10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2021

OR

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

For the transition period from __________ to ____________

Commission File Number: 001-40587

 

SIGHT SCIENCES, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

80-0625749

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

4040 Campbell Ave, Suite 100

Menlo Park, CA

94025

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (877) 266-1144

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001

 

SGHT

 

The Nasdaq Global Select Market

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

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

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

 

As of August 10, 2021, the registrant had 47,265,164 shares of Common Stock, par value $0.001 outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

 

Special Note Regarding Forward-Looking Statements

3

 

 

 

PART I.

FINANCIAL INFORMATION

6

 

 

 

Item 1.

Condensed Financial Statements (Unaudited)

6

 

Condensed Consolidated Balance Sheets (Unaudited)

6

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

7

 

Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit (Unaudited)

8

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

9

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

10

Item 2.

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

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

43

Item 4.

Controls and Procedures

43

 

 

 

PART II.

OTHER INFORMATION

44

 

 

 

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

108

Item 3.

Defaults Upon Senior Securities

108

Item 4.

Mine Safety Disclosures

108

Item 5.

Other Information

108

Item 6.

Exhibits

109

 

Signatures

111

 

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “Sight Sciences,” “we,” “us” and “our” refer to Sight Sciences, Inc.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “hope,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

estimates of our total addressable market, future revenue, expenses, capital requirements, and our needs for additional financing;
our ability to enter into and compete in new markets;
the impact of the COVID-19 pandemic on our business, our customers’ and suppliers’ businesses and the general economy;
our ability to compete effectively with existing competitors and new market entrants;
our ability to scale our infrastructure;
our ability to manage and grow our business by expanding our sales to existing customers or introducing our products to new customers;
our ability to establish and maintain intellectual property protection for our products or avoid claims of infringement;
potential effects of extensive government regulation;
our ability to obtain and maintain sufficient reimbursement for our products;
our abilities to protect and scale our intellectual property portfolio;
our ability to hire and retain key personnel;
our ability to obtain financing in future offerings;
the volatility of the trading price of our common stock;
our expectation regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act (the “JOBS Act”); and
our ability to maintain proper and effective internal controls.

Actual events or results may differ from those expressed in forward-looking statements. As such, you should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, prospects, strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a highly competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved

 

3


 

or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements in this Quarterly Report on Form 10-Q are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.

RISK FACTORS SUMMARY

Our business is subject to numerous risks and uncertainties, including those described in Part II Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

We have incurred significant losses since inception and expect to incur significant additional losses for the foreseeable future which may make it difficult to evaluate the success of our business to date and to assess the prospects for our future viability;
Our business is highly dependent on the success of two current commercial products, and in particular OMNI. The development of TearCare for expanded indications depends upon positive clinical data, and the safety and efficacy of our products are not yet supported by long-term clinical data, which could delay or prevent clearance by regulatory authorities or limit sales if cleared, certified or approved;
We may need additional funding in order to finance our planned operations. The inability to raise funds on acceptable terms, if at all, when needed, may force us to delay, reduce or eliminate our product development programs and commercialization efforts;
The COVID-19 pandemic has impacted, and likely will continue to impact, our operations and financial results and may materially and adversely affect our business and financial results in the future;
We are subject to extensive and costly government regulation on federal, state and foreign levels and we may not receive, or may be delayed in receiving, the necessary regulatory clearances, certifications or approvals for our future products or modifications to our current products;
We may incur significant liability if it is determined that we are not complying with federal, state or foreign regulatory requirements, such as if it is determined that we are promoting off-label uses of our products;
Changes in public health insurance coverage and reimbursement rates may affect the adoption of our products and our future revenue;
Developments by competitors may render our products or technologies obsolete or noncompetitive and the development of new products, technologies, procedures, medications or other therapies could replace or reduce the importance of our products;
We rely on third parties for the manufacture and supply of OMNI and TearCare;

 

4


 

We depend on a limited number of single source suppliers for some of the components, accessories and materials used in OMNI and TearCare and any shortfall in the supply chain may cause our business to materially suffer;
If we are unable to obtain, protect, maintain, enforce and adequately protect our intellectual property rights with respect to our technology and current and future products, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully develop and commercialize our technology and current and future products may be adversely affected; and
If we lose key management or scientific personnel, cannot recruit qualified employees, directors, officers or other significant personnel or experience increases in our compensation costs, our business may materially suffer.

