at March 31, 2019 and there was no remaining availability based on eligible receivables. At December 31, 2018 the interest rate was 7.3%. The outstanding balance under the Revolver Agreement was $3.2 million at December 31, 2018 and the remaining availability based on eligible receivables was $1.0 million.

Term Loans

On November 16, 2016, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Solar Capital Ltd. (“Solar”). Pursuant to the Loan Agreement, a total of $20.0 million was available in three tranches. The first tranche was drawn down in the amount of $10.0 million upon closing which paid off the Company’s then existing term loan balance of $6.0 million in full. The Company achieved the minimum revenue threshold required to draw down the second tranche of $5.0 million of term debt financing and obtained a signed term sheet for an equity financing in excess of $10.0 million, which allowed the Company to draw down the third and final tranche of $5.0 million term debt financing. The Company drew down the $5.0 million tranches in January 2017 and March 2017, respectively. The Company pledged all assets as collateral with a double negative pledge on intellectual property.

 

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 million on the closing date, April 6, 2018, which paid off the Loan Agreement in full.

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. 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 may draw the final $12.5 million of availability at any time through March 31, 2019 and eliminated the minimum 2018 revenue requirement of $43.2 million that was required to draw down the final tranche.  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 Perceptive warrants to purchase 3,769 shares of our Series D preferred stock. 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 September 2028.

17


VAPOTHERM, INC.

Notes to Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

 

As of December 31, 2018, the Company had drawn $32.0 million of the $42.5 million available, under the Credit Agreement and Guaranty and on March 22, 2019, the Company drew the remaining $10.5 million. 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, exercisable at the option of the holder, in whole or in part, and expire in March 2029.

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.

At March 31, 2019, the interest rate was 11.56%. The outstanding balance was $42.5 million at March 31, 2019 and there was no remaining availability. At December 31, 2018, the interest rate was 11.44%. The outstanding balance was $32.0 million at December 31, 2018 and the remaining availability was $10.5 million.

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, 2019, the Company was in compliance with these covenants.

The annual principal maturities of the Amended Credit Agreement and Guaranty as of March 31, 2019 are as follows:

 

2019

 

$

-

 

2020

 

 

-

 

2021

 

 

-

 

2022

 

 

-

 

2023

 

 

42,539

 

Less: Discount on loans payable

 

 

(965

)

Long-term loans payable

 

$

41,574

 

 

 

9. Commitments and Contingencies

The Company’s principal office is located at 100 Domain Drive, Exeter, New Hampshire 03833, where it leases approximately 84,140 square feet of office, manufacturing, research & development and warehouse space. The Company leases this space under an agreement that terminates on January 29, 2026.

The following table summarizes the future minimum combined lease payments for the years ended December 31, 2019 through 2023 and thereafter:

 

 

 

Total Due

 

As of March 31, 2019

 

 

 

 

Remainder of 2019

 

$

1,166

 

2020

 

 

1,577

 

2021

 

 

1,601

 

2022

 

 

1,626

 

2023

 

 

1,652

 

Thereafter

 

 

1,820

 

Total

 

$

9,442

 

 

Rent expense for each of the three months ended March 31, 2019 and March 31, 2018 was $0.5 million.

18


VAPOTHERM, INC.

Notes to Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

 

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. The Company is currently engaged in a litigation with Engineered Medical Systems, Inc. (“EMS”) a former supplier of a component of our Precision Flow systems. EMS filed a complaint against us in Indiana state court on June 12, 2018 alleging breach of contract and other causes of action and seeking damages of at least $800,000 and all other forms of just and appropriate relief. This matter was subsequently removed to the United States District Court for the Southern District of Indiana. The Company filed a complaint against EMS in Superior Court in Rockingham County, New Hampshire on June 15, 2018 alleging breach of contract, violation of the New Hampshire Consumer Protection Act, and other causes of action and seeking damages of at least $2.1 million and all other forms of just and appropriate relief. Each party filed a motion to dismiss against the other party’s complaint. EMS’ motion to dismiss in Superior Court in Rockingham County, New Hampshire was denied and discovery is now underway in the New Hampshire matter. Following this decision, EMS withdrew its complaint in Indiana. The Company does not believe this matter will have a material adverse impact on the consolidated financial statements.

The Company believes there are no other litigation pending that could have, individually, or in the aggregate, a material adverse effect on the results of our operations or financial condition.

 

10. Income Taxes

There is no provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets. The reported amount of income tax expense for the years differs from the amount that would result from applying domestic federal statutory tax rates to pretax losses primarily because of changes in valuation allowance.

A reconciliation of income tax expense (benefit) is computed as the statutory federal income tax rate to income taxes as reflected in the financial statement as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Federal income tax (benefit) at statutory rate

 

 

21.0

%

 

 

34.0

%

(Increase) decrease income tax benefit resulting from:

 

 

 

 

 

 

 

 

Permanent differences

 

 

0.4

%