asxc20220630_10q.htm
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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________________

 

FORM 10-Q

_________________________________________________

 

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

 

For the quarterly period ended June 30, 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 0-19437

_________________________________________________

 

ASENSUS SURGICAL, INC.

(Exact name of registrant as specified in its charter)

_________________________________________________

 

Delaware

11-2962080

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1 TW Alexander Drive, Suite 160, Durham, NC 27703

(Address of principal executive offices) (Zip Code)

 

Registrants telephone number, including area code: (919) 765-8400

 

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 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  ☒

 

 

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

 

Title of each class

 

Trading symbol

 

Name of each exchange on which registered

Common Stock
$0.001 par value per share

 

ASXC

 

NYSE American

 

 

 

The number of shares outstanding of the registrant’s common stock, as of August 5, 2022 was 236,718,923.

 



 

 

 

ASENSUS SURGICAL, INC.

 

TABLE OF CONTENTS FOR FORM 10-Q

 

PART I.

FINANCIAL INFORMATION

 
     

Item 1.

Financial Statements

 
 

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

2

 

Condensed Consolidated Balance Sheets (unaudited)

3

 

Condensed Consolidated Statements of Stockholders Equity (unaudited)

4

 

Condensed Consolidated Statements of Cash Flows (unaudited)

5

 

Notes to Condensed Consolidated Financial Statements (unaudited)

6

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

24

     

PART II.

OTHER INFORMATION

24

     

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults Upon Senior Securities

24

Item 4.

Mine Safety Disclosures

24

Item 5.

Other Information

24

Item 6.

Exhibits

25

     
 

SIGNATURES

26

 

i
 
 

FORWARD-LOOKING STATEMENTS

In addition to historical financial information, this report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report, including statements regarding future events, our future financial performance, our future business strategy and the plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “in the event that,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements, including the impact of the coronavirus (COVID-19) pandemic on our operating results. Readers are urged to carefully review and consider the various disclosures made by us, which attempt to advise interested parties of the risks, uncertainties, and other factors that affect our business, operating results, financial condition and stock price, including without limitation the disclosures made under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Financial Statements,” “Notes to Condensed Consolidated Financial Statements “and “Risk Factors” in this report, as well as the disclosures made in the Asensus Surgical, Inc. Annual Report on Form 10-K for the year ended December 31, 2021 (the “Fiscal 2021 Form 10-K”), and other filings we make with the SEC. Furthermore, such forward-looking statements speak only as of the date of this report. We expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations except as required by applicable law. To the extent that our business is negatively impacted due to a variety of factors, including the impact of COVID-19 and other geopolitical factors on our operating results, we may implement longer-term cost reduction efforts in order to mitigate such impact. References in this report to “we,” “our,” “us,” or the “Company” refer to Asensus Surgical, Inc., including its subsidiaries Asensus Surgical US, Inc., Asensus International, Inc., Asensus Surgical Italia S.r.l., Asensus Surgical Europe S.à.r.l., Asensus Surgical Taiwan Ltd., Asensus Surgical Japan K.K., Asensus Surgical Israel Ltd., Asensus Surgical Netherlands B.V., and Asensus Surgical Canada, Inc.

 

Any disclosure in this report regarding the receipt of CE Mark or Section 510(k) clearance for any of the Company’s products does not mean or infer any endorsement of the Company’s products by any government agency including, without limitation, the U.S. Food and Drug Administration, or FDA.

 

 

 

PART 1. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Asensus Surgical, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands except per share amounts)

(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Revenue:

                               

Product

  $ 254     $ 363     $ 601     $ 1,726  

Service

    424       406       732       785  

Lease

    316       333       727       674  

Total revenue

    994       1,102       2,060       3,185  
                                 

Cost of revenue:

                               

Product

    883       1,003       1,259       2,678  

Service

    646       636       1,141       1,002  

Lease

    818       708       1,770       1,779  

Total cost of revenue

    2,347       2,347       4,170       5,459  
                                 

Gross loss

    (1,353 )     (1,245 )     (2,110 )     (2,274 )

Operating Expenses:

                               

Research and development

    7,253       4,089       13,681       8,304  

Sales and marketing

    3,602       3,562       7,321       6,615  

General and administrative

    4,992       3,848       10,525       7,840  

Amortization of intangible assets

    2,533       2,862       5,203       5,729  

Change in fair value of contingent consideration

    (598 )     478       (752 )     735  

Property and equipment impairment

    432       -       432       -  

Total Operating Expenses

    18,214       14,839       36,410       29,223  
                                 

Operating Loss

    (19,567 )     (16,084 )     (38,520 )     (31,497 )