 

5


 

PART 1. FINANCIAL INFORMATION

 

Item 1. Condensed Financial Statements (Unaudited)

 

SIGHT SCIENCES INC.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,572

 

 

$

61,511

 

Accounts receivable, net

 

 

6,887

 

 

 

5,363

 

Inventory, net

 

 

2,576

 

 

 

2,598

 

Prepaid expenses and other current assets

 

 

2,359

 

 

 

1,161

 

Total current assets

 

 

47,394

 

 

 

70,633

 

Property and equipment, net

 

 

1,418

 

 

 

1,269

 

Operating lease ROU assets

 

 

231

 

 

 

518

 

Other noncurrent assets

 

 

3,467

 

 

 

386

 

Total assets

 

$

52,510

 

 

$

72,806

 

Liabilities, redeemable convertible preferred stock, and Stockholders’ deficit

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,224

 

 

$

2,158

 

Accrued compensation

 

 

4,083

 

 

 

4,070

 

Accrued and other current liabilities

 

 

4,754

 

 

 

3,086

 

Total current liabilities

 

 

12,061

 

 

 

9,314

 

Long-term debt

 

 

32,302

 

 

 

31,955

 

Other noncurrent liabilities

 

 

8,105

 

 

 

3,055

 

Total liabilities

 

 

52,468

 

 

 

44,324

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Redeemable convertible preferred stock:

 

 

 

 

 

 

Convertible preferred stock, $0.001 par value; 14,241,390 shares authorized as of June 30, 2021 and December 31, 2020; 12,767,202 shares issued and outstanding as of June 30, 2021 and December 31, 2020; aggregate liquidation preference of $118.6 million as of June 30, 2021 and December 31, 2020

 

 

117,331

 

 

 

117,331

 

Stockholders’ deficit:

 

 

 

 

 

 

Common stock par value of $0.001 per share; 21,831,000 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 9,732,032 and 9,509,182 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

 

9

 

 

 

9

 

Additional paid-in-capital

 

 

2,598

 

 

 

1,183

 

Accumulated deficit

 

 

(119,896

)

 

 

(90,041

)

Total stockholders’ deficit

 

 

(117,289

)

 

 

(88,849

)

Total liabilities, redeemable convertible preferred stock and stockholders’ equity deficit

 

$

52,510

 

 

$

72,806

 

 

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

 

6


 

SIGHT SCIENCES INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(in thousands, except share and per share amounts)

 

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$

12,535

 

 

$

3,502

 

 

$

21,170

 

 

$

9,998

 

Cost of goods sold

 

 

2,305

 

 

 

2,085

 

 

 

4,606

 

 

 

4,213

 

Gross profit

 

 

10,230

 

 

 

1,417

 

 

 

16,564

 

 

 

5,785

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,546

 

 

 

1,443

 

 

 

6,986

 

 

 

3,843

 

Selling, general and administrative

 

 

17,760

 

 

 

7,664

 

 

 

32,310

 

 

 

18,342

 

Total operating expenses

 

 

21,306

 

 

 

9,107

 

 

 

39,296

 

 

 

22,185

 

Loss from operations

 

 

(11,076

)

 

 

(7,690

)

 

 

(22,732

)

 

 

(16,400

)

Interest income

 

 

 

 

 

2

 

 

 

 

 

 

29

 

Interest expense

 

 

(1,082

)

 

 

(549

)

 

 

(2,166

)

 

 

(1,101

)

Other (expense) income, net

 

 

(5,435

)

 

 

(73

)

 

 

(4,883

)

 

 

18

 

Loss before income taxes

 

 

(17,593

)

 

 

(8,310

)

 

 

(29,781

)

 

 

(17,454

)

Provision for income taxes

 

 

22

 

 

 

6

 

 

 

74

 

 

 

37

 

Net loss and comprehensive loss

 

$

(17,615

)

 

$

(8,316

)

 

$

(29,855

)

 

$

(17,491

)

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

 

$

(1.83

)

 

$

(0.88

)

 

$

(3.12

)

 

$

(1.85

)

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

 

 

9,610,408

 

 

 

9,457,893

 

 

 

9,564,096

 

 

 

9,453,640

 

 

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

 

 

7


 

SIGHT SCIENCES INC.

Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit (Unaudited)

(in thousands, except share amounts)

 

 

 

Redeemable Convertible
Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance at December 31, 2020

 

 

12,767,202

 

 

$

117,331

 

 

 

9,509,182

 

 

$

9

 

 

$

1,183

 

 

$

(90,041

)

 

$

(88,849

)

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

16,862

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

277

 

 

 

 

 

 

277

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,240

)

 

 

(12,240

)

Balance at March 31, 2021

 

 

12,767,202

 

 

 

117,331

 

 

 

9,526,044

 

 

 

9

 

 

 

1,471

 

 

 

(102,281

)

 

 

(100,801

)

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

205,988

 

 

 

 

 

 

196

 

 

 

 

 

 

196

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

931

 

 

 

 

 

 

931

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,615

)

 

 

(17,615

)

Balance at June 30, 2021

 

 

12,767,202

 

 

 

117,331

 

 

 

9,732,032

 

 

 

9

 

 

 

2,598

 

 

 

(119,896

)

 

 

(117,289

)

 

 

 

Redeemable Convertible
Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance at December 31, 2019

 

 

9,804,640

 

 

$

64,256

 

 

 

9,319,466

 

 

$

9

 

 

$

656

 

 

$

(55,348

)

 

$

(54,683

)

Issuance of Series E convertible preferred stock, net of issuance costs of $94

 

 

1,899,847

 

 

 

30,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

1,500

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61

 

 

 

 

 

 

61

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,175

)

 

 

(9,175

)

Balance at March 31, 2020

 

 

11,704,487

 

 

 

94,311

 

 

 

9,320,966

 

 

 

9

 

 

 

718

 

 

 

(64,523

)

 

 

(63,796

)

Issuance of Series E convertible preferred stock

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

20,520

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65

 

 

 

 

 

 

65

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,316

)

 

 

(8,316

)

Balance at June 30, 2020

 

 

11,704,487

 

 

 

94,299

 

 

 

9,341,486

 

 

 

9

 

 

 

790

 

 

 

(72,839

)

 

 

(72,040

)

 

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

 

8


 

SIGHT SCIENCES INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(29,855

)

 

$

(17,491

)

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

 

 

 

 

 

 

Depreciation

 

 

289

 

 

 

288

 

Accretion of debt discount and amortization of debt issuance costs

 

 

346

 

 

 

280

 

Stock-based compensation expense

 

 

1,208

 

 

 

126

 

Provision for doubtful accounts receivable

 

 

104

 

 

 

229

 

Provision for excess and obsolete inventories

 

 

276

 

 

 

841

 

Noncash operating lease expense

 

 

310

 

 

 

270

 

Change in fair value of redeemable convertible preferred stock warrant

 

 

4,872

 

 

 

(19

)

Loss on disposal of property and equipment

 

 

74

 

 

 

74

 

Proceeds from Paycheck Protection Program loan

 

 

 

 

 

(2,246

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,628

)

 

 

880

 

Inventory

 

 

(255

)

 

 

(1,138

)

Prepaid expenses and other current assets

 

 

(1,197

)

 

 

(288

)

Other noncurrent assets

 

 

(3,081

)

 

 

 

Accounts payable

 

 

1,438

 

 

 

752

 

Accrued compensation

 

 

13

 

 

 

(311

)

Accrued and other current liabilities

 

 

1,594

 

 

 

2,288

 

Other noncurrent liabilities

 

 

186

 

 

 

456

 

Net cash used in operating activities

 

 

(25,306

)

 

 

(15,009

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(369

)

 

 

(532

)

Net cash used in investing activities

 

 

(369

)

 

 

(532

)

Cash flows from financing activities

 

 

 

 

 

 

Payments of costs related to initial public offering

 

 

(471

)

 

 

 

Proceeds from the issuance of Series E redeemable convertible preferred stock

 

 

 

 

 

30,150

 

Series E issuance costs

 

 

 

 

 

(106

)

Proceeds from exercise of common stock warrants

 

 

207

 

 

 

8

 

Net cash (used in) provided by financing activities

 

 

(264

)

 

 

30,052

 

Net change in cash and cash equivalents

 

 

(25,939

)

 

 

14,511

 

Cash and cash equivalents at beginning of period

 

 

61,511

 

 

 

21,237

 

Cash and cash equivalents at end of period

 

$

35,572

 

 

$

35,748

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

1,548

 

 

$

623

 

Supplemental noncash disclosure

 

 

 

 

 

 

Acquisition of property and equipment included in accounts payable and accrued liabilities

 

