10-Q

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 September 30, 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, N.H. (Address of principal executive offices)	03833 (Zip Code)

(603) 658-0011

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	VAPO	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐   No ☒

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

As of November 1, 2019, there were 21,084,008 outstanding common shares of Vapotherm, Inc.

Vapotherm, Inc.

Form 10-Q

For the Quarterly Period Ended September 30, 2019

TABLE OF CONTENTS

		Page No.
Note Regarding Forward-Looking Statements		3
PART I. FINANCIAL INFORMATION
Item 1	Condensed Consolidated Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets - September 30, 2019 and December 31, 2018	5
	Condensed Consolidated Statements of Comprehensive Loss – Three and Nine months ended September 30, 2019 and 2018	6
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) - Three and Nine months ended September 30, 2019 and 2018	7
	Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2019 and 2018	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4	Controls and Procedures	33
PART II. OTHER INFORMATION
Item 1	Legal Proceedings	34
Item 1A	Risk Factors	34
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6	Exhibits	35
Exhibit Index		35
Signatures		36

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 and in our other filings with the SEC. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. Any forward-looking statements made herein speak only as of the date of this Quarterly Report on Form 10-Q, and you should not rely on forward-looking statements as predictions of future events. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

3

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 filed with the SEC on March 22, 2019. 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.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts)

	September 30, 2019			December 31, 2018
Assets
Current assets
Cash and cash equivalents	$	83,522		$	58,223
Accounts receivable, net		6,848			7,107
Inventory		10,844			13,710
Prepaid expenses and other current assets		2,067			2,683
Total current assets		103,281			81,723
Property and equipment, net		14,307			13,416
Restricted cash		1,852			1,799
Goodwill		539			-
Intangible assets, net		351			-
Other long-term assets		406			308
Total assets	$	120,736		$	97,246
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	1,644		$	3,148
Contract liabilities		123			79
Accrued expenses and other current liabilities		8,888			7,653
Short-term line of credit		2,912			3,163
Total current liabilities		13,567			14,043
Long-term loans payable		41,716			31,317
Deferred income tax liability		90			-
Other long-term liabilities		225			325
Total liabilities		55,598			45,685
Commitments and contingencies (Note 7)
Stockholders' equity
Preferred stock ($0.001 par value) 25,000,000 shares authorized; no shares issued    and outstanding as of September 30, 2019 and December 31, 2018		-			-
Common stock ($0.001 par value) 175,000,000 shares authorized as of    September 30, 2019 and December 31, 2018, 20,801,613 and 16,782,837    shares issued and outstanding as of September 30, 2019 and    December 31, 2018, respectively		21			17
Additional paid-in capital		318,178			265,926
Accumulated deficit		(252,991	)		(214,382	)
Accumulated other comprehensive loss		(70	)		-
Total stockholders' equity		65,138			51,561
Total liabilities and stockholders’ equity	$	120,736		$	97,246

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

5

Vapotherm, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net revenue	$	10,809		$	9,389		$	35,094		$	30,691
Cost of goods sold		5,999			5,775			19,646			18,737
Gross profit		4,810			3,614			15,448			11,954
Operating expenses
Research and development		3,280			1,766			9,720			6,074
Sales and marketing		9,193			7,757			27,786			24,331
General and administrative		3,978			2,804			13,389			7,789
Loss on disposal of property and equipment		-			17			-			59
Total operating expenses		16,451			12,344			50,895			38,253
Loss from operations		(11,641	)		(8,730	)		(35,447	)		(26,299	)
Other (expense) income
Foreign currency loss		(28	)		-			(37	)		(2	)
Interest income		242			8			658			21
Interest expense		(1,338	)		(908	)		(3,783	)		(2,022	)
Loss on extinguishment of debt		-			-			-			(1,842	)
Gain on change in fair value of warrant liabilities		-			171			-			553
Net loss	$	(12,765	)	$	(9,459	)	$	(38,609	)	$	(29,591	)
Accretion of preferred stock to redemption value		-			(81	)		-			(81	)
Net loss attributable to common stockholders	$	(12,765	)	$	(9,540	)	$	(38,609	)	$	(29,672	)
Net loss per share attributable to common stockholders - basic and diluted	$	(0.65	)	$	(10.90	)	$	(2.16	)	$	(35.59	)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		(72	)		-			(70	)		-
Total other comprehensive loss	$	(72	)	$	-		$	(70	)	$	-
Total comprehensive loss	$	(12,837	)	$	(9,459	)	$	(38,679	)	$	(29,591	)
Weighted-average number of shares used in calculating net    loss per share, basic and diluted		19,531,153			875,453			17,854,730			833,738

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

6

VAPOTHERM, INC.

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

(Unaudited)

(In thousands, except share amounts)

					Additional					Accumulated Other
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balance at December 31, 2018		16,782,837	$	17	$	265,926	$	(214,382	)	$	-		$	51,561
Net loss		-		-		-		(38,609	)		-			(38,609	)
Foreign currency translation adjustments		-		-		-		-			(70	)		(70	)
Issuance of common stock in connection with public offering of    common stock, net of issuance costs of $3,468		3,570,750		4		48,304		-			-			48,308
Issuance of common stock warrants		-		-		293		-			-			293
Issuance of stock upon repayment of non-recourse loans		79,854		-		144		-			-			144
Issuance of stock upon exercise of warrants		12,164		-		-		-			-			-
Issuance of stock upon exercise of options		145,613		-		230		-			-			230
Issuance of restricted stock		210,395		-		526		-			-			526
Stock-based compensation expense		-		-		2,755		-			-			2,755
Balance at September 30, 2019		20,801,613	$	21	$	318,178	$	(252,991	)	$	(70	)	$	65,138

					Additional					Accumulated Other
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balance at June 30, 2019		17,166,368	$	17	$	269,556	$	(240,226	)	$	2		$	29,349
Net loss		-		-		-		(12,765	)		-			(12,765	)
Foreign currency translation adjustments		-		-		-		-			(72	)		(72	)
Issuance of common stock in connection with public offering of    common stock, net of issuance costs of $3,468		3,570,750		4		48,304		-			-			48,308
Issuance of stock upon exercise of options		22,848		-		37		-			-			37
Issuance of restricted stock		41,647		-		141		-			-			141
Stock-based compensation expense		-		-		140		-			-			140
Balance at September 30, 2019		20,801,613	$	21	$	318,178	$	(252,991	)	$	(70	)	$	65,138

7

	Redeemable Convertible								Additional
	Preferred Stock				Common Stock				Paid-in			Accumulated			Stockholders'
	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 Series D redeemable convertible    preferred stock, net of $81 in issuance costs		714,285		9,919
Accretion of Series D issuance costs				81					$	(81	)					(81	)
Issuance of stock upon exercise of options		-		-		57,171		-		92			-			92
Issuance of restricted stock		-		-		89,623		-		150			-			150
Stock-based compensation expense		-		-		-		-		367			-			367
Net loss		-		-		-		-		-			(29,591	)		(29,591	)
Balance at September 30, 2018		11,229,636	$	162,637		819,115	$	1	$	45,584		$	(201,505	)	$	(155,920	)

	Redeemable Convertible								Additional
	Preferred Stock				Common Stock				Paid-in			Accumulated			Stockholders'
	Shares		Amount		Shares		Amount		Capital			Deficit			(Deficit)
Balance at June 30, 2018		10,515,351	$	152,637		775,043	$	1	$	45,460		$	(192,046	)	$	(146,585	)
Issuance of Series D redeemable convertible    preferred stock, net of $81 in issuance costs		714,285		9,919
Accretion of Series D issuance costs				81						(81	)					(81	)
Issuance of stock upon exercise of options		-		-		26,073		-		42			-			42
Issuance of restricted stock		-		-		17,999		-		30			-			30
Stock-based compensation expense		-		-		-		-		133			-			133
Net loss		-		-		-		-		-			(9,459	)		(9,459	)
Balance at September 30, 2018		11,229,636	$	162,637		819,115	$	1	$	45,584		$	(201,505	)	$	(155,920	)

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

8

VAPOTHERM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2019			2018
	(unaudited)
Cash flows from operating activities
Net loss	$	(38,609	)	$	(29,591	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		2,219			1,561
Stock-based compensation expense		2,755			367
Loss on disposal of property and equipment		112			306
Provision for bad debts		77			101
Loss on extinguishment of debt		-			1,842
Amortization of discount on debt		171			95
Change in fair value of warrants		-			(553	)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		616			896
Inventory		3,382			(1,082	)
Prepaid expenses and other assets		528			(1,011	)
Accounts payable		(1,551	)		(336	)
Contract liabilities		(31	)		2
Accrued expenses and other current liabilities		1,801			(1,193	)
Net cash used in operating activities		(28,530	)		(28,596	)
Cash flows from investing activities
Acquisition of business, net of cash acquired		(1,560	)		-
Purchases of property and equipment		(3,132	)		(3,997	)
Net cash used in investing activities		(4,692	)		(3,997	)
Cash flows from financing activities
Issuance of common stock in connection with public offering of common stock, net of issuance costs		48,308			-
Proceeds on loans		10,500			30,374
Repayment of loans payable		-			(20,000	)
Debt issuance costs		(322	)		-
Short-term line of credit		(260	)		(1,333	)
Proceeds from issuance of redeemable convertible preferred stock, net		-			9,919
Proceeds from exercise of stock options and purchase of restricted stock		374			325
Net cash provided by financing activities		58,600			19,285
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(26	)		-
Net increase (decrease) in cash, cash equivalents and restricted cash		25,352			(13,308	)
Cash, cash equivalents and restricted cash
Beginning of period		60,022			28,360
End of period	$	85,374		$	15,052
Supplemental disclosures of cash flow information
Interest paid during the period	$	3,563		$	2,035
Issuance of warrants in conjunction with debt draw down	$	293		$	-
Property and equipment purchases in accrued expenses	$	222		$	472

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

9

VAPOTHERM, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited, continued)

(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 typically 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 public offerings of its common stock, private placements of its convertible preferred stock, sales of its Precision Flow systems and amounts borrowed under its credit facilities. The Company has 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 15 “Business Combinations” to these condensed consolidated financial statements for details of this transaction.

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

2. Summary of Significant Accounting Policies

Basis of Presentation

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

10

VAPOTHERM, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

Principles of Consolidation

These condensed consolidated financial statements include the financial statements of Solus Medical Ltd. (“Solus”), a wholly owned subsidiary of the Company based in the United Kingdom, which was acquired in the first quarter of 2019. All intercompany accounts and transactions have been eliminated upon consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. The Company evaluates its estimates on an ongoing basis. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates relied upon in preparing these condensed consolidated financial statements include calculation of stock-based compensation, valuation of warrants, fair values of acquired assets and liabilities, including goodwill and intangibles assets, realizability of inventories, allowance for bad debt, accrued expenses and the valuation allowances against deferred income tax assets. Actual results may differ from these estimates.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2019, the condensed consolidated statements of comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows for the three and nine months ended September 30, 2019 and 2018 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2019 and the results of its operations and its cash flows for the three and nine months ended September 30, 2019 and 2018. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2019 and 2018 are also unaudited. The results of operations for the three and nine months ended September 30, 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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 amends Accounting Standards Codification 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 U.S. GAAP. 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 statements of cash flows. The Company adopted the new standard in the first quarter of fiscal 2019, under the retrospective adoption method, and the prior year restricted cash presentation has been reclassified to conform to current year presentation.

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VAPOTHERM, INC.

Notes to Condensed 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 Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers. The Company adopted ASU 2017-01 effective January 1, 2019. Adoption of ASU 2017-01 did not have a significant impact on the Company’s condensed 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. In July 2019, the FASB issued a proposed ASU that would defer the effective date for ASU 2016-02 to interim and annual periods beginning after December 15, 2020. The Company is currently evaluating the period in which it intends to adopt the new standard. 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. In July 2019, the FASB issued a proposed ASU that would defer the effective date for ASU 2016-02 to interim and annual periods beginning after December 15, 2022. 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 loss, 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. See Note 15 “Business Combinations” to these condensed consolidated financial statements for details of the Solus acquisition. The functional currency for this entity is its local currency, Pound Sterling (GBP).

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VAPOTHERM, INC.

Notes to Condensed 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 thecondensed consolidated statements of comprehensive loss. Unrealized foreign currency gains or losses arising from transactions denominated in foreign currencies are recorded in accumulated other comprehensive loss.

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 condensed consolidated statements of comprehensive loss.

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 14 “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 September 30,						Nine Months Ended September 30,
	2019						2019
	US		International		Total		US		International		Total
Net revenue by:
Product Revenue
Capital	$	1,408	$	647	$	2,055	$	4,517	$	2,198	$	6,715
Disposable		5,962		1,865		7,827		20,023		5,353		25,376
Subtotal Product Revenue		7,370		2,512		9,882		24,540		7,551		32,091
Lease Revenue		463		-		463		1,410		-		1,410
Service and Other Revenue		202		262		464		812		781		1,593
Total Revenue	$	8,035	$	2,774	$	10,809	$	26,762	$	8,332	$	35,094

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018						2018
	US		International		Total		US		International		Total
Net revenue by:
Product Revenue
Capital	$	1,809	$	570	$	2,379	$	5,317	$	2,551	$	7,868
Disposable		5,130		1,167		6,297		16,673		3,808		20,481
Subtotal Product Revenue		6,939		1,737		8,676		21,990		6,359		28,349
Lease Revenue		328		-		328		992		-		992
Service and Other Revenue		270		115		385		996		354		1,350
Total Revenue	$	7,537	$	1,852	$	9,389	$	23,978	$	6,713	$	30,691

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VAPOTHERM, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

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 as of September 30, 2019.

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 condensed consolidated statements of comprehensive loss.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is recognized over the estimated useful lives of the related assets using the straight-line method for consolidated financial statement purposes. The Company uses other depreciation methods (generally, accelerated depreciation methods) for tax purposes, where appropriate. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements and is included in depreciation expense. When impairment indicators are present, the Company evaluates the recoverability of its long-lived assets. If the assessment indicates an impairment, the affected assets are written down to fair value.

Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operating expenses.

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VAPOTHERM, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

The lives used in computing straight-line depreciation for financial reporting purposes are as follows:

	Number of Years
Property and equipment placed in service:
Equipment	3 - 7
Furniture	5 - 7
Manufacturing equipment	3 - 10
Software	3
Demonstration, placements and    evaluation units	3 - 5
Leasehold improvements	Lesser of life of lease or 10 years

The Company’s policy is to periodically review the estimated useful life of all property and equipment. This review during fiscal year 2019 indicated that the estimated useful life of all property and equipment is consistent with fiscal year 2018, with the exception of manufacturing equipment. The maximum useful life increased from 7 years to 10 years.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid temporary investments purchased with original maturities of 90 days or less to be cash equivalents. The Company holds restricted cash related to certificates of deposits and collateral in relation to lease agreements. As of September 30, 2019, $0.3 million of our $85.4 million of cash, cash equivalents and restricted cash balance was located outside the U.S.