Other Income (Expense), net

                               

Gain on extinguishment of debt

    -       2,847       -       2,847  

Change in fair value of warrant liabilities

    -       -       -       (1,981 )

Interest income

    260       79       515       131  

Interest expense

    (141 )     (5 )     (341 )     (12 )

Other expense, net

    (86 )     (7 )     (232 )     (36 )

Total Other Income (Expense), net

    33       2,914       (58 )     949  
                                 

Loss before income taxes

    (19,534 )     (13,170 )     (38,578 )     (30,548 )

Income tax (expense) benefit

    (85 )     (2 )     (169 )     36  

Net loss

    (19,619 )     (13,172 )     (38,747 )     (30,512 )
                                 

Comprehensive loss:

                               

Net loss

    (19,619 )     (13,172 )     (38,747 )     (30,512 )

Foreign currency translation (loss) gain

    (1,713 )     472       (2,363 )     (1,466 )

Unrealized loss on available-for-sale investments

    (144 )     -       (696 )     -  

Comprehensive loss

  $ (21,476 )   $ (12,700 )   $ (41,806 )   $ (31,978 )
                                 

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

  $ (0.08 )   $ (0.06 )   $ (0.16 )   $ (0.14 )

Weighted average number of shares used in computing net loss per common share - basic and diluted

    236,505       233,250       236,201       219,199  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

Asensus Surgical, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

(Unaudited)

 

  

June 30, 2022

  

December 31, 2021

 

Assets

        

Current Assets:

        

Cash and cash equivalents

 $10,844  $18,129 

Short-term investments, available-for-sale

  83,360   80,262 

Accounts receivable, net

  699   749 

Inventories

  8,451   8,634 

Prepaid expenses

  2,927   3,255 

Employee retention tax credit receivable

  1,147   1,311 

Other current assets

  1,134   957 

Total Current Assets

  108,562   113,297 
         

Restricted cash

  1,290   1,154 

Long-term investments, available-for-sale

  9,581   37,435 

Inventories, net of current portion

  7,258   7,074 

Property and equipment, net

  9,389   10,971 

Intellectual property, net

  4,122   9,892 

Net deferred tax assets

  244   288 

Operating lease right-of-use assets, net

  4,747   5,348 

Other long-term assets

  2,157   1,014 

Total Assets

 $147,350  $186,473 
         

Liabilities and Stockholders' Equity

        

Current Liabilities:

        

Accounts payable

 $3,849  $3,448 

Accrued employee compensation and benefits

  3,127   3,559 

Accrued expenses and other current liabilities

  1,617   1,617 

Operating lease liabilities - current portion

  579   683 

Deferred revenue

  510   543 

Total Current Liabilities

  9,682   9,850 
         

Long-Term Liabilities:

        

Contingent consideration

  1,619   2,371 

Noncurrent operating lease liabilities

  4,610   5,006 

Total Liabilities

  15,911   17,227 
         

Commitments and Contingencies (Note 14)

          
         

Stockholders' Equity:

        

Common stock $0.001 par value, 750,000,000 shares authorized at June 30, 2022 and December 31, 2021; 236,620,415 and 235,218,552 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

  237   235 

Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued and outstanding at June 30, 2022 and December 31, 2021

  -   - 

Additional paid-in capital

  958,646   954,649 

Accumulated deficit

  (824,121)  (785,374)

Accumulated other comprehensive loss

  (3,323)  (264)

Total Stockholders' Equity

  131,439   169,246 

Total Liabilities and Stockholders' Equity

 $147,350  $186,473 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

Asensus Surgical, Inc.

Condensed Consolidated Statements of Changes in Stockholders Equity

(in thousands)

(Unaudited)

 

   

Common Stock

   

Treasury Stock

                                 
   

Shares

   

Amount

   

Shares

   

Amount

   

Additional Paid

-in Capital

   

Accumulated

Deficit

   

Accumulated

Other

Comprehensive

Income (Loss)

   

Total

Stockholders'

Equity

 

Balance, December 31, 2021

    235,219     $ 235       -     $ -     $ 954,649     $ (785,374 )   $ (264 )   $ 169,246  

Stock-based compensation

    -       -       -       -       2,245       -       -       2,245  

Exercise of stock options

    30       -       -       -       12       -       -       12  

Award of restricted stock units

    1,166       1       -       -       -       -       -       1  

Return of common stock to pay withholding taxes on restricted stock

    -       -       436       -       (349 )     -       -       (349 )

Cancellation of treasury stock

    -       -       (436 )     -       -       -       -       -  

Other comprehensive loss

    -       -       -       -       -       -       (1,202 )     (1,202 )