$

181

 

 

$

66

 

Unpaid initial public offering costs in accounts payable and accrued liabilities

 

$

2,764

 

 

$

 

 

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

 

9


 

SIGHT SCIENCES INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 1. Company and Nature of Business

 

Description of Business

 

Sight Sciences, Inc. (the “Company”) was incorporated in the state of Delaware in 2010. The Company is an ophthalmic medical device company focused on the development and commercialization of surgical and nonsurgical technologies for the treatment of prevalent eye diseases. The Company’s surgical glaucoma product portfolio features the OMNI Surgical System, a device that facilitates the performance of both trabeculotomy and canaloplasty with a single device and single corneal incision. The Company’s nonsurgical dry eye product portfolio consists of the TearCare System ("TearCare") for ophthalmologists and optometrists. TearCare is a wearable eyelid technology that delivers highly targeted and adjustable heat to the meibomian glands of the eyelids.

The Company is located and headquartered in Menlo Park, California. The Company also operates an office in Southlake, Texas.

Stock Split

On July 7, 2021 the Company effected a 2-for-1 stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s redeemable convertible preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the redeemable convertible preferred stock conversion ratios.

Initial Public Offering

On July 19, 2021, the Company closed its initial public offering (“IPO”) of its common stock in which the Company issued and sold 10,000,000 shares of its common stock, and sold an additional 1,500,000 shares of common stock upon the full exercise of the underwriters’ option to purchase additional shares at $24.00 per share, raising approximately $253.0 million in proceeds, net of underwriting discounts and commissions of $19.3 million and estimated offering costs of $3.7 million, of which $3.3 million were incurred as of June 30, 2021.

Immediately prior to the closing of the IPO, all then-outstanding shares of redeemable convertible preferred stock were converted into 25,534,404 shares of common stock. Further, all outstanding redeemable convertible preferred stock warrants were converted into warrants to purchase 659,028 shares of common stock (see Note 9). The condensed consolidated financial statements as of June 30, 2021, including share and per share amounts, do not give effect to the IPO or the conversion of the convertible preferred stock into common stock, as the IPO and such conversions were completed subsequent to June 30, 2021.

Significant Risks and Uncertainties

Since inception, the Company has incurred losses and negative cash flows from operations. As of June 30, 2021, the Company had an accumulated deficit of $119.9 million and recorded a net loss of $29.9 million for the six months then ended and expects to incur future additional losses. If the Company’s revenue levels from its products are not sufficient or if the Company is unable to secure additional funding when desired, the Company may need to delay the development of its products and scale back its business and operations.

The Company believes that its existing sources of liquidity will satisfy its working capital and capital requirements for at least 12 months from the issuance of its financial statements. Failure to generate sufficient revenues, achieve planned gross margins, or control operating costs will require the Company to raise additional capital through equity or debt financing. Such additional financing may not be available on acceptable terms, or at all, and could require the Company to modify, delay, or abandon some of its planned future expansion or expenditures or reduce some of its ongoing operating costs, which could harm its business, operating results, financial condition, and ability to achieve its intended business objectives.

 

10


 

On March 11, 2020, the World Health Organization declared the coronavirus disease 2019 (“COVID-19”) outbreak a global pandemic recommending containment measures worldwide. On March 16, 2020 the Company implemented alternative work arrangements for its employees and limited its employees’ travel activities to protect its employees and to comply with the provisions described within the local shelter in place order. Certain U.S. federal, state and local governmental authorities issued other orders and directives, including restrictions on elective procedures and therapies, aimed at minimizing the spread of COVID-19. As such, the COVID-19 pandemic impacted and is expected to continue to impact demand for the Company’s products, which are used in procedures and therapies that are considered elective. Although some of the governmental restrictions have since been lifted or scaled back, recent and future surges of COVID-19, including recent surges in the delta variant of COVID-19, may result in restrictions being re-implemented in response to efforts to reduce the spread of COVID-19.