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

	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	83,522	$	58,223
Restricted cash		1,852		1,799
Total cash, cash equivalents, and restricted cash	$	85,374	$	60,022

3. Accounts Receivable

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

	September 30, 2019			December 31, 2018
United States	$	4,743		$	4,948
International		2,364			2,493
Total accounts receivable		7,107			7,441
Less: Allowance for doubtful accounts		(259	)		(334	)
Accounts receivable, net of allowance for doubtful    accounts	$	6,848		$	7,107

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VAPOTHERM, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

No individual customer accounted for 10% or more of revenue for the three or nine months ended September 30, 2019 or September 30, 2018. No individual customers accounted for 10% or more of total accounts receivable at either September 30, 2019 or December 31, 2018.

4. Financial Instruments

As of September 30, 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. The Company’s cash equivalents primarily consist of money market deposits which total approximately $80.6 million at September 30, 2019 and are valued based on Level 1 of the fair value hierarchy. As described in Note 12 “Warrants”, during 2019, the Company granted warrants to purchase 19,790 shares of common stock in connection with an amendment to its financing arrangement described in Note 6 “Debt”. These equity-classified warrants were valued using the Black-Scholes pricing model, which falls within Level 3 of the fair value hierarchy.

The assumptions used in the Black-Scholes pricing model were as follows at the date of grant:

Expected dividend yield	0.0	%
Risk free interest rate	2.4	%
Expected stock price volatility	60.9	%
Expected term (years)	10.0

5. Inventories

Inventories as of September 30, 2019 and December 31, 2018 consist of the following:

	September 30, 2019		December 31, 2018
Component parts	$	5,838	$	5,601
Finished goods		5,006		8,109
Total inventory	$	10,844	$	13,710

6. 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 September 30, 2019, the interest rate was 6.75%. The outstanding balance under the Amended Revolver Agreement was $2.9 million at September 30, 2019 and there was $0.3 million 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. The Amended Revolver Agreement requires the Company to comply with a minimum liquidity covenant at all times. As of September 30, 2019, the Company was in compliance with all covenants.

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VAPOTHERM, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

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 $5.0 million tranches in each of January 2017 and March 2017. 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.In connection with this draw down, the Company granted Perceptive warrants to purchase 37,693 shares of Series D preferred stock which were converted into warrants to purchase shares of common stock at the time of the initial public offering. The warrants have an exercise price of $15.92 per share, were fully vested upon issuance, exercisable at the option of the holder, in whole or in part, and expire in April 2028.

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

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

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, are 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.

Pursuant to the Amended Credit Agreement and Guaranty, the outstanding principal amount accrues interest at an annual rate equal to 9.06% plus the greater of (a) one-month LIBOR and (b) 1.75% per year. At September 30, 2019, the interest rate was 11.19%. The outstanding balance, including accretion of the additional final payment due upon maturity and described below, was $42.6 million at September 30, 2019 and there was no remaining availability.

On the maturity date, in addition to the payment of principal and accrued interest, the Company will be required to make a payment of 0.5% of the total amount borrowed under the Amended Credit and Guaranty Agreement unless the Company has already made such a payment in connection with an acceleration or prepayment of borrowings under the agreement. 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 September 30, 2019, the Company was in compliance with all covenants.

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VAPOTHERM, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

The annual principal maturities of the Amended Credit Agreement and Guaranty as of September 30, 2019 are as follows:

2019	$	-
2020		-
2021		-
2022		-
2023		42,560
Less: Discount on loans payable		(844	)
Long-term loans payable	$	41,716

7. Commitments and Contingencies

Legal Matters

From time to time the Company may become involved in various legal proceedings, including those that may arise in the ordinary course of business. 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 the Company 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 its operations or financial condition.

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 its operations or financial condition.

8. Income Taxes

There is no provision for income taxes for the three or nine months ended September 30, 2019 or September 30, 2018 because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets.

Utilization of the net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future.These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.

On February 28, 2019, the Company acquired all outstanding equity securities of Solus. For the period from March 1, 2019 to September 30, 2019, Solus had a book loss of $0.5 million, resulting from revenue of $1.7 million. Due to the short period of ownership, and related book loss, the tax provision for Solus is immaterial.

9. Stock-Based Compensation

On January 23, 2019, the Company established a French Qualifying Subplan which allows for the granting of stock options to purchase shares of common stock for employees and officers who are residents of France. The options under the French Qualifying Subplan reside under the umbrella of the 2018 Stock Incentive Plan.

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VAPOTHERM, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

The fair value of each option grant is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. For performance-based awards, related compensation cost is amortized over the performance period on an accelerated attribution basis. Compensation expense associated with performance awards are based upon the fair value on the date of grant and the number of units expected to be earned after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures. Cumulative adjustments are recorded each quarter to reflect estimated outcome of the performance-related conditions until the date results are determined and settled.Use of a valuation model requires management to make certain assumptions with respect to selected model inputs.

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

	Nine Months Ended September 30,
	2019			2018
Expected dividend yield		0.0	%		0.0	%
Risk free interest rate		2.1	%		2.6	%
Expected stock price volatility		63.5	%		58.9	%
Expected term (years)		6.2			5.8

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019		2018
Cost of goods sold	$	9		$	5	$	147	$	23
Research and development		11			11		266		39
Sales and marketing		(102	)		60		657		134
General and administrative		222			57		1,685		171
Total	$	140		$	133	$	2,755	$	367

Stock Options

The Company granted options to purchase 871,346 shares of common stock at exercise prices ranging from $13.35 to $19.40 per share, with a weighted average exercise price of $17.36 per share, during the nine months ended September 30, 2019. The Company granted options to purchase 345,948 shares of common stock at exercise prices ranging from $1.68 to $3.78 per share, with a weighted average exercise price of $2.27 per share, during the nine months ended September 30, 2018. The weighted average fair value of stock options granted during the nine months ended September 30, 2019 and 2018 was $10.88 and $1.27, respectively.

Restricted Stock

A summary of restricted stock activity for the nine months ended September 30, 2019 is as follows:

				Weighted
				Average
				Grant Date
	Shares			Fair Value
Unvested at December 31, 2018		399,485		$	1.68
Granted/purchased		78,476			17.54
Vested		(210,395	)		3.31
Canceled		-			-
Unvested at September 30, 2019		267,566		$	4.02

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VAPOTHERM, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

10. Earnings Per Share

Net Loss per Share

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

	As of September 30,
	2019		2018
Options to purchase common stock		1,407,448		757,635
Warrants to purchase redeemable convertible preferred stock    (as converted to common stock)		182,076		230,296
Unvested restricted stock		267,566		604,455
Redeemable convertible preferred stock (as converted to    common stock)		-		11,143,571
		1,857,090		12,735,957

11. Related Party Transactions

As described in Note 15 “Redeemable Convertible Preferred Stock”, of the 2018 Form 10-K, the Company issued Series A, Series B, Series C and Series D preferred stock to private investors. Certain executive officers of the Company are owners/investors in certain venture funds who purchased Series A, Series B, Series C and Series D preferred stock. The total amount of preferred stock purchased by related party organizations as of November 16, 2018 was $33.2 million. In connection with our initial public offering in November 2018, all outstanding redeemable convertible preferred stock converted to common stock on a one-to-one basis. 

The Company has two stockholders that are vendors of the Company. The total amount billed from these vendors during both the three months ended September 30, 2019 and 2018 was less than $0.1 million. The total amount billed from these vendors during the nine months ended September 30, 2019 and 2018 was less than $0.1 million and $1.2 million, respectively. The accounts payable balance for these vendors was $0.5 million as of both September 30, 2019 and December 31, 2018.

In addition, the Company sells its products to a hospital customer who is an affiliate of a current stockholder. The total amount billed to this customer during the three months ended September 30, 2019 and 2018 was $0.3 million and $0.5 million, respectively. The total amount billed to this customer during the nine months ended September 30, 2019 and 2018 was $1.0 million and $1.6 million, respectively.  The accounts receivable balance for this customer was $0.1 million as of September 30, 2019 and December 31, 2018, respectively. All transactions are at arms’ length and occur at published list prices.

12. Warrants

	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
Warrants exercised		(68,009	)		(14.00	)
Outstanding at September 30, 2019		182,076		$	14.84

20

VAPOTHERM, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

On March 22, 2019, in connection with an amendment to the Credit Agreement and Guaranty as further described in Note 6 “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, are 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 approximately $0.3 million, and is recorded as a discount against the principal owed on the related debt, and is being amortized over the contractual term of the debt instrument.

During 2019, warrants to purchase 68,009 shares of common stock were net exercised, which resulted in the issuance of 12,164 shares of common stock.

13. Stockholders’ Equity

Preferred Stock

As of September 30, 2019 and December 31, 2018, the Company has authorized 25,000,000 shares of preferred stock, respectively, at a par value of $0.001. As of September 30, 2019 and December 31, 2018, there were no shares of preferred stock outstanding.

Prior to the Company’s initial public offering in November 2018, the Company had redeemable convertible preferred stock (Series A, B, C and D) outstanding. In connection with the initial public offering, all outstanding redeemable convertible preferred stock converted to common stock on a one-to-one basis.

Common Stock

As of September 30, 2019 and December 31, 2018, the Company has authorized 175,000,000 shares of common stock, respectively, at a par value of $0.001. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding.

14. Segment Reporting

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

21

VAPOTHERM, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

15. Business Combinations  

On February 28, 2019, the Company completed the acquisition of all outstanding equity securities of Solus Medical Ltd. (“Solus”) whose principal assets included intangible assets related to supplier agreements. The Company undertook the acquisition to accelerate its penetration in the United Kingdom market. The purchase price, net of cash acquired, of $2.0 million was funded with an initial cash payment of approximately $1.6 million and a loss of $0.4 million on settlement of a preexisting relationship. Additionally, the Company is recognizing an estimated $2.4 million in contingent payments as compensation that is being paid out over the period from the date of acquisition through December 31, 2020. The acquisition has been accounted for as an acquisition of a business.

The Company has not yet finalized the purchase accounting for the Solus acquisition. The following table summarizes the preliminary purchase price allocation that includes the fair values of the separately identifiable assets acquired and liabilities assumed as of February 28, 2019:

Cash	$	466
Accounts receivable		411
Inventory		492
Prepaids and other assets		11
Property and equipment		1
Goodwill		584
Intangible assets		455
Total assets acquired		2,420
Accounts payable and accrued expenses		(222	)
Contract liabilities		(75	)
Deferred taxes		(97	)
Total liabilities assumed		(394	)
Total purchase price	$	2,026

The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The fair values of assets acquired and liabilities assumed, including income taxes payable and deferred taxes, may be subject to change as additional information is received and certain tax returns are finalized. Accordingly, the provisional measurements of fair value of the income taxes payable and deferred taxes set forth above are subject to change. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

In determining the purchase price allocation, the Company considered, among other factors, the opportunity provided by a supplier agreement with the National Health Service. The fair value of the intangible assets associated with this agreement were estimated using a discounted cash flow method with the application of the multi-period excess earnings method. Under this method, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows attributable to only the subject intangible assets after deducting contributory asset charges. An income and expenses forecast was built based upon specific intangible asset revenue and expense estimates.

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

The total weighted average amortization period for the intangible assets is approximately 3.83 years. The intangible assets are being amortized on a straight-line basis, which is consistent with the pattern that the economic benefits of the intangible assets are expected to be utilized based upon estimated cash flows generated from such assets. Goodwill associated with the acquisition was primarily attributable to the market expansion opportunity in the United Kingdom. The goodwill attributable to the United Kingdom jurisdiction is not deductible for tax purposes.

22

VAPOTHERM, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited, continued)

(In thousands, except share and per share amounts)

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

Pro Forma Financial Information

The following unaudited pro forma information for the three and nine months ended September 30, 2019 and 2018, respectively, presents consolidated information as if the Solus acquisition occurred on January 1, 2018, which is the first day of the Company’s fiscal year 2018:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net revenue	$	10,809		$	9,985		$	35,331		$	32,826
Net loss	$	(12,765	)	$	(9,840	)	$	(38,895	)	$	(30,416	)
Net loss per share, basic	$	(0.65	)	$	(11.24	)	$	(2.18	)	$	(36.48	)

16. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill and intangible assets during 2019 are as follows:

	Goodwill			Intangible Assets
Balance at December 31, 2018	$	-		$	-
Acquired during the period	584			455
Amortization		-			(69	)
Foreign currency exchange rate changes		(45	)		(35	)
Balance at September 30, 2019	$	539		$	351

The following table presents a summary of acquired intangible assets:

	As of September 30, 2019
	Period of amortization		Gross Carrying Amount		Accumulated Amortization
Customer agreements		3.83	$	420	$	69
Total identifiable intangible assets			$	420	$	69

The Company recognized less than $0.1 million of amortization expense within sales and marketing expenses related to the intangible assets during both the three and nine months ended September 30, 2019. The Company did not recognize any amortization expense related to the intangible assets during either the three or nine months ended September 30, 2018 as the assets were acquired as part of the acquisition of Solus in February 2019.

The estimated amortization expense for intangible assets for each of the five succeeding fiscal years is as follows:

Estimated Amortization Expense:
Remainder of 2019	$	27
2020		108
2021		108
2022		108
Total	$	351

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements for the fiscal quarter ended September 30, 2019, included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the “Risk Factors” section of our 2018 Form 10-K.

Overview

We are a global medical technology company focused on the development and commercialization of our proprietary Hi-VNI Technology products that are used to treat patients of all ages suffering from respiratory distress. Our 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. Our 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. As of September 30, 2019, more than 2.0 million patients have been treated with our Precision Flow systems, and we have a global installed base of over 15,000 capital units. We have sold our Precision Flow systems to over 1,500 hospitals across the United States, where they have been primarily deployed in the ICU setting. We assemble our Precision Flow systems in our facility in New Hampshire and we rely on third-party suppliers for a majority of the components of our products, including many single source suppliers. We maintain higher levels of inventory to protect ourselves from supply interruptions, and, as a result, we are subject to the risk of inventory obsolescence and expiration, which could lead to inventory impairment charges. We currently ship our Precision Flow systems from our facility in New Hampshire directly to our United States customers, from our facility in the United Kingdom directly to our United Kingdom customers, and many of our international distributors in other countries on a purchase order basis. Warehousing and shipping operations for some of our international distributors are handled by a third-party vendor with facilities located in the Netherlands. While our customers have the right to return purchased products subject to a restocking fee, our historical return experience has been immaterial.

