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 March 31, 2022

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

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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 May 4, 2022, the registrant had 47,590,348 shares of Common Stock, par value $0.001 outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

 

Special Note Regarding Forward-Looking Statements

3

 

 

 

PART I.

FINANCIAL INFORMATION

5

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

5

 

Condensed Consolidated Balance Sheets (Unaudited)

5

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

6

 

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

7

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

8

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

29

 

 

 

PART II.

OTHER INFORMATION

30

 

 

 

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

32

 

Signatures

33

 

 

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” in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the "SEC") on March 24, 2022 (the "2021 Form 10-K") 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

 

3


 

in the forward-looking statements may not be achieved 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.

 

 

4


 

PART 1. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

SIGHT SCIENCES, INC.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

238,586

 

 

$

260,687

 

Accounts receivable, net

 

 

9,949

 

 

 

8,709

 

Inventory, net

 

 

4,082

 

 

 

3,475

 

Prepaid expenses and other current assets

 

 

2,693

 

 

 

4,164

 

Total current assets

 

 

255,310

 

 

 

277,035

 

Property and equipment, net

 

 

1,714

 

 

 

1,454

 

Operating lease right-of-use assets

 

 

1,375

 

 

 

1,495

 

Other noncurrent assets

 

 

191

 

 

 

202

 

Total assets

 

$

258,590

 

 

$

280,186

 

Liabilities, redeemable convertible preferred stock, and Stockholders’ equity (deficit)

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,074

 

 

$

3,351

 

Accrued compensation

 

 

3,859

 

 

 

5,987

 

Accrued and other current liabilities

 

 

5,067

 

 

 

4,166

 

Total current liabilities

 

 

12,000

 

 

 

13,504

 

Long-term debt

 

 

32,817

 

 

 

32,656

 

Other noncurrent liabilities

 

 

1,862

 

 

 

1,919

 

Total liabilities

 

 

46,679

 

 

 

48,079

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Redeemable convertible preferred stock:

 

 

 

 

 

 

Convertible preferred stock par value of $0.001 per share; 10,000,000 shares authorized; no shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

Preferred stock par value of $0.001 per share; 10,000,000 shares authorized; no shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

 

 

 

 

Common stock par value of $0.001 per share; 200,000,000 shares authorized as of March 31, 2022 and December 31, 2021, respectively; 47,590,348 and 47,504,704 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

48

 

 

 

48

 

Additional paid-in-capital

 

 

388,127

 

 

 

385,060

 

Accumulated deficit

 

 

(176,264

)

 

 

(153,001

)

Total stockholders’ equity (deficit)

 

 

211,911

 

 

 

232,107

 

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

 

$

258,590

 

 

$

280,186

 

 

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

 

5


 

SIGHT SCIENCES, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(in thousands, except share and per share data)

 

 

 

 

Three Months Ended
March 31,

 

 

 

 

2022

 

 

2021

 

 

Revenue

 

$

14,881

 

 

$

8,635

 

 

Cost of goods sold

 

 

3,033

 

 

 

2,301

 

 

Gross profit

 

 

11,848

 

 

 

6,334

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

5,646

 

 

 

3,440

 

 

Selling, general and administrative

 

 

28,395

 

 

 

14,550

 

 

Total operating expenses

 

 

34,041

 

 

 

17,990

 

 

Loss from operations

 

 

(22,193

)

 

 

(11,656

)

 

Interest expense

 

 

(1,046

)

 

 

(1,084

)

 

Other (expense) income, net

 

 

(15

)

 

 

552

 

 

Loss before income taxes

 

 

(23,254

)

 

 

(12,188

)

 

Provision for income taxes

 

 

9

 

 

 

52

 

 

Net loss and comprehensive loss

 

$

(23,263

)

 

$

(12,240

)

 

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

 

$

(0.49

)

 

$

(1.29

)

 

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

 

 

47,569,499

 

 

 

9,517,270

 

 

 

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

 

 

6


 

SIGHT SCIENCES, INC.