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 outbreak (including prevalence and effect of the delta variant and other potential COVID-19 variants), the status of health and safety actions taken to contain its spread and any additional preventative and protective actions that governments, or the Company, may direct, any resurgence of COVID-19 that may occur and how quickly and to what extent economic and operating conditions normalize within the markets in which the Company operates. The COVID-19 pandemic could disrupt the operations of the Company’s third-party manufacturers and other suppliers. Although the Company has not experienced disruptions in its supply chain to date, it cannot predict how long the pandemic and measures intended to contain the spread of COVID-19 will continue and what effect COVID-19 and the associated containment measures will have on our suppliers and vendors, in particular for any of the Company’s suppliers and vendors that may not qualify as essential businesses and suffer more significant disruptions to their business operations. The Company is working closely with its manufacturing partners and suppliers to help ensure the Company is able to source key components and maintain appropriate inventory levels to meet customer demand.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) applicable to interim periods. The condensed consolidated financial statements, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the Company’s financial position and results of operations for the reported periods. These condensed consolidated financial statements have been prepared on a basis substantially consistent with, and should be read in conjunction with the audited financial statements for the year ended December 31, 2020 and notes thereto included in the prospectus, dated July 14, 2021, filed with the Securities and Exchange Commission ("SEC") in accordance with Rule 424(b) of the Securities Act on July 15, 2021 (the "Prospectus") in connection with our IPO that forms a part of the Company's Registration Statements on Form S-1 (File No. 333-257320), as filed with the SEC pursuant to Rule 424(b)(4) promulgated under the Securities Act, as amended. Certain information and note disclosures normally included in the audited financial statements prepared in accordance with GAAP have been condensed or omitted from this report. The results of operations for any interim period are not necessarily indicative of the results for the year ending December 31, 2021, or for any future period.

The accompanying condensed consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expense during the reporting period. The most significant estimates related to inventory excess and obsolescence, the selection of useful lives of property and equipment, determination of the fair value of stock option grants, the fair value of the redeemable convertible preferred stock warrants, and provisions for income taxes and contingencies. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic

 

11


 

environment, and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of the date of the financial statements. Actual results could differ from these estimates and such differences could be material to the Company’s financial position and results of operations.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, redeemable convertible preferred stock, short-term and long-term debt and redeemable convertible preferred stock warrant liability. The Company states accounts receivable, accounts payable, and accrued and other current liabilities at their carrying value, which approximates fair value due to the short time to the expected receipt or payment. The carrying amount of the Company’s short-term debt approximates its fair value as the effective interest rate approximates market rates currently available to the Company. The redeemable convertible preferred stock warrant liability associated with the Company’s redeemable convertible preferred stock is carried at fair value based on unobservable market inputs.

Deferred Offering Costs

Deferred offering costs, consisting of legal, accounting and other fees and costs relating to the Company’s IPO, were deferred until completion of the IPO. As of June 30, 2021 and December 31, 2020 deferred offering costs of $3.3 million and $0.4 million, respectively, were capitalized and are included in “Other noncurrent assets”. In July 2021, upon closing of the IPO, all deferred costs were offset against the Company's IPO proceeds.

Accounting for Payroll Protection Program

In March 2020, Congress established the Paycheck Protection Program (“PPP”) to provide relief to small businesses during COVID-19 as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The legislation authorized the U.S. Treasury to use the Small Business Association’s (“SBA’s”) small business lending program to fund forgivable loans that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities during the “Covered Period” defined as the 8-week period starting on the date the PPP loan proceeds are received. Upon meeting certain criteria as specified in the PPP program, the loans are eligible for partial or total forgiveness. In May 2020, the Company applied for and received a PPP loan for the amount $2.2 million from SBA. We believe we have satisfied all of the terms and conditions of the PPP loan and applied for loan forgiveness in September 2020. The PPP loan was forgiven in June 2021.

GAAP does not contain authoritative accounting standards for forgivable loans provided by governmental entities to a for-profit entity. Absent authoritative accounting standards, interpretative guidance issued and commonly applied by financial statement preparers allows for the selection of accounting policies amongst acceptable alternatives. The Company determined it most appropriate to account for the PPP loan proceeds as an in-substance government grant by analogy to International Accounting Standards 20 (“IAS 20”) Accounting for Government Grants and Disclosure of Government Assistance. Under this guidance, a forgivable loan from government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan. While IAS 20 does not define “reasonable assurance”, this concept in practice is analogous to “probable” as defined in Financial Accounting Standards Board (“FASB”) ASC 450-20-20 under GAAP, which is the definition the Company has applied to its expectations of PPP loan forgiveness. Under IAS 20, government grants are recognized in earnings on a systematic basis over the periods in which the Company recognizes costs for which the grant is intended to compensate (i.e. qualified expenses). Further, IAS 20 permits for the recognition in earnings either separately under a general heading such as other income, or as a reduction of the related expenses.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. The guidance is effective for the