Since inception, we have financed our operations primarily through public offerings of our common stock, private placements of our convertible preferred stock, sales of our Precision Flow systems and amounts borrowed under our credit facilities. We have devoted the majority of our resources to research and development activities related to our Precision Flow systems including regulatory initiatives and sales and marketing activities. We have invested heavily in our sales and marketing function by increasing the number of sales representatives and clinical educators to facilitate adoption and increase utilization of our Hi-VNI Technology products, while expanding our digital marketing initiatives and medical education programs. For the third quarter of 2019, we generated revenue of $10.8 million and had a net loss of $12.8 million compared to revenue of $9.4 million and a net loss of $9.5 million for the third quarter of 2018. Our accumulated deficit as of September 30, 2019 was $253.0 million. In the third quarter of 2019, 74.3% of our revenue was derived in the United States and 25.7% was derived outside the United States. No single customer accounted for more than 10% of our revenue in either the three or nine months ended September 30, 2019.

We intend to continue to make significant investments in our sales and marketing organization by increasing the number of U.S. sales representatives, expanding our international marketing programs and expanding direct-to-clinician digital marketing efforts to help facilitate further adoption of our Precision Flow systems among existing hospital accounts and to broaden awareness of our products to new hospitals. We also expect to continue to make investments in research and development, regulatory affairs and clinical studies in an effort to develop new products that enhance our current portfolio or expand our markets, support regulatory submissions, and demonstrate the clinical efficacy of our new products. Examples of in-development products that may enhance our current portfolio include our next generation ProSoft cannula, which is designed to improve patient comfort, and an aerosol disposable patient circuit, which is designed to streamline workflows associated with continuous aerosol medication delivery.  Examples of in-development products that may expand our market include our oxygen assist module, which is designed to simplify and automate adjustments to the Precision Flow systems’ delivery of oxygenated breathing gases based on feedback provided by oxygen levels in the patient, and our next generation Hi-VNI Technology product, which is designed to provide high velocity nasal insufflation using a portable device, removing the requirement for access to built-in wall air outlets. Because of these and other factors, we expect to continue to incur net losses for the next several years and we expect to require additional funding, which may include future equity and debt financings.

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Results of Operations

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(in thousands, except percentages)
Net revenue	$	10,809		$	9,389		$	35,094		$	30,691
Cost of goods sold		5,999			5,775			19,646			18,737
Gross profit		4,810			3,614			15,448			11,954
Operating expenses
Research and development		3,280			1,766			9,720			6,074
Sales and marketing		9,193			7,757			27,786			24,331
General and administrative		3,978			2,804			13,389			7,789
Loss on disposal of property and    equipment		-			17			-			59
Total operating expenses		16,451			12,344			50,895			38,253
Loss from operations		(11,641	)		(8,730	)		(35,447	)		(26,299	)
Other expense, net		(1,124	)		(729	)		(3,162	)		(3,292	)
Net loss	$	(12,765	)	$	(9,459	)	$	(38,609	)	$	(29,591	)

Revenue

	Three Months Ended September 30,
	2019					2018					Change
	(in thousands, except percentages)
	Amount		% of Revenue			Amount		% of Revenue			$			%
Product Revenue:
Capital	$	2,055		19.0	%	$	2,379		25.3	%	$	(324	)		-13.6	%
Disposable		7,827		72.4	%		6,297		67.1	%		1,530			24.3	%
Subtotal Product Revenue		9,882		91.4	%		8,676		92.4	%		1,206			13.9	%
Lease Revenue		463		4.3	%		328		3.5	%		135			41.2	%
Service and Other Revenue		464		4.3	%		385		4.1	%		79			20.5	%
Total Revenue	$	10,809		100.0	%	$	9,389		100.0	%	$	1,420			15.1	%

Revenue increased $1.4 million, or 15.1%, to $10.8 million for the third quarter of 2019 compared to $9.4 million for the third quarter of 2018. The increase in revenue was primarily attributable to a $1.5 million increase in disposable revenue as a result of an increase in the installed base and increased utilization of Precision Flow capital units in our International markets, partially offset by a decrease in the sales of our Precision Flow capital units in the United States.

Revenue information by geography is summarized as follows:

	Three Months Ended September 30,
	2019					2018					Change
	(in thousands, except percentages)
	Amount		% of Revenue			Amount		% of Revenue			$		%
United States	$	8,035		74.3	%	$	7,537		80.3	%	$	498		6.6	%
International		2,774		25.7	%		1,852		19.7	%		922		49.8	%
Total Revenue	$	10,809		100.0	%	$	9,389		100.0	%	$	1,420		15.1	%

Revenue generated in the United States increased $0.5 million, or 6.6%, to $8.0 million for the third quarter of 2019, compared to $7.5 million for the third quarter of 2018. Revenue growth in the United States was primarily due to increased disposable sales resulting from a larger installed base, partially offset by a decrease in the sales of our Precision Flow units.

25

Revenue generated in our International markets increased $0.9 million, or 49.8%, to $2.8 million for the third quarter of 2019, compared to $1.9 million for the third quarter of 2018. Revenue growth in our International markets was primarily due to increased disposable sales resulting from a larger installed base and, to a lesser extent, higher utilization of Precision Flow units, an   increase in the sale of Precision Flow units and growth in service and other revenue.

	Nine Months Ended September 30,
	2019					2018					Change
	(in thousands, except percentages)
	Amount		% of Revenue			Amount		% of Revenue			$			%
Product Revenue:
Capital	$	6,715		19.2	%	$	7,868		25.7	%	$	(1,153	)		-14.7	%
Disposable		25,376		72.3	%		20,481		66.7	%		4,895			23.9	%
Subtotal Product Revenue		32,091		91.5	%		28,349		92.4	%		3,742			13.2	%
Lease Revenue		1,410		4.0	%		992		3.2	%		418			42.1	%
Service and Other Revenue		1,593		4.5	%		1,350		4.4	%		243			18.0	%
Total Revenue	$	35,094		100.0	%	$	30,691		100.0	%	$	4,403			14.3	%

Revenue increased $4.4 million, or 14.3%, to $35.1 million in the first nine months of 2019 compared to $30.7 million for the first nine months of 2018. The increase in revenue was primarily attributable to a $4.9 million increase in disposable revenue as a result of an increase in the installed base and higher utilization of Precision Flow capital units worldwide, partially offset by a decrease in the sale of the Precision Flow units worldwide.

Revenue information by geography is summarized as follows:

	Nine Months Ended September 30,
	2019					2018					Change
	(in thousands, except percentages)
	Amount		% of Revenue			Amount		% of Revenue			$		%
United States	$	26,762		76.3	%	$	23,978		78.1	%	$	2,784		11.6	%
International		8,332		23.7	%		6,713		21.9	%		1,619		24.1	%
Total Revenue	$	35,094		100.0	%	$	30,691		100.0	%	$	4,403		14.3	%

Revenue generated in the United States increased $2.8 million, or 11.6%, to $26.8 million for the first nine months of 2019, compared to $24.0 million for the first nine months of 2018. Revenue growth in the United States was primarily due to increased disposable sales resulting from a larger installed base and increased utilization of Precision Flow units and, to a lesser extent, increases in lease revenues, partially offset by a decrease in the sale and lease of Precision Flow units.

Revenue generated in our International markets increased $1.6 million, or 24.1%, to $8.3 million for the first nine months of 2019, compared to $6.7 million for the first nine months of 2018. Revenue growth in our International markets was primarily due to increased disposable sales resulting from a larger installed base and an increase in service and other revenue, partially offset by a decrease in the sale and lease of Precision Flow units.

Cost of Goods Sold and Gross Margin

Cost of goods sold increased $0.2 million, or 3.9%, to $6.0 million in the third quarter of 2019 compared to $5.8 million in the third quarter of 2018. Cost of goods sold increased $0.9 million, or 4.9%, to $19.6 million in the first nine months of 2019 compared to $18.7 million in the first nine months of 2018. These increases were due to increased product costs, primarily due to higher sales volumes of our disposables.

Gross margin increased to 44.5% in the third quarter of 2019 compared to 38.5% in the third quarter of 2018. The increase in gross margin was driven by a favorable sales mix of disposables and a decrease in disposable component costs. Gross margin increased to 44.0% in the first nine months of 2019 compared to 38.9% in the first nine months of 2018. The increase in gross margin was driven by a favorable sales mix of disposables and a decrease in disposable component costs in comparison to the first nine months of 2018. Additionally, we improved operating efficiency by holding operating overhead constant while increasing throughput in our manufacturing facility to support continued sales growth.

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Research and Development Expenses

Research and development expenses increased $1.5 million, or 85.7%, to $3.3 million in the third quarter of 2019 compared to $1.8 million in the third quarter of 2018. As a percentage of revenue, research and development expenses increased to 30.3% in the third quarter of 2019 compared to 18.8% in the third quarter of 2018.

Research and development expenses increased $3.6 million, or 60.0%, to $9.7 million in the first nine months of 2019 compared to $6.1 million in the first nine months of 2018. As a percentage of revenue, research and development expenses increased to 27.7% in the first nine months of 2019 compared to 19.8% in the first nine months of 2018.

The increase in research and development expenses in both comparison periods was due to increases in new product development costs and research and development employee-related expenses. Additionally, the increase in research and development expenses in the nine months ended September 30, 2019 was related to increased stock-based compensation.

Sales and Marketing Expenses

Sales and marketing expenses increased $1.4 million, or 18.5%, to $9.2 million in the third quarter of 2019 compared to $7.8 million in the third quarter of 2018. As a percentage of revenue, sales and marketing expenses increased to 85.0% in the third quarter of 2019 compared to 82.6% in the third quarter of 2018.

Sales and marketing expenses increased $3.5 million, or 14.2%, to $27.8 million in the first nine months of 2019 compared to $24.3 million in the first nine months of 2018. As a percentage of revenue, sales and marketing expenses decreased to 79.2% in the first nine months of 2019 compared to 79.3% in the first nine months of 2018.

The increase in sales and marketing expenses in both comparison periods was primarily due to increased sales headcount and employee-related expenses in our sales and marketing organizations and investments in sales and marketing initiatives. Additionally, the increase in sales and marketing expenses in the nine months ended September 30, 2019 compared to September 30, 2018 was related to increased stock-based compensation.

General and Administrative Expenses

General and administrative expenses increased $1.2 million, or 41.9%, to $4.0 million in the third quarter of 2019 compared to $2.8 million in the third quarter of 2018. As a percentage of revenue, general and administrative expenses increased to 36.8% in the third quarter of 2019 compared to 29.9% in the third quarter of 2018.

General and administrative expenses increased $5.6 million, or 71.9%, to $13.4 million in the first nine months of 2019 compared to $7.8 million in the first nine months of 2018. As a percentage of revenue, general and administrative expenses increased to 38.2% in the first nine months of 2019 compared to 25.4% in the first nine months of 2018.

The increase in general and administrative expenses in both comparison periods was primarily due to increases in public company costs including headcount and other employee-related expenses, including stock-based compensation, and legal, advisory and consulting fees.

Loss on Disposal of Property and Equipment

The loss on disposal of property and equipment for the three and nine months ended September 30, 2018 was attributable to the loss on the disposal of property and equipment associated with our facility consolidation. We expect loss on disposal of property and equipment, if any, to vary over time.

Other Expense, Net

Other expense, net increased $0.4 million, or 54.2%, to $1.1 million in the third quarter of 2019 compared to $0.7 million in the third quarter of 2018. Other expense, net decreased $0.1 million, or 3.9%, to $3.2 million in the first nine months of 2019 compared to $3.3 million in the first nine months of 2018. The increase in other expense, net in the third quarter of 2019 was primarily due to increased interest expense related to additional borrowings under our credit facilities subsequent to the third quarter of 2018. The decrease in other expense, net in the first nine months of 2019 was due to a debt extinguishment that occurred in the second quarter of 2018 with no similar debt extinguishment in 2019, partially offset by an increase in interest expense related to additional borrowings under our credit facilities. In addition, other expense, net was impacted in both the third quarter of 2019 and the first nine months of 2019 by an increase in interest income due to higher cash balances resulting from proceeds received from our initial public offering of our common stock in the fourth quarter of 2018 and the public offering of our common stock in the third quarter of 2019. Other expense, net was also reduced in the first nine months of 2018 due to a gain on the change in the fair value of warrants. Subsequent to our initial public offering in the fourth quarter of 2018, we no longer had any warrants that required mark-to-market accounting in 2019.

27

Liquidity and Capital Resources

As of September 30, 2019, we had cash, cash equivalents and restricted cash of $85.4 million and an accumulated deficit of $253.0 million. Our primary sources of capital to date have been from public offerings of our common stock, private placements of our convertible preferred stock, sales of our Precision Flow systems and amounts borrowed under credit facilities. Since inception, we have raised a total of $162.6 million in net proceeds from private placements of our convertible preferred stock. On November 16, 2018, we completed an initial public offering of 4,600,000 shares of common stock at a price of $14.00 per share, which raised net proceeds of $57.4 million. In August 2019, we completed a public offering of 3,570,750 shares of common stock, which included the full exercise by the underwriters of their option to purchase 465,750 shares of common stock, at a price of $14.50 per share, which raised net proceeds of $48.3 million after deducting the underwriting discount of $3.1 million and offering expenses of $0.4 million.

As of September 30, 2019, we had $2.9 million of outstanding borrowings and $0.3 million availability under the Amended Revolver Agreement. As of September 30, 2019, we had $42.6 million of term debt outstanding under our Credit Agreement and Guaranty.

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

Cash Flows

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

	Nine Months Ended September 30,
	2019			2018
	(in thousands)
Net cash provided by (used in):
Operating activities	$	(28,530	)	$	(28,596	)
Investing activities		(4,692	)		(3,997	)
Financing activities		58,600			19,285
Effect of exchange rate changes on cash, cash equivalents    and restricted cash		(26	)		-
Net increase (decrease) in cash, cash equivalents and restricted cash	$	25,352		$	(13,308	)

Operating Activities

The net cash used in operating activities was $28.5 million in the first nine months of 2019 and consisted primarily of a net loss of $38.6 million, offset by $5.3 million in non-cash charges and a decrease of $4.8 million in net operating assets. Non-cash charges consisted primarily of stock-based compensation expense and depreciation and amortization expense.

The net cash used in operating activities was $28.6 million in the first nine months of 2018 and consisted primarily of a net loss of $29.6 million and an increase of $2.7 million in net operating assets offset by $3.7 million in non-cash charges. Non-cash charges consisted primarily of the loss on debt extinguishment of debt and depreciation and amortization expense.