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

(in thousands, except share data)

 

 

 

Redeemable Convertible
Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (deficit)

 

Balance at December 31, 2021

 

 

 

 

$

 

 

 

47,504,704

 

 

$

48

 

 

$

385,060

 

 

$

(153,001

)

 

$

232,107

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

85,644

 

 

 

 

 

 

93

 

 

 

 

 

 

93

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,974

 

 

 

 

 

 

2,974

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,263

)

 

 

(23,263

)

Balance at March 31, 2022

 

 

 

 

 

 

 

 

47,590,348

 

 

 

48

 

 

 

388,127

 

 

 

(176,264

)

 

 

211,911

 

 

 

 

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

)

 

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

 

7


 

SIGHT SCIENCES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(23,263

)

 

$

(12,240

)

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

 

 

 

 

 

 

Depreciation

 

 

179

 

 

 

135

 

Accretion of debt discount and amortization of debt issuance costs

 

 

161

 

 

 

170

 

Stock-based compensation expense

 

 

2,974

 

 

 

277

 

Provision for doubtful accounts receivable

 

 

(60

)

 

 

27

 

Provision for excess and obsolete inventories

 

 

8

 

 

 

211

 

Noncash operating lease expense

 

 

121

 

 

 

156

 

Change in fair value of redeemable convertible preferred stock warrant

 

 

 

 

 

(555

)

Loss on disposal of property and equipment

 

 

46

 

 

 

4

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,180

)

 

 

(301

)

Inventory

 

 

(615

)

 

 

(146

)

Prepaid expenses and other current assets

 

 

1,472

 

 

 

122

 

Other noncurrent assets

 

 

10

 

 

 

(1,024

)

Accounts payable

 

 

(248

)

 

 

1,071

 

Accrued compensation

 

 

(2,129

)

 

 

(1,845

)

Accrued and other current liabilities

 

 

472

 

 

 

977

 

Other noncurrent liabilities

 

 

86

 

 

 

91

 

Net cash used in operating activities

 

 

(21,966

)

 

 

(12,870

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(227

)

 

 

(104

)

Net cash used in investing activities

 

 

(227

)

 

 

(104

)

Cash flows from financing activities

 

 

 

 

 

 

Payments of costs related to initial public offering

 

 

 

 

 

(223

)

Proceeds from exercise of common stock options

 

 

92

 

 

 

13

 

Net cash provided by (used in) financing activities

 

 

92

 

 

 

(210

)

Net change in cash and cash equivalents

 

 

(22,101

)

 

 

(13,184

)

Cash and cash equivalents at beginning of period

 

 

260,687

 

 

 

61,511

 

Cash and cash equivalents at end of period

 

$

238,586

 

 

$

48,327

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

766

 

 

$

766

 

Supplemental noncash disclosure

 

 

 

 

 

 

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

 

$

418

 

 

$

35

 

Unpaid initial public offering costs in accounts payable and accrued liabilities

 

$

 

 

$

1,017

 

 

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

 

8


 

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 located and headquartered in Menlo Park, California and has principal commercial offices in Southlake, Texas. 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 segment's product portfolio features the OMNI® Surgical System ("OMNI"), a device that facilitates the performance of both canaloplasty and trabeculotomy with a single device and single corneal incision to reduce intraocular pressure in adult patients with primary open-angle glaucoma. The Company’s Dry Eye segment's 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 in adult patients with evaporative dry eye disease due to meibomian gland disfunction.

Stock Split

In July 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

In July 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 of the Company's common stock. These sales occurred at the initial public offering price of $24.00 per share. The Company received net proceeds of approximately $252.2 million from the IPO, after deducting underwriting discounts and commissions of $19.3 million and offering costs of $4.5 million.

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, which resulted in the reclassification of the convertible preferred stock warrant liability to additional paid-in capital.

In connection with the Company’s IPO, in July 2021, the Company’s certificate of incorporation was amended and restated to provide for 200,000,000 authorized shares of common stock with a par value of $0.001 per share and 10,000,000 authorized shares of preferred stock with a par value of $0.001 per share.

Significant Risks and Uncertainties

Since inception, the Company has incurred losses and negative cash flows from operations. As of March 31, 2022, the Company had an accumulated deficit of $176.3 million and recorded a net loss of $23.3 million for the three 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.