Net loss

    -       -       -       -       -       (19,128 )     -       (19,128 )

Balance, March 31, 2022

    236,415     $ 236       -     $ -     $ 956,557     $ (804,502 )   $ (1,466 )   $ 150,825  

Stock-based compensation

    -       -       -       -       2,083       -       -       2,083  

Exercise of stock options

    13       -       -       -       6       -       -       6  

Award of restricted stock units

    192       1       -       -       -       -       -       1  

Other comprehensive loss

    -       -       -       -       -       -       (1,857 )     (1,857 )

Net loss

    -       -       -       -       -       (19,619 )     -       (19,619 )

Balance, June 30, 2022

    236,620     $ 237       -     $ -     $ 958,646     $ (824,121 )   $ (3,323 )   $ 131,439  
                                                                 

Balance, December 31, 2020

    116,231     $ 116       -     $ -     $ 781,397     $ (722,912 )   $ 2,968     $ 61,569  

Stock-based compensation

    -       -       -       -       1,786       -       -       1,786  

Issuance of common stock, net of issuance costs

    70,666       71       -       -       129,251       -       -       129,322  

Exercise of stock options and warrants

    45,114       45       -       -       32,687       -       -       32,732  

Award of restricted stock units

    706       1       -       -       -       -       -       1  

Return of common stock to pay withholding taxes on restricted stock

    -       -       67       -       (214 )     -       -       (214 )

Cancellation of treasury stock

    -       -       (67 )     -       -       -       -       -  

Other comprehensive loss

    -       -       -       -       -       -       (1,938 )     (1,938 )

Net loss

    -       -       -       -       -       (17,340 )     -       (17,340 )

Balance, March 31, 2021

    232,717     $ 233       -     $ -     $ 944,907     $ (740,252 )   $ 1,030     $ 205,918  

Stock-based compensation

    -       -       -       -       1,842       -       -       1,842  

Issuance of common stock, net of issuance costs

    332       -       -       -       992       -       -       992  

Exercise of stock options and warrants

    508       -       -       -       337       -       -       337  

Award of restricted stock units

    674       1       -       -       -       -       -       1  

Return of common stock to pay withholding taxes on restricted stock

    -       -       246       -       (829 )     -       -       (829 )

Cancellation of treasury stock

    -       -       (246 )     -       -       -       -       -  

Other comprehensive gain

    -       -       -       -       -       -       472       472  

Net loss

    -       -       -       -       -       (13,172 )     -       (13,172 )

Balance, June 30, 2021

    234,231     $ 234       -     $ -     $ 947,249     $ (753,424 )   $ 1,502     $ 195,561  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

Asensus Surgical, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

   

Six Months Ended June 30,

 
   

2022

   

2021

 

Operating Activities:

               

Net loss

  $ (38,747 )   $ (30,512 )

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

               

Depreciation

    1,720       1,585  

Amortization of intangible assets

    5,203       5,729  

Amortization of discounts and premiums on investments, net

    444       -  

Stock-based compensation

    4,328       3,628  

Gain on extinguishment of debt

    -       (2,847 )

Deferred tax expense (benefit)

    169       (36 )

Bad debt expense

    9       -  

Change in inventory reserves

    (567 )     288  

Property and equipment impairment

    432       -  

Loss on disposal of property and equipment

    97       -  

Change in fair value of warrant liabilities

    -       1,981  

Change in fair value of contingent consideration

    (752 )     735  
                 

Changes in operating assets and liabilities:

               

Accounts receivable

    (8 )     127  

Inventories

    (1,933 )     (1,687 )

Operating lease right-of-use assets

    409       (2,970 )

Prepaid expenses

    189       517  

Other current and long-term assets

    (1,169 )     2,660  

Accounts payable

    524       679  

Accrued expenses

    (284 )     (1,428 )

Deferred revenue

    (4 )     14  

Operating lease liabilities

    (290 )     3,052  

Net cash and cash equivalents used in operating activities

    (30,230 )     (18,485 )
                 

Investing Activities:

               

Purchase of available-for-sale investments

    (17,792 )     -  

Proceeds from maturities of available-for-sale investments

    41,408       -  

Purchase of property and equipment

    (443 )     (700 )

Net cash and cash equivalents provided by (used in) investing activities

    23,173       (700 )
                 

Financing Activities:

               

Proceeds from issuance of common stock, net of issuance costs

    -       130,314  

Taxes paid related to net share settlement of vesting of restricted stock units

    (349 )     (1,041 )

Proceeds from exercise of stock options and warrants

    18       30,835  

Net cash and cash equivalents (used in) provided by financing activities

    (331 )     160,108  
                 

Effect of exchange rate changes on cash and cash equivalents

    239       (329 )