Investing Activities

Net cash used in investing activities for the first nine months of 2019 and 2018 consisted of purchases of property and equipment of $3.1 million and $4.0 million, respectively. In addition, the net cash used in investing activities in the first nine months of 2019 included $1.6 million to acquire Solus.

28

Financing Activities

Net cash provided by financing activities was $58.6 million in the first nine months of 2019 and consisted primarily of net proceeds of $48.3 million related to a public offering of shares of our common stock and borrowings of $10.5 million under our credit facilities.

Net cash used in financing activities was $19.3 million in the first nine months of 2018 and consisted primarily of borrowings of $30.4 million under our credit facilities and the sale of $10.0 million of preferred stock, partially offset by $20.0 million in repayment of loans.

Effective January 1, 2019, and further described in Note 2 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we consider restricted cash as a component of cash and cash equivalents as presented on our condensed consolidated statements of cash flows. Previously the net change in restricted cash was considered an investing activity. Prior period presentations have been reclassified to conform to current year presentation.

Indebtedness

Revolving Line of Credit

In November 2016, we entered into the Revolving Facility, which provided for $7.0 million of available borrowings. Availability under the Revolving Facility 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).

Interest is paid monthly on the average outstanding balance at the Wall Street Journal Prime Rate plus 1.75%, floating, subject to a floor of 3.5%. The interest rate was 6.75% at September 30, 2019.

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

The outstanding balance under the Amended Revolving Facility, as amended, was $2.9 million at September 30, 2019. The remaining amount available to borrow based on eligible receivables was $0.3 million at September 30, 2019.

Term Debt

In November 2016, we entered into a Loan and Security Agreement with Solar Capital Ltd., or Solar, for a total facility amounting to $20.0 million, available in three tranches. The first tranche was drawn down in the amount of $10.0 million on the effective date which paid off in full our previous term loan facility of $6.0 million. We achieved the minimum revenue threshold required to draw down the second tranche of $5.0 million of term debt financing which we did in January 2017. In addition, we obtained a signed term sheet for an equity financing in excess of $10.0 million which allowed us to draw down the third and final tranche of $5.0 million term debt financing, which we elected to do in March 2017, bringing our total balance outstanding under this facility to $20.0 million. Pursuant to the Loan and Security Agreement with Solar, interest was to be paid monthly, and the interest rate for all principal amounts advanced under the loan is equal to “LIBOR Rate” plus 8.99%. We pledged all assets as collateral with a double negative pledge on intellectual property. The facility had a 24-month period from the date of funding where interest only payments were payable. This debt was extinguished in April 2018.

On April 6, 2018, we entered into the Credit Agreement and Guaranty with Perceptive. The Credit Agreement and Guaranty initially provided for a term loan facility in the amount of $42.5 million, available in three tranches, of which the first tranche of $20.0 million was drawn upon closing. This first tranche paid off the borrowings under the Loan and Security Agreement with Solar in full. A second tranche of $10.0 million was drawn on July 20, 2018. The availability of the final tranche of $12.5 million was dependent upon the Company achieving a minimum of $43.2 million in revenue in 2018. On September 27, 2018, the Credit Agreement and Guaranty was amended (the “Amended Credit Agreement and Guaranty”) to remove this revenue requirement and extend the final draw down date to March 31, 2019. We borrowed $2.0 million from this third tranche on September 27, 2018. On March 22, 2019, we drew the remaining $10.5 million under the Amended Credit Agreement and Guaranty increasing the total outstanding balance to $42.5 million. We also entered into a second amendment to the Amended Credit Agreement and Guaranty increasing the allowable permitted indebtedness in connection with our credit card program from $0.3 million to $0.5 million.

29

The outstanding principal amount of the Amended Credit Agreement and Guaranty accrues interest at an annual rate equal to the applicable margin of 9.06% plus the greater of (a) one-month LIBOR and (b) 1.75% per year. The term loan is secured by substantially all our personal property including intellectual property. All unpaid and accrued unpaid interest with respect to each such term loan is due and payable in full on the maturity date at April 6, 2023. On the maturity date, in addition to the payment principal and accrued interest, we will be required to make a payment of 0.5% of the total amount borrowed under the Amended Credit Agreement and Guaranty, unless we have already made such payment in connection with an acceleration or prepayment of borrowings under the term loan. In the event we prepay all or part of this term loan facility prior to the maturity date, we may be subject to additional prepayment fees which decrease as the time to maturity decreases.

We issued warrants to Perceptive to purchase 37,693, 18,846 and 3,769 shares of our Series D convertible preferred stock at an exercise price of $15.92 per share in April 2018, July 2018 and September 2018, respectively. In connection with our initial public offering in November 2018 these warrants converted to common stock warrants at an exercise price of $15.92. Each of the warrants has a term of 10 years. In connection with the draw down on March 22, 2019, we granted warrants to purchase 19,790 shares of common stock. The warrants have an exercise price of $15.92 per share, were fully vested upon issuance, are exercisable at the option of the holder, in whole or in part, and expire in March 2029.  

We were in compliance with all debt covenants under both the Amended Revolving Facility and Amended Credit Agreement and Guaranty at September 30, 2019.

Off-Balance Sheet Arrangements

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

Contractual Obligations and Commitments

Our contractual obligations and commitments as of September 30, 2019 are summarized in the table below:

	Payments Due by Year
(in thousands)	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Long-term debt (1)		42,560	$	-	$	-	$	42,560	$	-
Operating leases (2)		8,665		389		3,178		3,278		1,820
Line of credit (1)		2,924		2,924		-		-		-
Total contractual obligations	$	54,149	$	3,313	$	3,178	$	45,838	$	1,820

(1) The total amount outstanding under our credit facilities was approximately $45.5 million at September 30, 2019.

(2) We currently lease approximately 84,140 square feet for our headquarters in Exeter, New Hampshire under a lease that expires in January 2026.

Critical Accounting Policies and Estimates

This management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue and expenses during the reporting periods. We monitor and analyze these items for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.

For further information regarding our critical accounting policies, see Note 2 “Summary of Significant Accounting Policies” of notes to consolidated financial statements and our critical accounting policies within the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Form 10-K. There have been no material changes, other than those listed below.

30

We adopted the Accounting Standards Codifications “Statement of Cash Flows (Topic 230): Restricted Cash” and “Clarifying the Definition of a Business (Topic 805)” during the three months ended March 31, 2019. See Note 2 “Summary of Significant Accounting Policies” of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We also updated our accounting policies related to foreign currency, goodwill and intangible assets, which are discussed below.

Foreign Currency

Our functional currency 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 loss, 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 September 30, 2019, our UK entity, Solus, was included in our condensed consolidated results from the date of the acquisition in February 2019, see Note 15 “Business Combinations” to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for details of this transaction. The functional currency for this entity is its local currency, Pound Sterling (GBP).

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

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 condensed consolidated statements of comprehensive loss.

Goodwill

Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when 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.

We compare the fair value of our reporting units to their carrying values. If the carrying value of the net assets assigned to a reporting unit exceeds the fair value of the reporting unit, we would record an impairment loss equal to the difference. As described in Note 14 “Segment Reporting” to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we operate in one operating segment, and have two reporting units, Vapotherm and Solus.

Internal Controls over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. As a result of becoming a public company, we will be required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ended December 31, 2019. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. The SEC defines a material weakness as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be detected or prevented on a timely basis.

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In accordance with the provisions of the Sarbanes-Oxley Act, neither we nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting during any period included in this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

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

JOBS Act

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

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ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” we are not required to provide the information required by this item.

ITEM 4.        CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

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

Based on this evaluation, we concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We recognize that any controls system, no matter how well designed and operated, can provide only reasonable assurance of achieving its objectives, and our management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

(b) Changes in Internal Control over Financial Reporting

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

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PART II. OTHER INFORMATION

ITEM 1.        LEGAL PROCEEDINGS

For a discussion of legal matters as of November 5, 2019, please read Part I. Item 1. Note 7 Commitments and Contingencies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

ITEM 1A.     RISK FACTORS

In addition to the other information set forth in this quarterly report, you should carefully consider the factors discussed in “Risk Factors” in our 2018 Form 10-K, which could materially affect our business, financial condition or future results. There have been no material changes from the risk factors previously disclosed in our 2018 Form 10-K.

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

Use of Proceeds

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

The offering terminated after the sale of all securities registered pursuant to the Registration Statement. The net proceeds of approximately $57.4 million from our initial public offering have been invested in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. There has been no material change in the expected use of the net proceeds from our initial public offering as described in our final prospectus, dated November 13, 2018, filed with the SEC pursuant to Rule 424(b) relating to our Registration Statement on Form S-1.

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ITEM 6.        EXHIBITS

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

EXHIBIT INDEX

Exhibit Number	Description
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

35

SIGNATURES

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

	VAPOTHERM, INC.
November 5, 2019	By:	/s/ Joseph Army
		Joseph Army
		President and Chief Executive Officer

November 5, 2019	By:	/s/ John Landry
		John Landry
		Vice President and Chief Financial Officer

36

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph Army, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Vapotherm, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. [Omitted];

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ JOSEPH ARMY

Joseph Army

President and Chief Executive Officer

(Principal Executive Officer)

Date:     November 5, 2019

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John Landry, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Vapotherm, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. [omitted];

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/S/ JOHN LANDRY

John Landry

Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

Date:     November 5, 2019

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Vapotherm, Inc. (the “Company”) for the quarterly period ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Joseph Army, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Report.

/s/ JOSEPH ARMY

Joseph Army

President and Chief Executive Officer

(Principal Executive Officer)

Date:     November 5, 2019

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Vapotherm, Inc. (the “Company”) for the quarterly period ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, John Landry, Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Report.

/s/ JOHN LANDRY

John Landry

Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

Date:     November 5, 2019

XML

Stockholders' Equity - Additional Information (Details)	1 Months Ended	9 Months Ended
	Nov. 30, 2018	Sep. 30, 2019 Vote $ / shares shares	Dec. 31, 2018 $ / shares shares	Nov. 02, 2018 $ / shares
Stockholders Equity [Line Items]
Preferred stock, shares authorized		25,000,000	25,000,000
Preferred stock, par value | $ / shares		$ 0.001	$ 0.001
Preferred stock, shares outstanding		0	0
Common stock, shares authorized		175,000,000	175,000,000
Common stock, par value | $ / shares		$ 0.001	$ 0.001	$ 0.001
Common stock voting rights		Each share of common stock is entitled to one vote.
Number of vote each share of common stock entitled | Vote		1
Redeemable Convertible Preferred Stock
Stockholders Equity [Line Items]
Temporary equity to permanent equity conversion basis		one-to-one basis
Temporary to permanent equity conversion ratio	100.00%

XML

Stock-Based Compensation - Schedule of Weighted Average Assumptions Used in Black-Scholes Options Pricing Model (Details)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Expected dividend yield	0.00%	0.00%
Risk free interest rate	2.10%	2.60%
Expected stock price volatility	63.50%	58.90%
Expected term (years)	6 years 2 months 12 days	5 years 9 months 18 days

XML

Earnings Per Share - Schedule of Computation of Diluted Net Loss Per Share Attributable to Common Stockholders (Details) - shares	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,857,090	12,735,957
Redeemable Convertible Preferred Stock (as Converted to Common Stock)
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount		11,143,571
Options to Purchase Common Stock
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,407,448	757,635
Warrants to Purchase Redeemable Convertible Preferred Stock (as Converted to Common Stock)
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	182,076	230,296
Unvested Restricted Stock
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	267,566	604,455

XML

Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Changes in Carrying Amount of Goodwill and Intangible Assets

The changes in the carrying amount of goodwill and intangible assets during 2019 are as follows:

	Goodwill			Intangible Assets
Balance at December 31, 2018	$	-		$	-
Acquired during the period	584			455
Amortization		-			(69	)
Foreign currency exchange rate changes		(45	)		(35	)
Balance at September 30, 2019	$	539		$	351

Summary of Acquired Intangible Assets

The following table presents a summary of acquired intangible assets:

	As of September 30, 2019
	Period of amortization		Gross Carrying Amount		Accumulated Amortization
Customer agreements		3.83	$	420	$	69
Total identifiable intangible assets			$	420	$	69

Schedule of Estimated Amortization Expense for Intangible Assets

The estimated amortization expense for intangible assets for each of the five succeeding fiscal years is as follows:

Estimated Amortization Expense:
Remainder of 2019	$	27
2020		108
2021		108
2022		108
Total	$	351

XML

Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Schedule of Weighted Average Assumptions Used in Black-Scholes Options Pricing Model

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

	Nine Months Ended September 30,
	2019			2018
Expected dividend yield		0.0	%		0.0	%
Risk free interest rate		2.1	%		2.6	%
Expected stock price volatility		63.5	%		58.9	%
Expected term (years)		6.2			5.8

Summary of Allocated Stock Based Compensation Expense

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019		2018
Cost of goods sold	$	9		$	5	$	147	$	23
Research and development		11			11		266		39
Sales and marketing		(102	)		60		657		134
General and administrative		222			57		1,685		171
Total	$	140		$	133	$	2,755	$	367

Summary of Restricted Stock Activity

Restricted Stock

A summary of restricted stock activity for the nine months ended September 30, 2019 is as follows:

				Weighted
				Average
				Grant Date
	Shares			Fair Value
Unvested at December 31, 2018		399,485		$	1.68
Granted/purchased		78,476			17.54
Vested		(210,395	)		3.31
Canceled		-			-
Unvested at September 30, 2019		267,566		$	4.02

XML

Summary of Significant Accounting Policies - Lives Used in Computing Straight-Line Depreciation (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Equipment | Minimum
Property Plant And Equipment [Line Items]
Property and equipment placed in service, Number of years	3 years
Equipment | Maximum
Property Plant And Equipment [Line Items]
Property and equipment placed in service, Number of years	7 years
Furniture | Minimum
Property Plant And Equipment [Line Items]
Property and equipment placed in service, Number of years	5 years
Furniture | Maximum
Property Plant And Equipment [Line Items]
Property and equipment placed in service, Number of years	7 years
Manufacturing Equipment | Minimum
Property Plant And Equipment [Line Items]
Property and equipment placed in service, Number of years	3 years
Manufacturing Equipment | Maximum
Property Plant And Equipment [Line Items]
Property and equipment placed in service, Number of years	10 years	7 years
Software | Minimum
Property Plant And Equipment [Line Items]
Property and equipment placed in service, Number of years	3 years
Demonstration, Placements and Evaluation Units | Minimum
Property Plant And Equipment [Line Items]
Property and equipment placed in service, Number of years	3 years
Demonstration, Placements and Evaluation Units | Maximum
Property Plant And Equipment [Line Items]
Property and equipment placed in service, Number of years	5 years
Leasehold Improvements
Property Plant And Equipment [Line Items]
Property and equipment placed in service, Term	Lesser of life of lease or 10 years
Leasehold Improvements | Maximum
Property Plant And Equipment [Line Items]
Property and equipment placed in service, Number of years	10 years