 

12


 

Company beginning in the first quarter of 2023. The Company is evaluating the impact of adopting this guidance and does not expect to have a material impact on the Company’s financial statements and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, that simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax allocation and modified the methodology for calculating income taxes in an interim period. It also clarifies and simplifies other aspects of the accounting for income taxes. The guidance is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022 with early adoption permitted. The Company is evaluating the effect of this new guidance and does not expect it to have material impact on the Company’s financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The guidance also establishes (1) a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and (2) certain elective hedge accounting expedients. The amendment is effective for all entities through December 31, 2022. LIBOR is used to calculate the interest on borrowings under the Company’s term loan and revolving line of credit with MidCap Financial Services. The Company is evaluating the effect of this new guidance and does not expect it to have material impact on the Company’s financial statements. 

Note 3. Fair Value Measurements

The Company reports all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3—Inputs are unobservable inputs for the asset or liability. The level in the fair value hierarchy within which a fair value measurement in its entirety is based on the lowest-level input that is significant to the fair value measurement in its entirety.

The financial statements as of June 30, 2021 and December 31, 2020, do not include any nonrecurring fair value measurements relating to assets or liabilities.

The fair value measurements of liabilities that are measured at fair value on a recurring basis at June 30, 2021 and December 31, 2020, are as follows (in thousands):

 

 

 

As of June 30, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock warrants liabilities

 

$

 

 

$

 

 

$

6,984

 

 

$

6,984

 

Total liabilities measured at fair value

 

$

 

 

$

 

 

$

6,984

 

 

$

6,984

 

 

 

13


 

 

 

 

As of December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock warrants liabilities

 

$

 

 

$

 

 

$

2,112

 

 

$

2,112

 

Total liabilities measured at fair value

 

$

 

 

$

 

 

$

2,112

 

 

$

2,112

 

 

The Company measures the redeemable convertible preferred stock warrants using Level 3 unobservable inputs within the Black-Scholes option-pricing model. The key assumptions include the fair value of redeemable convertible preferred stock, volatility, the risk-free interest rate, expected term (remaining contractual term of the warrants) and dividend yield. The Company has limited historical volatility information available, and the expected volatility was based on actual volatility for comparable public companies projected over the expected terms of the warrants. The Company did not apply a forfeiture rate to the warrants as there is not enough historical information available to estimate such a rate. The risk-free interest rate was based on the U.S. Treasury yield curve at the time of the grant over the expected term of the warrants. Refer to Note 9 for the assumptions used.

The Company measures the fair value of outstanding debt for disclosure purposes on a recurring basis. As of June 30, 2021 and December 31, 2020, total debt of $32.3 million and $31.9 million is reported at amortized cost, respectively. This outstanding debt is classified as Level 2 as it is not actively traded. The amortized cost of the outstanding debt approximates the fair value.

The Company determines the fair value of the redeemable convertible preferred stock warrants quarterly, with subsequent gains and losses from remeasurement of Level 3 financial liabilities recorded through other income (expense), net in condensed statements of operations and comprehensive loss.

A summary of the changes in the fair value of the Company’s Level 3 financial instruments for the three and six months ended June 30, 2021 and 2020, is as follows (in thousands):

 

 

 

Redeemable convertible preferred stock warrants liabilities

 

Balance – December 31, 2020

 

$

2,112

 

Change in fair value

 

 

(555

)

Balance – March 31, 2021

 

 

1,557

 

Change in fair value

 

 

5,427

 

Balance – June 30, 2021

 

$

6,984

 

 

 

 

Redeemable convertible preferred stock warrants liabilities

 

Balance – December 31, 2019

 

$

236

 

Change in fair value

 

 

(92

)

Balance – March 31, 2020

 

 

144

 

Change in fair value

 

 

73

 

Balance – June 30, 2020

 

$

217

 

 

 

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Note 4. Balance Sheet Components

Property and Equipment, Net

Property and equipment, net consist of the following (in thousands):

 

 

 

As of June 30,

 

 

As of December 31,

 

 

 

2021

 

 

2020

 

Tools and equipment

 

$

1,552

 

 

$

1,523

 

Computer equipment and software

 

 

108

 

 

 

118

 

Furniture and fixtures

 

 

43

 

 

 

43

 

Leasehold improvements

 

 

30

 

 

 

30