Net (decrease) increase in cash, cash equivalents and restricted cash

    (7,149 )     140,594  

Cash, cash equivalents and restricted cash, beginning of period

    19,283       17,529  

Cash, cash equivalents and restricted cash, end of period

  $ 12,134     $ 158,123  
                 

Supplemental Disclosure for Cash Flow Information

               

Cash paid for leases

  $ 549     $ 539  

Cash paid for taxes

  $ 65     $ 50  
                 

Supplemental Schedule of Non-cash Investing and Financing Activities:

               

Transfer of inventories to property and equipment

  $ 724     $ 1,243  

Acquisition of property and equipment in accounts payable

  $ -     $ 67  

Reclass of warrant liability to common stock and additional paid-in-capital

  $ -     $ 2,236  

Lease liabilities arising from obtaining right-of-use assets

  $ -     $ 3,461  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

Asensus Surgical, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

1.

Description of the Business

 

Asensus Surgical, Inc. (formerly known as TransEnterix, Inc.) (the "Company") is a medical device company that is digitizing the interface between the surgeon and the patient to pioneer a new era of Performance-Guided Surgery™ by unlocking clinical intelligence for surgeons to enable consistently superior outcomes and a new standard of surgery. The Company is focused on the market development for and commercialization of the Senhance® Surgical System, which digitizes laparoscopic minimally invasive surgery, or MIS. The Senhance System is the first and only digital, multi-port laparoscopic platform designed to maintain laparoscopic MIS standards while providing digital benefits such as haptic feedback, robotic precision, comfortable ergonomics, advanced instrumentation including 3mm microlaparoscopic instruments, 5mm articulating instruments, eye-sensing camera control and fully-reusable standard instruments to help maintain per-procedure costs similar to traditional laparoscopy.

 

 

2.

Summary of Significant Accounting Policies

 

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company and its direct and indirect wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The results reported in these unaudited interim condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for any subsequent period or for the entire year. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Fiscal 2021 Form 10-K. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in the accompanying interim condensed consolidated financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, except as otherwise indicated, necessary for a fair statement of its financial position, results of operations, and cash flows of the Company for all periods presented.

 

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries, Asensus Surgical US, Inc., Asensus International, Inc., Asensus Surgical Italia S.r.l., Asensus Surgical Europe S.à.r.l., Asensus Surgical Taiwan Ltd., Asensus Surgical Japan K.K., Asensus Surgical Israel Ltd., Asensus Surgical Netherlands B.V., and Asensus Surgical Canada, Inc. All inter-company accounts and transactions have been eliminated in consolidation.

 

Risk and Uncertainties

The Company is subject to risks similar to other similarly sized companies in the medical device industry. These risks include, without limitation: negative impacts on the Company's operations caused by the COVID-19 pandemic and other geopolitical factors; the historical lack of profitability; the Company’s ability to raise additional capital; the success of its market development efforts; its ability to successfully develop, clinically test and commercialize its products; the timing and outcome of the regulatory review process for its products; changes in the health care and regulatory environments of the United States, the European Union, Japan, Taiwan, and other countries in which the Company operates or intends to operate; its ability to attract and retain key management, marketing and scientific personnel; its ability to successfully prepare, file, prosecute, maintain, defend and enforce patent claims and other intellectual property rights; its ability to successfully transition from a research and development company to a marketing, sales and distribution company; competition in the market for robotic surgical devices; and its ability to identify and pursue development of additional products.

 

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include impairment considerations for long-lived assets, fair value estimates related to contingent consideration, stock compensation expense, revenue recognition, accounts receivable reserves, short-term and long-term investments, excess and obsolete inventory reserves, inventory classification between current and non-current, measurement of lease liabilities and corresponding right-of-use (“ROU”) assets, and deferred tax asset valuation allowances.

 

6

 

Significant Accounting Policies

There have been no new or material changes to the significant accounting policies discussed in the Company’s audited financial statements and the notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

 

Reclassifications

Certain amounts reported previously have been reclassified to conform to current year presentation, with no effect on stockholders’ equity or net loss as previously reported. These reclassifications relate to revenue and cost of revenue for leases which historically were included in product and service revenue and corresponding cost of revenue on the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2021.

 

Impact of Recently Issued Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”), issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is designed to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company adopted ASU 2016-13 as of January 1, 2022, on a modified retrospective basis. The cumulative-effect adjustment related to the adoption was not material.