XML

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (unaudited) - USD ($) $ in Thousands	Total	Redeemable Convertible Preferred Stock	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Loss
Temporary equity, beginning balance at Dec. 31, 2017		$ 152,637
Temporary equity, beginning balance, shares at Dec. 31, 2017		10,515,351
Beginning balance at Dec. 31, 2017	$ (126,857)		$ 1	$ 45,056	$ (171,914)
Beginning balance, shares at Dec. 31, 2017			672,321
Temporary equity issuance of Series D redeemable convertible preferred stock, value		$ 9,919
Temporary equity issuance of Series D redeemable convertible preferred stock, shares		714,285
Net loss	(29,591)				(29,591)
Accretion of Series D issuance costs	(81)			(81)
Temporary equity accretion of Series D issuance costs		$ 81
Issuance of stock upon exercise of options	92			92
Issuance of stock upon exercise of options, shares			57,171
Issuance of restricted stock	150			150
Issuance of restricted stock, shares			89,623
Stock-based compensation expense	367			367
Ending balance at Sep. 30, 2018	(155,920)		$ 1	45,584	(201,505)
Ending balance, shares at Sep. 30, 2018			819,115
Temporary equity, ending balance at Sep. 30, 2018		$ 162,637
Temporary equity, ending balance, shares at Sep. 30, 2018		11,229,636
Temporary equity, beginning balance at Jun. 30, 2018		$ 152,637
Temporary equity, beginning balance, shares at Jun. 30, 2018		10,515,351
Beginning balance at Jun. 30, 2018	(146,585)		$ 1	45,460	(192,046)
Beginning balance, shares at Jun. 30, 2018			775,043
Temporary equity issuance of Series D redeemable convertible preferred stock, value		$ 9,919
Temporary equity issuance of Series D redeemable convertible preferred stock, shares		714,285
Net loss	(9,459)				(9,459)
Accretion of Series D issuance costs	(81)			(81)
Temporary equity accretion of Series D issuance costs		$ 81
Issuance of stock upon exercise of options	42			42
Issuance of stock upon exercise of options, shares			26,073
Issuance of restricted stock	30			30
Issuance of restricted stock, shares			17,999
Stock-based compensation expense	133			133
Ending balance at Sep. 30, 2018	(155,920)		$ 1	45,584	(201,505)
Ending balance, shares at Sep. 30, 2018			819,115
Temporary equity, ending balance at Sep. 30, 2018		$ 162,637
Temporary equity, ending balance, shares at Sep. 30, 2018		11,229,636
Beginning balance at Dec. 31, 2018	51,561		$ 17	265,926	(214,382)
Beginning balance, shares at Dec. 31, 2018			16,782,837
Net loss	(38,609)				(38,609)
Foreign currency translation adjustments	(70)					$ (70)
Issuance of common stock, value	48,308		$ 4	48,304
Issuance of common stock, shares			3,570,750
Issuance of common stock warrants	293			293
Issuance of stock upon repayment of non-recourse loans	144			144
Issuance of stock upon repayment of non-recourse loans, shares			79,854
Issuance of stock upon exercise of warrants, shares			12,164
Issuance of stock upon exercise of options	230			230
Issuance of stock upon exercise of options, shares			145,613
Issuance of restricted stock	526			526
Issuance of restricted stock, shares			210,395
Stock-based compensation expense	2,755			2,755
Ending balance at Sep. 30, 2019	65,138		$ 21	318,178	(252,991)	(70)
Ending balance, shares at Sep. 30, 2019			20,801,613
Beginning balance at Jun. 30, 2019	29,349		$ 17	269,556	(240,226)	2
Beginning balance, shares at Jun. 30, 2019			17,166,368
Net loss	(12,765)				(12,765)
Foreign currency translation adjustments	(72)					(72)
Issuance of common stock, value	48,308		$ 4	48,304
Issuance of common stock, shares			3,570,750
Issuance of stock upon exercise of options	37			37
Issuance of stock upon exercise of options, shares			22,848
Issuance of restricted stock	141			141
Issuance of restricted stock, shares			41,647
Stock-based compensation expense	140			140
Ending balance at Sep. 30, 2019	$ 65,138		$ 21	$ 318,178	$ (252,991)	$ (70)
Ending balance, shares at Sep. 30, 2019			20,801,613

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Inventories

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Inventories

5. Inventories

Inventories as of September 30, 2019 and December 31, 2018 consist of the following:

	September 30, 2019		December 31, 2018
Component parts	$	5,838	$	5,601
Finished goods		5,006		8,109
Total inventory	$	10,844	$	13,710

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

9. Stock-Based Compensation

On January 23, 2019, the Company established a French Qualifying Subplan which allows for the granting of stock options to purchase shares of common stock for employees and officers who are residents of France. The options under the French Qualifying Subplan reside under the umbrella of the 2018 Stock Incentive Plan.

The fair value of each option grant is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. For performance-based awards, related compensation cost is amortized over the performance period on an accelerated attribution basis. Compensation expense associated with performance awards are based upon the fair value on the date of grant and the number of units expected to be earned after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures. Cumulative adjustments are recorded each quarter to reflect estimated outcome of the performance-related conditions until the date results are determined and settled.Use of a valuation model requires management to make certain assumptions with respect to selected model inputs.

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

	Nine Months Ended September 30,
	2019			2018
Expected dividend yield		0.0	%		0.0	%
Risk free interest rate		2.1	%		2.6	%
Expected stock price volatility		63.5	%		58.9	%
Expected term (years)		6.2			5.8

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019		2018
Cost of goods sold	$	9		$	5	$	147	$	23
Research and development		11			11		266		39
Sales and marketing		(102	)		60		657		134
General and administrative		222			57		1,685		171
Total	$	140		$	133	$	2,755	$	367

Stock Options

The Company granted options to purchase 871,346 shares of common stock at exercise prices ranging from $13.35 to $19.40 per share, with a weighted average exercise price of $17.36 per share, during the nine months ended September 30, 2019. The Company granted options to purchase 345,948 shares of common stock at exercise prices ranging from $1.68 to $3.78 per share, with a weighted average exercise price of $2.27 per share, during the nine months ended September 30, 2018. The weighted average fair value of stock options granted during the nine months ended September 30, 2019 and 2018 was $10.88 and $1.27, respectively.

Restricted Stock

A summary of restricted stock activity for the nine months ended September 30, 2019 is as follows:

				Weighted
				Average
				Grant Date
	Shares			Fair Value
Unvested at December 31, 2018		399,485		$	1.68
Granted/purchased		78,476			17.54
Vested		(210,395	)		3.31
Canceled		-			-
Unvested at September 30, 2019		267,566		$	4.02

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 01, 2019
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Trading Symbol	VAPO
Entity Registrant Name	Vapotherm Inc
Entity Central Index Key	0001253176
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding		21,084,008
Entity Shell Company	false
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Title of 12(b) Security	Common Stock, $0.001 par value per share
Security Exchange Name	NYSE
Entity File Number	001-38740
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	46-2259298
Entity Address, Address Line One	100 Domain Drive
Entity Address, City or Town	Exeter
Entity Address, State or Province	NH
Entity Address, Postal Zip Code	03833
City Area Code	603
Local Phone Number	658-0011
Document Quarterly Report	true
Document Transition Report	false

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

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

Principles of Consolidation

These condensed consolidated financial statements include the financial statements of Solus Medical Ltd. (“Solus”), a wholly owned subsidiary of the Company based in the United Kingdom, which was acquired in the first quarter of 2019. All intercompany accounts and transactions have been eliminated upon consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. The Company evaluates its estimates on an ongoing basis. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates relied upon in preparing these condensed consolidated financial statements include calculation of stock-based compensation, valuation of warrants, fair values of acquired assets and liabilities, including goodwill and intangibles assets, realizability of inventories, allowance for bad debt, accrued expenses and the valuation allowances against deferred income tax assets. Actual results may differ from these estimates.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2019, the condensed consolidated statements of comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows for the three and nine months ended September 30, 2019 and 2018 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2019 and the results of its operations and its cash flows for the three and nine months ended September 30, 2019 and 2018. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2019 and 2018 are also unaudited. The results of operations for the three and nine months ended September 30, 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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 amends Accounting Standards Codification 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 U.S. GAAP. 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 statements of cash flows. The Company adopted the new standard in the first quarter of fiscal 2019, under the retrospective adoption method, and the prior year restricted cash presentation has been reclassified to conform to current year presentation.

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 Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers. The Company adopted ASU 2017-01 effective January 1, 2019. Adoption of ASU 2017-01 did not have a significant impact on the Company’s condensed 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. In July 2019, the FASB issued a proposed ASU that would defer the effective date for ASU 2016-02 to interim and annual periods beginning after December 15, 2020. The Company is currently evaluating the period in which it intends to adopt the new standard. 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. In July 2019, the FASB issued a proposed ASU that would defer the effective date for ASU 2016-02 to interim and annual periods beginning after December 15, 2022. 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 loss, 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. See Note 15 “Business Combinations” to these condensed consolidated financial statements for details of the Solus acquisition. The functional currency for this entity is its local currency, Pound Sterling (GBP).

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

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 condensed consolidated statements of comprehensive loss.

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 14 “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 September 30,						Nine Months Ended September 30,
	2019						2019
	US		International		Total		US		International		Total
Net revenue by:
Product Revenue
Capital	$	1,408	$	647	$	2,055	$	4,517	$	2,198	$	6,715
Disposable		5,962		1,865		7,827		20,023		5,353		25,376
Subtotal Product Revenue		7,370		2,512		9,882		24,540		7,551		32,091
Lease Revenue		463		-		463		1,410		-		1,410
Service and Other Revenue		202		262		464		812		781		1,593
Total Revenue	$	8,035	$	2,774	$	10,809	$	26,762	$	8,332	$	35,094

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018						2018
	US		International		Total		US		International		Total
Net revenue by:
Product Revenue
Capital	$	1,809	$	570	$	2,379	$	5,317	$	2,551	$	7,868
Disposable		5,130		1,167		6,297		16,673		3,808		20,481
Subtotal Product Revenue		6,939		1,737		8,676		21,990		6,359		28,349
Lease Revenue		328		-		328		992		-		992
Service and Other Revenue		270		115		385		996		354		1,350
Total Revenue	$	7,537	$	1,852	$	9,389	$	23,978	$	6,713	$	30,691

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 as of September 30, 2019.

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 condensed consolidated statements of comprehensive loss.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is recognized over the estimated useful lives of the related assets using the straight-line method for consolidated financial statement purposes. The Company uses other depreciation methods (generally, accelerated depreciation methods) for tax purposes, where appropriate. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements and is included in depreciation expense. When impairment indicators are present, the Company evaluates the recoverability of its long-lived assets. If the assessment indicates an impairment, the affected assets are written down to fair value.

Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operating expenses.

The lives used in computing straight-line depreciation for financial reporting purposes are as follows:

	Number of Years
Property and equipment placed in service:
Equipment	3 - 7
Furniture	5 - 7
Manufacturing equipment	3 - 10
Software	3
Demonstration, placements and    evaluation units	3 - 5
Leasehold improvements	Lesser of life of lease or 10 years

The Company’s policy is to periodically review the estimated useful life of all property and equipment. This review during fiscal year 2019 indicated that the estimated useful life of all property and equipment is consistent with fiscal year 2018, with the exception of manufacturing equipment. The maximum useful life increased from 7 years to 10 years.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid temporary investments purchased with original maturities of 90 days or less to be cash equivalents. The Company holds restricted cash related to certificates of deposits and collateral in relation to lease agreements. As of September 30, 2019, $0.3 million of our $85.4 million of cash, cash equivalents and restricted cash balance was located outside the U.S.

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

	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	83,522	$	58,223
Restricted cash		1,852		1,799
Total cash, cash equivalents, and restricted cash	$	85,374	$	60,022

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Inventories (Tables)

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Schedule of Inventories

Inventories as of September 30, 2019 and December 31, 2018 consist of the following:

	September 30, 2019		December 31, 2018
Component parts	$	5,838	$	5,601
Finished goods		5,006		8,109
Total inventory	$	10,844	$	13,710

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Stockholders' Equity

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Stockholders' Equity

13. Stockholders’ Equity

Preferred Stock

As of September 30, 2019 and December 31, 2018, the Company has authorized 25,000,000 shares of preferred stock, respectively, at a par value of $0.001. As of September 30, 2019 and December 31, 2018, there were no shares of preferred stock outstanding.

Prior to the Company’s initial public offering in November 2018, the Company had redeemable convertible preferred stock (Series A, B, C and D) outstanding. In connection with the initial public offering, all outstanding redeemable convertible preferred stock converted to common stock on a one-to-one basis.

Common Stock

As of September 30, 2019 and December 31, 2018, the Company has authorized 175,000,000 shares of common stock, respectively, at a par value of $0.001. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

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

Principles of Consolidation

Principles of Consolidation

These condensed consolidated financial statements include the financial statements of Solus Medical Ltd. (“Solus”), a wholly owned subsidiary of the Company based in the United Kingdom, which was acquired in the first quarter of 2019. All intercompany accounts and transactions have been eliminated upon consolidation.

Use of Estimates

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. The Company evaluates its estimates on an ongoing basis. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates relied upon in preparing these condensed consolidated financial statements include calculation of stock-based compensation, valuation of warrants, fair values of acquired assets and liabilities, including goodwill and intangibles assets, realizability of inventories, allowance for bad debt, accrued expenses and the valuation allowances against deferred income tax assets. Actual results may differ from these estimates.

Unaudited Interim Financial Information

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2019, the condensed consolidated statements of comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows for the three and nine months ended September 30, 2019 and 2018 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2019 and the results of its operations and its cash flows for the three and nine months ended September 30, 2019 and 2018. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2019 and 2018 are also unaudited. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

Recently Adopted and Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Statement of Cash Flows (Topic 230): Restricted Cash

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 amends Accounting Standards Codification 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 U.S. GAAP. 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 statements of cash flows. The Company adopted the new standard in the first quarter of fiscal 2019, under the retrospective adoption method, and the prior year restricted cash presentation has been reclassified to conform to current year presentation.