 

 

9


 

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.

The ongoing COVID-19 pandemic has 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. COVID-19 may also, directly or indirectly, have an unfavorable impact on other areas of the Company's business including, but not limited to, supply chain, sales, third party manufacturing, research and development costs and clinical studies. The full effect of the COVID-19 pandemic on the Company's financial condition and results of operations remains highly uncertain and cannot be predicted with confidence, and will depend on certain developments, including the duration and severity of the COVID-19 pandemic and its potential variants. The impact on the Company's customers and suppliers and the range of governmental and community reactions to the pandemic are uncertain. The Company may continue to experience reduced customer demand or constrained supply that could materially adversely impact business, financial condition, results of operations, liquidity and cash flows in future periods.

Note 2. Summary of Significant Accounting Policies

There have been no significant changes in the Company's significant accounting policies during the three months ended March 31, 2022, as compared with those disclosed in the 2021 Form 10-K for the year ended December 31, 2021 filed with the U.S Securities and Exchange Commission (SEC) on March 24, 2022.

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 and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X.

The unaudited consolidated financial statements have been prepared on a basis consistent with the audited financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company's financial information contained herein. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements at that date. These interim consolidated financial statements do not include all disclosures required by GAAP and should be read in conjunction with the Company's financial statements and accompanying notes for the fiscal year ended December 31, 2021, which are contained in the Company's 2021 Form 10-K filed with the SEC on March 24, 2022. The Company's results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other interim 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 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 environment, and makes adjustments when facts and circumstances dictate. These estimates are based on

 

10


 

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.

New Accounting Pronouncements

During the three-month period ended March 31, 2022, there were no significant Accounting Standard Updates (ASU's) issued that were adopted. As of March 31, 2022, there are no significant ASU's issued and not yet adopted, that are expected to have a material impact on the Company's financial statements and related disclosures.

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 March 31, 2022 and December 31, 2021, do not include any assets or liabilities that are measured at fair value on a nonrecurring basis.

The Company measures the fair value of outstanding debt for disclosure purposes on a recurring basis. As of March 31, 2022 and December 31, 2021, total debt of $32.8 million and $32.7 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 measured the redeemable convertible preferred stock warrants using Level 3 unobservable inputs within the Black-Scholes option-pricing model. The key assumptions included 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 had 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 was not enough historical information available to estimate such a rate. The risk-free rate was based on the U.S. Treasury yield curve at the time of the grant over the expected term of the warrants.

The Company determined 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 (expense) income, net in condensed statements of operations and comprehensive loss. The redeemable convertible preferred stock warrants were converted to common stock warrants upon the closing of the IPO and subsequently settled during the third quarter of the year ended December 31, 2021.

 

 

11


 

A summary of the changes in the fair value of the Company’s Level 3 financial instruments for the three months ended March 31, 2021, 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

 

 

Note 4. Balance Sheet Components

Property and Equipment, Net

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

 

 

 

As of March 31,

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Tools and equipment

 

$

1,874

 

 

$

1,685

 

Computer equipment and software

 

 

100

 

 

 

100

 

Furniture and fixtures

 

 

254

 

 

 

254

 

Leasehold improvements

 

 

34

 

 

 

29

 

Construction in process

 

 

826

 

 

 

590

 

 

 

 

3,088

 

 

 

2,658

 

Less: Accumulated depreciation

 

 

(1,374

)

 

 

(1,204

)

Property and equipment, net

 

$

1,714

 

 

$

1,454

 

 

Depreciation expense was $0.2 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.

Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following (in thousands):

 

 

 

As of March 31,

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Accrued expenses

 

$

3,518

 

 

$

2,726

 

Current portion of lease liabilities

 

 

534

 

 

 

510

 

Short term interest payable

 

 

274

 

 

 

275

 

Other accrued liabilities

 

 

741

 

 

 

655

 

Total accrued and other current liabilities

 

$

5,067

 

 

$

4,166

 

 

Other Noncurrent Liabilities

Other noncurrent liabilities consist of the following (in thousands):

 

 

 

As of March 31,

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Noncurrent portion of lease liabilities

 

$

896

 

 

$

1,040

 

Long term interest payable

 

 

928

 

 

 

841

 

Other noncurrent liabilities

 

 

38

 

 

 

38

 

Total other noncurrent liabilities

 

$

1,862

 

 

$

1,919

 

 

 

12


 

Note 5. Debt

In January 2019, the Company entered into credit and security agreements with MidCap Financial Services (the "Lender"), which provided a maximum of $25.0 million credit facility consisting of a $20.0 million senior secured term loan (the "2019 Term Loan") and a $5.0 million 2019 revolving loan (the "2019 Revolver" and collectively with the 2019 Term Loan, the “2019 MidCap Credit Facility”). In November 2020, the Company entered into amended and restated credit and security agreements with the same institution, which replaced the 2019 MidCap Credit Facility, and provided for a maximum of $40.0 million credit facility consisting of a $35.0 million senior secured term loan (the "2020 Term Loan") and a $5.0 million revolving loan (the "2020 Revolver and collectively with the 2020 Term Loan, the “2020 MidCap Credit Facility”).

The obligations under the MidCap Credit Facility are guaranteed by the Company's current and future subsidiaries, subject to exceptions for certain foreign subsidiaries. Obligations under the agreements are secured by substantially all assets of the Company, including material intellectual property. Additionally, the Company is subject to customary affirmative and negative covenants as defined in the credit agreements, including covenants that limit or restrict the ability to, among other things, incur indebtedness, grant liens, merge or consolidate, make investments, dispose of assets, make acquisitions, pay dividends or make distributions, repurchase stock and enter into certain transactions with affiliates, in each case subject to certain exceptions. The agreements also have financial covenants that relate to minimum trailing revenue targets, which began in November 2020, and are tested on a monthly basis. As of March 31, 2022, the Company was in compliance with all financial and non-financial covenants.

The MidCap Credit Facility agreements each contain events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross-defaults and bankruptcy and insolvency events.

As of March 31, 2022 and December 31, 2021, $5.0 million was available to be drawn under the 2020 Revolver, respectively. The 2020 Revolver has not been drawn upon as of March 31, 2022 and December 31, 2021. Long-term and short-term debt was as follows (in thousands):

 

 

 

As of March 31,

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Term Loan

 

$

35,000

 

 

$

35,000

 

Total principal payments due

 

 

35,000

 

 

 

35,000

 

Less: debt discount related to warrant liability and issuance costs

 

 

(2,183

)

 

 

(2,344

)

Total amounts outstanding

 

 

32,817

 

 

 

32,656

 

Less: Current portion

 

 

 

 

 

 

Total accrued and other current liabilities

 

$

32,817

 

 

$

32,656

 

 

The repayment schedule relating to the Company’s debt as of March 31, 2022, is as follows (in thousands):

 

 

 

Amount

 

2022 (remainder)

 

 

 

2023

 

 

1,458

 

2024

 

 

17,500

 

2025

 

 

16,042

 

Thereafter

 

 

 

Total repayments

 

$

35,000

 

 

Note 6. Commitments and Contingencies

Operating Lease Obligations

The Company’s leases mainly include facility leases and storage leases. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date if the rate implicit in the lease is not readily determinable. The Company estimates its

 

13


 

incremental borrowing rate based on qualitative factors including company specific credit offers, lease term, general economics, and the interest rate environment.

On February 5, 2021, the Company renewed the lease of the corporate headquarters in Menlo Park, California. The lease is a noncancelable operating lease for approximately 10,823 square feet of primary office space. The operating lease commenced on August 1, 2021 and is for a term of 37 months from the commencement date. The Company recorded an aggregate right-of-use ("ROU") asset and lease liability of $1.5 million. The ROU asset and corresponding lease liability were estimated using a weighted-average incremental borrowing rate of 13.59%. Total base rent is approximately $1.6 million under the lease agreement.

The Company recognizes rent expense on a straight-line basis over the noncancelable lease term. The Company’s rent expense was $0.2 million for both the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the remaining lease term for the lease was 2.38 years.