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 Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers. The Company adopted ASU 2017-01 effective January 1, 2019. Adoption of ASU 2017-01 did not have a significant impact on the Company’s condensed 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. In July 2019, the FASB issued a proposed ASU that would defer the effective date for ASU 2016-02 to interim and annual periods beginning after December 15, 2020. The Company is currently evaluating the period in which it intends to adopt the new standard. 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. In July 2019, the FASB issued a proposed ASU that would defer the effective date for ASU 2016-02 to interim and annual periods beginning after December 15, 2022. 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

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 loss, 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. See Note 15 “Business Combinations” to these condensed consolidated financial statements for details of the Solus acquisition. The functional currency for this entity is its local currency, Pound Sterling (GBP).

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

Intangible Assets

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 condensed consolidated statements of comprehensive loss.

Goodwill

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 14 “Segment Reporting”, the Company operates in one operating segment and has two reporting units, Vapotherm and Solus.

Disaggregated Revenue

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 September 30,						Nine Months Ended September 30,
	2019						2019
	US		International		Total		US		International		Total
Net revenue by:
Product Revenue
Capital	$	1,408	$	647	$	2,055	$	4,517	$	2,198	$	6,715
Disposable		5,962		1,865		7,827		20,023		5,353		25,376
Subtotal Product Revenue		7,370		2,512		9,882		24,540		7,551		32,091
Lease Revenue		463		-		463		1,410		-		1,410
Service and Other Revenue		202		262		464		812		781		1,593
Total Revenue	$	8,035	$	2,774	$	10,809	$	26,762	$	8,332	$	35,094

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018						2018
	US		International		Total		US		International		Total
Net revenue by:
Product Revenue
Capital	$	1,809	$	570	$	2,379	$	5,317	$	2,551	$	7,868
Disposable		5,130		1,167		6,297		16,673		3,808		20,481
Subtotal Product Revenue		6,939		1,737		8,676		21,990		6,359		28,349
Lease Revenue		328		-		328		992		-		992
Service and Other Revenue		270		115		385		996		354		1,350
Total Revenue	$	7,537	$	1,852	$	9,389	$	23,978	$	6,713	$	30,691

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

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 as of September 30, 2019.

Stock Split

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

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 condensed consolidated statements of comprehensive loss.

Property and Equipment

Property and Equipment

Property and equipment are recorded at cost. Depreciation is recognized over the estimated useful lives of the related assets using the straight-line method for consolidated financial statement purposes. The Company uses other depreciation methods (generally, accelerated depreciation methods) for tax purposes, where appropriate. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements and is included in depreciation expense. When impairment indicators are present, the Company evaluates the recoverability of its long-lived assets. If the assessment indicates an impairment, the affected assets are written down to fair value.

Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operating expenses.

The lives used in computing straight-line depreciation for financial reporting purposes are as follows:

	Number of Years
Property and equipment placed in service:
Equipment	3 - 7
Furniture	5 - 7
Manufacturing equipment	3 - 10
Software	3
Demonstration, placements and    evaluation units	3 - 5
Leasehold improvements	Lesser of life of lease or 10 years

The Company’s policy is to periodically review the estimated useful life of all property and equipment. This review during fiscal year 2019 indicated that the estimated useful life of all property and equipment is consistent with fiscal year 2018, with the exception of manufacturing equipment. The maximum useful life increased from 7 years to 10 years.

Cash, Cash Equivalents, and Restricted Cash

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid temporary investments purchased with original maturities of 90 days or less to be cash equivalents. The Company holds restricted cash related to certificates of deposits and collateral in relation to lease agreements. As of September 30, 2019, $0.3 million of our $85.4 million of cash, cash equivalents and restricted cash balance was located outside the U.S.

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

	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	83,522	$	58,223
Restricted cash		1,852		1,799
Total cash, cash equivalents, and restricted cash	$	85,374	$	60,022

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Business Combinations - Summary of Business Acquisition Pro Forma Information (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Business Combinations [Abstract]
Net revenue	$ 10,809	$ 9,985	$ 35,331	$ 32,826
Net loss	$ (12,765)	$ (9,840)	$ (38,895)	$ (30,416)
Net loss per share, basic	$ (0.65)	$ (11.24)	$ (2.18)	$ (36.48)

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Goodwill and Intangible Assets - Schedule of Estimated Amortization Expense for Intangible Assets (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]
Remainder of 2019	$ 27
2020	108
2021	108
2022	108
Total	$ 351

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Inventories - Schedule of Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Component parts	$ 5,838	$ 5,601
Finished goods	5,006	8,109
Total inventory	$ 10,844	$ 13,710

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Accounts Receivable - Summary of Accounts Receivable Owned to Company by Customers and Distributors (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Accounts Notes And Loans Receivable [Line Items]
Total accounts receivable	$ 7,107	$ 7,441
Less: Allowance for doubtful accounts	(259)	(334)
Accounts receivable, net of allowance for doubtful accounts	6,848	7,107
US
Accounts Notes And Loans Receivable [Line Items]
Total accounts receivable	4,743	4,948
International
Accounts Notes And Loans Receivable [Line Items]
Total accounts receivable	$ 2,364	$ 2,493

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Income Taxes - Additional Information (Details) - USD ($)	3 Months Ended		7 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2019	Sep. 30, 2018
Income Tax Contingency [Line Items]
Provision for income taxes	$ 0	$ 0		$ 0	$ 0
Book loss	(12,765,000)	(9,459,000)		(38,609,000)	(29,591,000)
Revenue	$ 10,809,000	$ 9,389,000		$ 35,094,000	$ 30,691,000
Solus
Income Tax Contingency [Line Items]
Book loss			$ 500,000
Revenue			$ 1,700,000

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Segment Reporting

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Segment Reporting

14. Segment Reporting

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

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Net Revenue Disaggregated into Categories

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 September 30,						Nine Months Ended September 30,
	2019						2019
	US		International		Total		US		International		Total
Net revenue by:
Product Revenue
Capital	$	1,408	$	647	$	2,055	$	4,517	$	2,198	$	6,715
Disposable		5,962		1,865		7,827		20,023		5,353		25,376
Subtotal Product Revenue		7,370		2,512		9,882		24,540		7,551		32,091
Lease Revenue		463		-		463		1,410		-		1,410
Service and Other Revenue		202		262		464		812		781		1,593
Total Revenue	$	8,035	$	2,774	$	10,809	$	26,762	$	8,332	$	35,094

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018						2018
	US		International		Total		US		International		Total
Net revenue by:
Product Revenue
Capital	$	1,809	$	570	$	2,379	$	5,317	$	2,551	$	7,868
Disposable		5,130		1,167		6,297		16,673		3,808		20,481
Subtotal Product Revenue		6,939		1,737		8,676		21,990		6,359		28,349
Lease Revenue		328		-		328		992		-		992
Service and Other Revenue		270		115		385		996		354		1,350
Total Revenue	$	7,537	$	1,852	$	9,389	$	23,978	$	6,713	$	30,691

Lives Used in Computing Straight-Line Depreciation

The lives used in computing straight-line depreciation for financial reporting purposes are as follows:

	Number of Years
Property and equipment placed in service:
Equipment	3 - 7
Furniture	5 - 7
Manufacturing equipment	3 - 10
Software	3
Demonstration, placements and    evaluation units	3 - 5
Leasehold improvements	Lesser of life of lease or 10 years

Components of Cash, Cash Equivalents and Restricted Cash

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

	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	83,522	$	58,223
Restricted cash		1,852		1,799
Total cash, cash equivalents, and restricted cash	$	85,374	$	60,022

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Debt (Tables)

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Schedule of Annual Principal Maturities of Amended Credit Agreement and Guaranty

The annual principal maturities of the Amended Credit Agreement and Guaranty as of September 30, 2019 are as follows:

2019	$	-
2020		-
2021		-
2022		-
2023		42,560
Less: Discount on loans payable		(844	)
Long-term loans payable	$	41,716

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Goodwill and Intangible Assets - Schedule of Changes in Carrying Amount of Goodwill and Intangible Assets (Details) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Goodwill
Acquired during the period		$ 584,000
Foreign currency exchange rate changes		(45,000)
Balance at September 30, 2019		539,000
Intangible Assets
Acquired during the period		455,000
Amortization	$ 0	(69,000)	$ 0
Foreign currency exchange rate changes		(35,000)
Balance at September 30, 2019		$ 351,000

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Commitments and Contingencies - Additional Information (Detail) - USD ($)	Jun. 15, 2018	Jun. 12, 2018
Minimum
Loss Contingencies [Line Items]
Breach of contract and other causes of action and seeking damages	$ 2,100,000	$ 800,000

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Financial Instruments - Schedule of Assumptions Used in Black-Scholes Options Pricing Model at the Date of Grant (Details)	Sep. 30, 2019
Class Of Warrant Or Right [Line Items]
Expected term (years)	10 years
Expected Dividend Yield
Class Of Warrant Or Right [Line Items]
Key inputs used in valuation	0.000
Risk Free Interest Rate
Class Of Warrant Or Right [Line Items]
Key inputs used in valuation	0.024
Expected Stock Price Volatility
Class Of Warrant Or Right [Line Items]
Key inputs used in valuation	0.609

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Summary of Significant Accounting Policies - Components of Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Accounting Policies [Abstract]
Cash and cash equivalents	$ 83,522	$ 58,223
Restricted cash	1,852	1,799
Total cash, cash equivalents, and restricted cash	$ 85,374	$ 60,022	$ 15,052	$ 28,360

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Stock-Based Compensation - Summary of Allocated Stock Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Allocated stock based compensation expense	$ 140	$ 133	$ 2,755	$ 367
Cost of goods sold
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Allocated stock based compensation expense	9	5	147	23
Research and development
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Allocated stock based compensation expense	11	11	266	39
Sales and marketing
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Allocated stock based compensation expense	(102)	60	657	134
General and administrative
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Allocated stock based compensation expense	$ 222	$ 57	$ 1,685	$ 171

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Related Party Transactions - Additional Information (Details)		1 Months Ended	3 Months Ended		9 Months Ended
	Nov. 16, 2018 USD ($)	Nov. 30, 2018	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) Stockholder	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Related Party Transaction [Line Items]
Preferred stock purchased by related party			$ 48,308,000		$ 48,308,000
Number of stockholders that are vendors | Stockholder					2
Total amount billed from related parties						$ 1,200,000
Accounts payable to vendors			500,000		$ 500,000		$ 500,000
Revenue from related party			300,000	$ 500,000	1,000,000	$ 1,600,000
Accounts receivable from customer			100,000		100,000		$ 100,000
Maximum
Related Party Transaction [Line Items]
Total amount billed from related parties			$ 100,000	$ 100,000	$ 100,000
Redeemable Convertible Preferred Stock
Related Party Transaction [Line Items]
Preferred stock purchased by related party	$ 33,200,000
Temporary equity to permanent equity conversion basis					one-to-one basis
Temporary to permanent equity conversion ratio		100.00%

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Segment Reporting - Additional Information (Details)	9 Months Ended
	Sep. 30, 2019 Segment
Segment Reporting [Abstract]
Number of reporting segment	1
Number of reporting units	2

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Summary of Significant Accounting Policies - Net Revenue Disaggregated into Categories (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Disaggregation Of Revenue [Line Items]
Total Revenue	$ 10,809	$ 9,389	$ 35,094	$ 30,691
US
Disaggregation Of Revenue [Line Items]
Total Revenue	8,035	7,537	26,762	23,978
International
Disaggregation Of Revenue [Line Items]
Total Revenue	2,774	1,852	8,332	6,713
Product Revenue, Capital
Disaggregation Of Revenue [Line Items]
Total Revenue	2,055	2,379	6,715	7,868
Product Revenue, Capital | US
Disaggregation Of Revenue [Line Items]
Total Revenue	1,408	1,809	4,517	5,317
Product Revenue, Capital | International
Disaggregation Of Revenue [Line Items]
Total Revenue	647	570	2,198	2,551
Product Revenue, Disposable
Disaggregation Of Revenue [Line Items]
Total Revenue	7,827	6,297	25,376	20,481
Product Revenue, Disposable | US
Disaggregation Of Revenue [Line Items]
Total Revenue	5,962	5,130	20,023	16,673
Product Revenue, Disposable | International
Disaggregation Of Revenue [Line Items]
Total Revenue	1,865	1,167	5,353	3,808
Subtotal Product Revenue
Disaggregation Of Revenue [Line Items]
Total Revenue	9,882	8,676	32,091	28,349
Subtotal Product Revenue | US
Disaggregation Of Revenue [Line Items]
Total Revenue	7,370	6,939	24,540	21,990
Subtotal Product Revenue | International
Disaggregation Of Revenue [Line Items]
Total Revenue	2,512	1,737	7,551	6,359
Lease Revenue
Disaggregation Of Revenue [Line Items]
Total Revenue	463	328	1,410	992
Lease Revenue | US
Disaggregation Of Revenue [Line Items]
Total Revenue	463	328	1,410	992
Service and Other Revenue
Disaggregation Of Revenue [Line Items]
Total Revenue	464	385	1,593	1,350
Service and Other Revenue | US
Disaggregation Of Revenue [Line Items]
Total Revenue	202	270	812	996
Service and Other Revenue | International
Disaggregation Of Revenue [Line Items]
Total Revenue	$ 262	$ 115	$ 781	$ 354

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Business Combinations (Tables)

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Summary of Preliminary Purchase Price Allocation

The following table summarizes the preliminary purchase price allocation that includes the fair values of the separately identifiable assets acquired and liabilities assumed as of February 28, 2019:

Cash	$	466
Accounts receivable		411
Inventory		492
Prepaids and other assets		11
Property and equipment		1
Goodwill		584
Intangible assets		455
Total assets acquired		2,420
Accounts payable and accrued expenses		(222	)
Contract liabilities		(75	)
Deferred taxes		(97	)
Total liabilities assumed		(394	)
Total purchase price	$	2,026

Summary of Business Acquisition Pro Forma Information

The following unaudited pro forma information for the three and nine months ended September 30, 2019 and 2018, respectively, presents consolidated information as if the Solus acquisition occurred on January 1, 2018, which is the first day of the Company’s fiscal year 2018:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net revenue	$	10,809		$	9,985		$	35,331		$	32,826
Net loss	$	(12,765	)	$	(9,840	)	$	(38,895	)	$	(30,416	)
Net loss per share, basic	$	(0.65	)	$	(11.24	)	$	(2.18	)	$	(36.48	)

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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Schedule of Reconciliation of Income Tax Expense (Benefit)

Error extracting Word content

Significant Components of Net Deferred Tax Asset

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Description of Business

9 Months Ended

Sep. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Description of Business

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 typically 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 public offerings of its common stock, private placements of its convertible preferred stock, sales of its Precision Flow systems and amounts borrowed under its credit facilities. The Company has 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 15 “Business Combinations” to these condensed consolidated financial statements for details of this transaction.