Operating lease expense and supplemental cash flow information related to operating leases for the three months ended March 31, 2022 and 2021 were as follows (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

 

2022

 

 

2021

 

 

Operating lease expense

 

$

173

 

 

$

175

 

 

Cash paid for operating leases

 

 

170

 

 

 

177

 

 

 

Aggregate future minimum lease payments at March 31, 2022, under these noncancelable operating leases were as follows (in thousands):

 

 

 

As of March 31,

 

 

 

 

2022

 

 

2022

 

 

521

 

 

2023

 

 

705

 

 

2024

 

 

462

 

 

Total future minimum lease payments

 

$

1,688

 

 

Less: imputed interest

 

 

(258

)

 

Present value of future minimum lease payments

 

$

1,430

 

 

Less: current portion of operating lease liability

 

 

(534

)

 

Operating lease liabilities - noncurrent

 

$

896

 

 

 

Legal Proceedings

On September 16, 2021, the Company filed suit in the U.S. District Court for the District of Delaware (C.A. No. 1:21-cv-01317) alleging that Ivantis, Inc. directly or indirectly infringes U.S. Patent Nos. 8,287,482, 9,370,443, 9,486,361, and 10,314,742 by making, using, selling, and offering for sale the Hydrus® Microstent. The Company’s Complaint seeks money damages and injunctive relief. On January 24, 2022, Ivantis asserted counterclaims requesting declaratory judgments that the Company's asserted patents-in-suit are not infringed and/or invalid. No trial date has been set. The Company is presently unable to predict the outcome of this lawsuit or to reasonably estimate the potential financial impact of the lawsuit on the Company, if any.

The Company is subject to claims and assessments from time to time in the ordinary course of business. Accruals for litigation and contingencies are reflected in the financial statements based on management’s assessment, including the advice of legal counsel, of the expected outcome of litigation or other dispute resolution proceedings, and/or the expected resolution of contingencies. Liabilities for estimated losses are accrued if the potential losses from any claims or legal proceedings are considered probable and the amounts can be reasonably estimated. Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount can be reasonably estimated. Accruals are based only on information available at the time of the assessment due to the uncertain nature of such matters. As additional information becomes available,

 

14


 

management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company’s results of operations in a given period. As of March 31, 2022 and December 31, 2021, the Company was not involved in any material legal proceedings except as described above.

Voluntary Recall

In March 2022, the Company announced a voluntary recall of the TearCare SmartHub 1.0 devices to ensure regulatory compliance with product classification codes following TearCare's 510(k) clearance with the FDA in December 2021. During the first quarter of 2022, the Company estimated the cost of providing customers with replacement TearCare SmartHub 1.5 devices to be $0.9 million, which was expensed to cost of goods sold in the first quarter. The Company began providing replacement devices in March 2022 and expects to have all replacement devices provided by the end of the second quarter of fiscal year 2022.

Indemnification

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but that have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

The Company indemnifies each of its directors and officers for certain events or occurrences, subject to certain limits, while the director is or was serving at the Company’s request in such capacity, as permitted under Delaware law and in accordance with its certificate of incorporation and bylaws. The term of the indemnification period lasts as long as a director may be subject to any proceeding arising out of acts or omissions of such director in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director liability insurance. This insurance allows the transfer of risk associated with the Company’s exposure and may enable it to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations as of March 31, 2022 and December 31, 2021.

 

Note 7. Stockholders' Equity

Common Stock

In connection with the Company’s IPO in July 2021, the Company’s certificate of incorporation was amended and restated to provide for 200,000,000 authorized shares of common stock with a par value of $0.001 per share and 10,000,000 authorized shares of preferred stock with a par value of $0.001 per share. The holders of common stock were also entitled to receive dividends whenever funds are legally available, when and if declared by the board of directors. As of March 31, 2022, no dividends have been declared to date. Each share of common stock is entitled to one vote.

At March 31, 2022 and December 31, 2021, the Company had reserved common stock for future issuances as follows:

 

 

March 31,

 

 

December 31,