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

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Statement [Abstract]
Net revenue	$ 10,809	$ 9,389	$ 35,094	$ 30,691
Cost of goods sold	5,999	5,775	19,646	18,737
Gross profit	4,810	3,614	15,448	11,954
Operating expenses
Research and development	3,280	1,766	9,720	6,074
Sales and marketing	9,193	7,757	27,786	24,331
General and administrative	3,978	2,804	13,389	7,789
Loss on disposal of property and equipment		17		59
Total operating expenses	16,451	12,344	50,895	38,253
Loss from operations	(11,641)	(8,730)	(35,447)	(26,299)
Other (expense) income
Foreign currency loss	(28)		(37)	(2)
Interest income	242	8	658	21
Interest expense	(1,338)	(908)	(3,783)	(2,022)
Loss on extinguishment of debt				(1,842)
Gain on change in fair value of warrant liabilities		171		553
Net loss	(12,765)	(9,459)	(38,609)	(29,591)
Accretion of preferred stock to redemption value		(81)		(81)
Net loss attributable to common stockholders	$ (12,765)	$ (9,540)	$ (38,609)	$ (29,672)
Net loss per share attributable to common stockholders - basic and diluted	$ (0.65)	$ (10.90)	$ (2.16)	$ (35.59)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments	$ (72)		$ (70)
Total other comprehensive loss	(72)		(70)
Total comprehensive loss	$ (12,837)	$ (9,459)	$ (38,679)	$ (29,591)
Weighted-average number of shares used in calculating net loss per share, basic and diluted	19,531,153	875,453	17,854,730	833,738

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Debt

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Debt

6. 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 September 30, 2019, the interest rate was 6.75%. The outstanding balance under the Amended Revolver Agreement was $2.9 million at September 30, 2019 and there was $0.3 million 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. The Amended Revolver Agreement requires the Company to comply with a minimum liquidity covenant at all times. As of September 30, 2019, the Company was in compliance with all covenants.

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 $5.0 million tranches in each of January 2017 and March 2017. 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.In connection with this draw down, the Company granted Perceptive warrants to purchase 37,693 shares of Series D preferred stock which were converted into warrants to purchase shares of common stock at the time of the initial public offering. The warrants have an exercise price of $15.92 per share, were fully vested upon issuance, exercisable at the option of the holder, in whole or in part, and expire in April 2028.

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

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

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, are 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.

Pursuant to the Amended Credit Agreement and Guaranty, the outstanding principal amount accrues interest at an annual rate equal to 9.06% plus the greater of (a) one-month LIBOR and (b) 1.75% per year. At September 30, 2019, the interest rate was 11.19%. The outstanding balance, including accretion of the additional final payment due upon maturity and described below, was $42.6 million at September 30, 2019 and there was no remaining availability.

On the maturity date, in addition to the payment of principal and accrued interest, the Company will be required to make a payment of 0.5% of the total amount borrowed under the Amended Credit and Guaranty Agreement unless the Company has already made such a payment in connection with an acceleration or prepayment of borrowings under the agreement. 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 September 30, 2019, the Company was in compliance with all covenants.

The annual principal maturities of the Amended Credit Agreement and Guaranty as of September 30, 2019 are as follows:

2019	$	-
2020		-
2021		-
2022		-
2023		42,560
Less: Discount on loans payable		(844	)
Long-term loans payable	$	41,716

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Earnings Per Share

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Earnings Per Share

10. Earnings Per Share

Net Loss per Share

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

	As of September 30,
	2019		2018
Options to purchase common stock		1,407,448		757,635
Warrants to purchase redeemable convertible preferred stock    (as converted to common stock)		182,076		230,296
Unvested restricted stock		267,566		604,455
Redeemable convertible preferred stock (as converted to    common stock)		-		11,143,571
		1,857,090		12,735,957

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Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

16. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill and intangible assets during 2019 are as follows:

	Goodwill			Intangible Assets
Balance at December 31, 2018	$	-		$	-
Acquired during the period	584			455
Amortization		-			(69	)
Foreign currency exchange rate changes		(45	)		(35	)
Balance at September 30, 2019	$	539		$	351

The following table presents a summary of acquired intangible assets:

	As of September 30, 2019
	Period of amortization		Gross Carrying Amount		Accumulated Amortization
Customer agreements		3.83	$	420	$	69
Total identifiable intangible assets			$	420	$	69

The Company recognized less than $0.1 million of amortization expense within sales and marketing expenses related to the intangible assets during both the three and nine months ended September 30, 2019. The Company did not recognize any amortization expense related to the intangible assets during either the three or nine months ended September 30, 2018 as the assets were acquired as part of the acquisition of Solus in February 2019.

The estimated amortization expense for intangible assets for each of the five succeeding fiscal years is as follows:

Estimated Amortization Expense:
Remainder of 2019	$	27
2020		108
2021		108
2022		108
Total	$	351

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Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2019

Warrants

Schedule of Assumptions Used in Black-Scholes Options Pricing Model at the Date of Grant

The assumptions used in the Black-Scholes pricing model were as follows at the date of grant:

Expected dividend yield	0.0	%
Risk free interest rate	2.4	%
Expected stock price volatility	60.9	%
Expected term (years)	10.0

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Debt - Additional Information (Details)							1 Months Ended			9 Months Ended
	Mar. 22, 2019 USD ($) $ / shares shares	Dec. 31, 2018 USD ($)	Sep. 27, 2018 USD ($) $ / shares shares	Jul. 20, 2018 USD ($) $ / shares shares	Apr. 06, 2018 USD ($) Tranche $ / shares shares	Nov. 16, 2016 USD ($) Tranche	Apr. 30, 2018 USD ($)	Mar. 31, 2017 USD ($)	Jan. 31, 2017 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Mar. 21, 2019 USD ($)
Debt Instrument [Line Items]
Proceeds from term loan										$ 10,500,000	$ 30,374,000
Repayment of term loan balance											$ 20,000,000
Western Alliance Bank | Revolving Credit Line | Revolver Agreement
Debt Instrument [Line Items]
Line of credit made available under agreement						$ 7,000,000	$ 7,500,000
Percentage of eligible receivables used as base to calculate line of credit availability						80.00%
Line of credit, maturity date						Sep. 30, 2018	Sep. 30, 2020
Line of credit, interest rate		7.30%
Outstanding balance under line of credit		$ 3,200,000
Line of credit, remaining availability under agreement		1,000,000
Western Alliance Bank | Revolving Credit Line | Revolver Agreement | Credit Card Program
Debt Instrument [Line Items]
Line of credit made available under agreement												$ 300,000
Western Alliance Bank | Revolving Credit Line | Amended Revolver Agreement
Debt Instrument [Line Items]
Line of credit, interest rate										6.75%
Outstanding balance under line of credit										$ 2,900,000
Line of credit, remaining availability under agreement										300,000
Western Alliance Bank | Revolving Credit Line | Amended Revolver Agreement | Credit Card Program
Debt Instrument [Line Items]
Line of credit made available under agreement	$ 500,000
Solar Capital Ltd. | Term Loan
Debt Instrument [Line Items]
Repayment of term loan balance						$ 6,000,000
Solar Capital Ltd. | Loan and Security Agreement | Term Loan
Debt Instrument [Line Items]
Term loan, face amount						$ 20,000,000
Number of tranches available under agreement | Tranche						3
Minimum revenue threshold required to draw down second tranche and to obtain singed term sheet for equity financing						$ 10,000,000
Solar Capital Ltd. | Loan and Security Agreement | First Tranche | Term Loan
Debt Instrument [Line Items]
Proceeds from term loan						$ 10,000,000
Solar Capital Ltd. | Loan and Security Agreement | Second Tranche | Term Loan
Debt Instrument [Line Items]
Proceeds from term loan									$ 5,000,000
Solar Capital Ltd. | Loan and Security Agreement | Third and Final Tranche | Term Loan
Debt Instrument [Line Items]
Proceeds from term loan								$ 5,000,000
Perceptive Credit Holdings II, LP | Credit Agreement and Guaranty | Term Loan
Debt Instrument [Line Items]
Term loan, face amount					$ 42,500,000					$ 42,600,000
Number of tranches available under agreement | Tranche					3
Proceeds from term loan	$ 10,500,000	$ 32,000,000
Granted warrants to purchase shares | shares	19,790				37,693
Warrants exercise price | $ / shares	$ 15.92				$ 15.92
Warrants expiration, month and year	2029-03				2028-04
Term loan, interest rate	9.06%									11.19%
Debt instrument rate	1.75%
Debt instrument, description	one-month LIBOR
Term loan, remaining availability under agreement										$ 0
Line of credit, covenant compliance description										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 September 30, 2019, the Company was in compliance with all covenants.
Line of credit facility percentage of amount borrowed										0.50%
Perceptive Credit Holdings II, LP | Credit Agreement and Guaranty | First Tranche | Term Loan
Debt Instrument [Line Items]
Proceeds from term loan					$ 20,000,000
Perceptive Credit Holdings II, LP | Credit Agreement and Guaranty | Second Tranche | Term Loan
Debt Instrument [Line Items]
Proceeds from term loan				$ 10,000,000
Granted warrants to purchase shares | shares				18,846
Warrants exercise price | $ / shares				$ 15.92
Warrants expiration, month and year				2028-07
Perceptive Credit Holdings II, LP | First Amendment to Credit Agreement and Guaranty | Term Loan
Debt Instrument [Line Items]
Term loan available to be drawn			$ 12,500,000
Minimum revenue requirement to draw final tranche			43,200,000
Perceptive Credit Holdings II, LP | First Amendment to Credit Agreement and Guaranty | Credit Card Program | Term Loan
Debt Instrument [Line Items]
Line of credit made available under agreement												$ 300,000
Perceptive Credit Holdings II, LP | First Amendment to Credit Agreement and Guaranty | Third and Final Tranche | Term Loan
Debt Instrument [Line Items]
Proceeds from term loan			$ 2,000,000
Granted warrants to purchase shares | shares			3,769
Warrants exercise price | $ / shares			$ 15.92
Warrants expiration, month and year			2028-09
Perceptive Credit Holdings II, LP | Second Amendment to Credit Agreement and Guaranty | Credit Card Program | Term Loan
Debt Instrument [Line Items]
Line of credit made available under agreement	$ 500,000

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Accounts Receivable - Additional Information (Details) - Customer Concentration Risk - Customer	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Revenue
Accounts Notes And Loans Receivable [Line Items]
Number of customer accounted more than 10%	0	0	0	0
Percentage of concentration risk	10.00%	10.00%	10.00%	10.00%
Accounts Receivable
Accounts Notes And Loans Receivable [Line Items]
Number of customer accounted more than 10%			0		0
Percentage of concentration risk			10.00%		10.00%

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Business Combinations - Summary of Preliminary Purchase Price Allocation (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Feb. 28, 2019
Business Acquisition [Line Items]
Goodwill	$ 539
Solus
Business Acquisition [Line Items]
Cash		$ 466
Accounts receivable		411
Inventory		492
Prepaids and other assets		11
Property and equipment		1
Goodwill		584
Intangible assets		455
Total assets acquired		2,420
Accounts payable and accrued expenses		(222)
Contract liabilities		(75)
Deferred taxes		(97)
Total liabilities assumed		(394)
Total purchase price		$ 2,026

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Goodwill and Intangible Assets - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Acquired Finite Lived Intangible Assets [Line Items]
Amortization expense of intangible assets		$ 0	$ 69,000	$ 0
Sales and marketing | Maximum
Acquired Finite Lived Intangible Assets [Line Items]
Amortization expense of intangible assets	$ 100,000		$ 100,000

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Stock-Based Compensation - Summary of Restricted Stock Activity (Details) - Restricted Stock	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares, Unvested, Beginning balance | shares	399,485
Shares, Granted/purchased | shares	78,476
Shares, Vested | shares	(210,395)
Shares, Canceled | shares	0
Shares, Unvested Ending balance | shares	267,566
Weighted Average Grant Date Fair Value, Unvested, Beginning balance | $ / shares	$ 1.68
Weighted Average Grant Date Fair Value, Granted/purchased | $ / shares	17.54
Weighted Average Grant Date Fair Value, Vested | $ / shares	3.31
Weighted Average Grant Date Fair Value, Canceled | $ / shares	0
Weighted Average Grant Date Fair Value, Unvested Ending balance | $ / shares	$ 4.02

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Warrants - Additional Information (Details) - USD ($) $ / shares in Units, $ in Millions		9 Months Ended
	Mar. 22, 2019	Sep. 30, 2019
Common Stock Warrants
Class Of Warrant Or Right [Line Items]
Estimated fair value of warrants at the time of issuance	$ 0.3
Warrants to purchase of common stock shares, net exercised		68,009
Issuance of stock upon exercise of warrants, shares		12,164
Amended Credit Agreement and Guaranty
Class Of Warrant Or Right [Line Items]
Granted warrants to purchase shares	19,790
Warrants exercise price	$ 15.92
Warrants expire date	2029-03

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Warrants

9 Months Ended

Sep. 30, 2019

Warrants And Rights Note Disclosure [Abstract]

Warrants

12. Warrants

	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
Warrants exercised		(68,009	)		(14.00	)
Outstanding at September 30, 2019		182,076		$	14.84

On March 22, 2019, in connection with an amendment to the Credit Agreement and Guaranty as further described in Note 6 “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, are 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 approximately $0.3 million, and is recorded as a discount against the principal owed on the related debt, and is being amortized over the contractual term of the debt instrument.

During 2019, warrants to purchase 68,009 shares of common stock were net exercised, which resulted in the issuance of 12,164 shares of common stock.

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CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (Parenthetical) (unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Stock issuance costs	$ 3,468		$ 3,468
Series D Preferred Stock
Stock issuance costs		$ 81		$ 81

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Financial Instruments

9 Months Ended

Sep. 30, 2019

Investments All Other Investments [Abstract]

Financial Instruments

4. Financial Instruments

As of September 30, 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. The Company’s cash equivalents primarily consist of money market deposits which total approximately $80.6 million at September 30, 2019 and are valued based on Level 1 of the fair value hierarchy. As described in Note 12 “Warrants”, during 2019, the Company granted warrants to purchase 19,790 shares of common stock in connection with an amendment to its financing arrangement described in Note 6 “Debt”. These equity-classified warrants were valued using the Black-Scholes pricing model, which falls within Level 3 of the fair value hierarchy.

The assumptions used in the Black-Scholes pricing model were as follows at the date of grant:

Expected dividend yield	0.0	%
Risk free interest rate	2.4	%
Expected stock price volatility	60.9	%
Expected term (years)	10.0

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Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

There is no provision for income taxes for the three or nine months ended September 30, 2019 or September 30, 2018 because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets.

Utilization of the net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future.These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.

On February 28, 2019, the Company acquired all outstanding equity securities of Solus. For the period from March 1, 2019 to September 30, 2019, Solus had a book loss of $0.5 million, resulting from revenue of $1.7 million. Due to the short period of ownership, and related book loss, the tax provision for Solus is immaterial.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Current assets
Cash and cash equivalents	$ 83,522	$ 58,223
Accounts receivable, net	6,848	7,107
Inventory	10,844	13,710
Prepaid expenses and other current assets	2,067	2,683
Total current assets	103,281	81,723
Property and equipment, net	14,307	13,416
Restricted cash	1,852	1,799
Goodwill	539
Intangible assets, net	351
Other long-term assets	406	308
Total assets	120,736	97,246
Current liabilities
Accounts payable	1,644	3,148
Contract liabilities	123	79
Accrued expenses and other current liabilities	8,888	7,653
Short-term line of credit	2,912	3,163
Total current liabilities	13,567	14,043
Long-term loans payable	41,716	31,317
Deferred income tax liability	90
Other long-term liabilities	225	325
Total liabilities	55,598	45,685
Commitments and contingencies (Note 7)
Stockholders' equity
Preferred stock ($0.001 par value) 25,000,000 shares authorized; no shares issued and outstanding as of September 30, 2019 and December 31, 2018
Common stock ($0.001 par value) 175,000,000 shares authorized as of September 30, 2019 and December 31, 2018, 20,801,613 and 16,782,837 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively	21	17
Additional paid-in capital	318,178	265,926
Accumulated deficit	(252,991)	(214,382)
Accumulated other comprehensive loss	(70)
Total stockholders' equity	65,138	51,561
Total liabilities and stockholders’ equity	$ 120,736	$ 97,246

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Description of Business - Additional Information (Details) - Common Stock - USD ($) $ / shares in Units, $ in Millions		1 Months Ended	3 Months Ended	9 Months Ended
	Nov. 16, 2018	Aug. 31, 2019	Sep. 30, 2019	Sep. 30, 2019
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Number of shares issued			3,570,750	3,570,750
Initial Public Offering
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Number of shares issued	4,600,000	3,570,750
Public offering price of common stock	$ 14.00	$ 14.50
Proceeds from initial offering net of underwriting discounts and offering costs	$ 57.4	$ 48.3
Underwriting discount	4.5	3.1
Offering expenses	$ 2.5	$ 0.4
Exercise of underwriters option to purchase shares		465,750

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Schedule of Computation of Diluted Net Loss Per Share Attributable to Common Stockholders

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

	As of September 30,
	2019		2018
Options to purchase common stock		1,407,448		757,635
Warrants to purchase redeemable convertible preferred stock    (as converted to common stock)		182,076		230,296
Unvested restricted stock		267,566		604,455
Redeemable convertible preferred stock (as converted to    common stock)		-		11,143,571
		1,857,090		12,735,957

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Stock-Based Compensation - Additional Information (Details) - $ / shares	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Stock options, granted	871,346	345,948
Exercise price range, lower range limit	$ 13.35	$ 1.68
Exercise price range, upper range limit	19.40	3.78
Weighted average exercise price	17.36	2.27
Weighted average fair value of stock options granted	$ 10.88	$ 1.27

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Warrants - Summary of Warrants (Details) - Common Stock Warrants	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Class Of Warrant Or Right [Line Items]
Number of shares, beginning balance | shares	230,295
Number of shares, warrants granted | shares	19,790
Number of shares, warrants exercised | shares	(68,009)
Number of shares, ending balance | shares	182,076
Weighted Average
Class Of Warrant Or Right [Line Items]
Weighted average exercise price, beginning balance | $ / shares	$ 14.50
Weighted average exercise price, warrants granted | $ / shares	15.92
Weighted average exercise price, warrants exercised | $ / shares	(14.00)
Weighted average exercise price, ending balance | $ / shares	$ 14.84

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities
Net loss	$ (38,609)	$ (29,591)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	2,219	1,561
Stock-based compensation expense	2,755	367
Loss on disposal of property and equipment	112	306
Provision for bad debts	77	101
Loss on extinguishment of debt		1,842
Amortization of discount on debt	171	95
Change in fair value of warrants		(553)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable	616	896
Inventory	3,382	(1,082)
Prepaid expenses and other assets	528	(1,011)
Accounts payable	(1,551)	(336)
Contract liabilities	(31)	2
Accrued expenses and other current liabilities	1,801	(1,193)
Net cash used in operating activities	(28,530)	(28,596)
Cash flows from investing activities
Acquisition of business, net of cash acquired	(1,560)
Purchases of property and equipment	(3,132)	(3,997)
Net cash used in investing activities	(4,692)	(3,997)
Cash flows from financing activities
Issuance of common stock in connection with public offering of common stock, net of issuance costs	48,308
Proceeds on loans	10,500	30,374
Repayment of loans payable		(20,000)
Debt issuance costs	(322)
Short-term line of credit	(260)	(1,333)
Proceeds from issuance of redeemable convertible preferred stock, net		9,919
Proceeds from exercise of stock options and purchase of restricted stock	374	325
Net cash provided by financing activities	58,600	19,285
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(26)
Net increase (decrease) in cash, cash equivalents and restricted cash	25,352	(13,308)
Cash, cash equivalents and restricted cash
Beginning of period	60,022	28,360
End of period	85,374	15,052
Supplemental disclosures of cash flow information
Interest paid during the period	3,563	2,035
Issuance of warrants in conjunction with debt draw down	293
Property and equipment purchases in accrued expenses	$ 222	$ 472

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Accounts Receivable

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Accounts Receivable

3. Accounts Receivable

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

	September 30, 2019			December 31, 2018
United States	$	4,743		$	4,948
International		2,364			2,493
Total accounts receivable		7,107			7,441
Less: Allowance for doubtful accounts		(259	)		(334	)
Accounts receivable, net of allowance for doubtful    accounts	$	6,848		$	7,107

No individual customer accounted for 10% or more of revenue for the three or nine months ended September 30, 2019 or September 30, 2018. No individual customers accounted for 10% or more of total accounts receivable at either September 30, 2019 or December 31, 2018.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

7. Commitments and Contingencies

Legal Matters

From time to time the Company may become involved in various legal proceedings, including those that may arise in the ordinary course of business. 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 the Company 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 its operations or financial condition.

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 its operations or financial condition.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (Unaudited) - $ / shares	Sep. 30, 2019	Dec. 31, 2018
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	25,000,000	25,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	175,000,000	175,000,000
Common stock, shares issued	20,801,613	16,782,837
Common stock, shares outstanding	20,801,613	16,782,837

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Related Party Transactions

9 Months Ended

Sep. 30, 2019

Related Party Transactions [Abstract]

Related Party Transactions

11. Related Party Transactions

As described in Note 15 “Redeemable Convertible Preferred Stock”, of the 2018 Form 10-K, the Company issued Series A, Series B, Series C and Series D preferred stock to private investors. Certain executive officers of the Company are owners/investors in certain venture funds who purchased Series A, Series B, Series C and Series D preferred stock. The total amount of preferred stock purchased by related party organizations as of November 16, 2018 was $33.2 million. In connection with our initial public offering in November 2018, all outstanding redeemable convertible preferred stock converted to common stock on a one-to-one basis. 

The Company has two stockholders that are vendors of the Company. The total amount billed from these vendors during both the three months ended September 30, 2019 and 2018 was less than $0.1 million. The total amount billed from these vendors during the nine months ended September 30, 2019 and 2018 was less than $0.1 million and $1.2 million, respectively. The accounts payable balance for these vendors was $0.5 million as of both September 30, 2019 and December 31, 2018.

In addition, the Company sells its products to a hospital customer who is an affiliate of a current stockholder. The total amount billed to this customer during the three months ended September 30, 2019 and 2018 was $0.3 million and $0.5 million, respectively. The total amount billed to this customer during the nine months ended September 30, 2019 and 2018 was $1.0 million and $1.6 million, respectively.  The accounts receivable balance for this customer was $0.1 million as of September 30, 2019 and December 31, 2018, respectively. All transactions are at arms’ length and occur at published list prices.

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Summary of Significant Accounting Policies - Additional Information (Details)		9 Months Ended	12 Months Ended
	Nov. 02, 2018 $ / shares	Sep. 30, 2019 USD ($) Segment $ / shares	Dec. 31, 2018 USD ($) $ / shares	Sep. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Summary Of Significant Accounting Policies [Line Items]
Number of operating segment | Segment		1
Number of reporting units | Segment		2
Standard product warranty period		1 year
Reverse stock split	14
Common stock, par value | $ / shares	$ 0.001	$ 0.001	$ 0.001
Cash, cash equivalents and restricted cash balance		$ 85,374,000	$ 60,022,000	$ 15,052,000	$ 28,360,000
Outside U.S.
Summary Of Significant Accounting Policies [Line Items]
Cash, cash equivalents and restricted cash balance		300,000
Maximum
Summary Of Significant Accounting Policies [Line Items]
Product return liability		$ 100,000
Maximum | Manufacturing Equipment
Summary Of Significant Accounting Policies [Line Items]
Estimated useful life of property and equipment		10 years	7 years
Minimum | Manufacturing Equipment
Summary Of Significant Accounting Policies [Line Items]
Estimated useful life of property and equipment		3 years

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Warrants (Tables)

9 Months Ended

Sep. 30, 2019

Warrants And Rights Note Disclosure [Abstract]

Summary of Warrants

	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
Warrants exercised		(68,009	)		(14.00	)
Outstanding at September 30, 2019		182,076		$	14.84

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Business Combinations

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Business Combinations

15. Business Combinations  

On February 28, 2019, the Company completed the acquisition of all outstanding equity securities of Solus Medical Ltd. (“Solus”) whose principal assets included intangible assets related to supplier agreements. The Company undertook the acquisition to accelerate its penetration in the United Kingdom market. The purchase price, net of cash acquired, of $2.0 million was funded with an initial cash payment of approximately $1.6 million and a loss of $0.4 million on settlement of a preexisting relationship. Additionally, the Company is recognizing an estimated $2.4 million in contingent payments as compensation that is being paid out over the period from the date of acquisition through December 31, 2020. The acquisition has been accounted for as an acquisition of a business.

The Company has not yet finalized the purchase accounting for the Solus acquisition. The following table summarizes the preliminary purchase price allocation that includes the fair values of the separately identifiable assets acquired and liabilities assumed as of February 28, 2019:

Cash	$	466
Accounts receivable		411
Inventory		492
Prepaids and other assets		11
Property and equipment		1
Goodwill		584
Intangible assets		455
Total assets acquired		2,420
Accounts payable and accrued expenses		(222	)
Contract liabilities		(75	)
Deferred taxes		(97	)
Total liabilities assumed		(394	)
Total purchase price	$	2,026

The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The fair values of assets acquired and liabilities assumed, including income taxes payable and deferred taxes, may be subject to change as additional information is received and certain tax returns are finalized. Accordingly, the provisional measurements of fair value of the income taxes payable and deferred taxes set forth above are subject to change. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

In determining the purchase price allocation, the Company considered, among other factors, the opportunity provided by a supplier agreement with the National Health Service. The fair value of the intangible assets associated with this agreement were estimated using a discounted cash flow method with the application of the multi-period excess earnings method. Under this method, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows attributable to only the subject intangible assets after deducting contributory asset charges. An income and expenses forecast was built based upon specific intangible asset revenue and expense estimates.

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

The total weighted average amortization period for the intangible assets is approximately 3.83 years. The intangible assets are being amortized on a straight-line basis, which is consistent with the pattern that the economic benefits of the intangible assets are expected to be utilized based upon estimated cash flows generated from such assets. Goodwill associated with the acquisition was primarily attributable to the market expansion opportunity in the United Kingdom. The goodwill attributable to the United Kingdom jurisdiction is not deductible for tax purposes.

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

Pro Forma Financial Information

The following unaudited pro forma information for the three and nine months ended September 30, 2019 and 2018, respectively, presents consolidated information as if the Solus acquisition occurred on January 1, 2018, which is the first day of the Company’s fiscal year 2018:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net revenue	$	10,809		$	9,985		$	35,331		$	32,826
Net loss	$	(12,765	)	$	(9,840	)	$	(38,895	)	$	(30,416	)
Net loss per share, basic	$	(0.65	)	$	(11.24	)	$	(2.18	)	$	(36.48	)

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Accounts Receivable (Tables)

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Summary of Accounts Receivable Owned to Company by Customers and Distributors

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

	September 30, 2019			December 31, 2018
United States	$	4,743		$	4,948
International		2,364			2,493
Total accounts receivable		7,107			7,441
Less: Allowance for doubtful accounts		(259	)		(334	)
Accounts receivable, net of allowance for doubtful    accounts	$	6,848		$	7,107

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Debt - Schedule of Annual Principal Maturities of Amended Credit Agreement and Guaranty (Details) - Loans Payable $ in Thousands	Sep. 30, 2019 USD ($)
Debt Instrument [Line Items]
2019	$ 0
2020	0
2021	0
2022	0
2023	42,560
Less: Discount on loans payable	(844)
Long-term loans payable	$ 41,716

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Financial Instruments - Additional Information (Details) - USD ($) $ in Millions	Sep. 30, 2019	Mar. 22, 2019
Amendment To Financing Arrangement | Common Stock Warrants
Class Of Warrant Or Right [Line Items]
Granted warrants to purchase shares		19,790
Level 1 | Money Market Deposits
Class Of Warrant Or Right [Line Items]
Cash equivalents	$ 80.6

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Business Combinations - Additional Information (Details) - USD ($) $ in Thousands		9 Months Ended
	Feb. 28, 2019	Sep. 30, 2019
Business Acquisition [Line Items]
Purchase price, net of cash acquired		$ 1,560
Solus
Business Acquisition [Line Items]
Acquisition date		Feb. 28, 2019
Purchase price, net of cash acquired	$ 2,000
Initial cash payment	1,600
Loss on settlement of preexisting relationship	400
Business combination estimate of contingent payments as compensation to be recognized	$ 2,400
Weighted average amortization period for intangible assets		3 years 9 months 29 days
Solus | General and administrative
Business Acquisition [Line Items]
Transaction costs associated with acquisition		$ 200

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Goodwill and Intangible Assets - Summary of Acquired Intangible Assets (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Acquired Finite Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 420
Accumulated Amortization	$ 69
Customer Agreements
Acquired Finite Lived Intangible Assets [Line Items]
Period of amortization	3 years 9 months 29 days
Gross Carrying Amount	$ 420
Accumulated Amortization	$ 69