 

In August 2020, the FASB issued ASU 2020-06, Debt Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entitys Own Equity (Subtopic 815-40) guidance on the accounting for convertible debt instruments and contracts in an entity’s own equity. The guidance simplifies the accounting for convertible instruments by reducing the various accounting models that can require the instrument to be separated into a debt component and equity component or derivative component. The Company adopted ASU 2020-06 as of January 1, 2022. The adoption did not have a material impact to the consolidated financial statements.

 

The Company has evaluated all other issued and ASUs not yet adopted and believes the adoption of these standards will not have a material impact on its condensed consolidated statements of operations and comprehensive loss, balance sheets, or statements of cash flows.

 

 

3.

Revenue Recognition

 

The following table presents revenue disaggregated by type and geography:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 
  

(in thousands)

  

(in thousands)

 

U.S.

                

Systems

 $-  $-  $-  $3 

Instruments and accessories

  18   79   82   141 

Services

  75   104   149   202 

Leases

  51   91   164   181 

Total U.S. revenue

  144   274   395   527 
                 

Outside of U.S. ("OUS")

                

Systems

  -   -   -   921 

Instruments and accessories

  236   284   519   661 

Services

  349   302   583   583 

Leases

  265   242   563   493 

Total OUS revenue

  850   828   1,665   2,658 
                 

Total

                

Systems

  -   -   -   924 

Instruments and accessories

  254   363   601   802 

Services

  424   406   732   785 

Leases

  316   333   727   674 

Total revenue

 $994  $1,102  $2,060  $3,185 

 

7

 

Remaining Performance Obligations

Transaction price allocated to remaining performance obligations relates to amounts allocated to products and services for which the revenue has not yet been recognized. A significant portion of this amount relates to service obligations performed under the Company's system sales contracts that will be invoiced and recognized as revenue in future periods. Transaction price allocated to remaining performance obligations as of June 30, 2022 was $2.1 million, which is expected to be recognized over one to four years. 

 

Contract Assets and Liabilities

The Company invoices its customers based on the billing schedules in its sales arrangements. Contract assets for the periods presented primarily represent the difference between the revenue that was recognized based on the relative selling price of the related performance obligations and the contractual billing terms in the arrangements. Deferred revenue for the periods presented was primarily related to service obligations, for which the service fees are billed up-front, generally annually. The associated deferred revenue is generally recognized ratably over the service period. The Company did not have any significant impairment losses on its contract assets for the periods presented. Revenue recognized for the three months ended June 30, 2022 and 2021 that was included in the deferred revenue balance at the beginning of each reporting period was $0.3 million and $0.2 million, respectively. Revenue recognized for the six months ended June 30, 2022 and 2021 that was included in the deferred revenue balance at the beginning of each reporting period was $0.5 million and $0.4 million, respectively.

 

The following information summarizes the Company’s contract assets and liabilities:

 

  

As of

 
  

June 30, 2022

  

December 31, 2021

 
  

(in thousands)

 

Contract Assets

 $57  $91 

Deferred Revenue

 $510  $543 

 

Senhance System Leasing

The Company enters into operating lease arrangements with certain qualified customers. Revenue related to arrangements including lease elements are allocated to lease and non-lease elements based on their relative standalone selling prices. Lease elements generally include a Senhance System, while non-lease elements generally include instruments, accessories, and services. For some lease arrangements, the customers are provided with the option to purchase the leased System at some point during and/or at the end of the lease term. In some arrangements lease payments are based on the usage of the System. For the three and six months ended June 30, 2022, and 2021, variable lease revenue related to usage-based arrangements was not material.  

 

Trade Accounts Receivable

The allowance for doubtful accounts is based on the Company’s assessment of collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. The allowance for doubtful accounts was $1.5 million and $1.7 million as of June 30, 2022, and December 31, 2021, respectively. For the three and six months ended June 30, 2022, and 2021, bad debt expense was not material.

 

8

 

 

4.

Fair Value

 

The following are categories of assets and liabilities measured at fair value on a recurring basis using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

 

  

June 30, 2022

 
  

(in thousands)

 
                 

Description

 

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

  

Significant Other

Observable Inputs

(Level 2)

  

Significant

Unobservable

Inputs (Level 3)

  

Total

 

Assets measured at fair value

                

Cash and cash equivalents (1)

 $10,844  $-  $-  $10,844 

Restricted cash

  1,290   -   -   1,290 

Short-term investments

  -   83,360   -   83,360 

Long-term investments

  -   9,581   -   9,581 

Total assets measured at fair value

 $12,134  $92,941  $-  $105,075 

Liabilities measured at fair value

                

Contingent consideration

 $-  $-  $1,619  $1,619 

Total liabilities measured at fair value

 $-  $-  $1,619  $1,619 

 

(1) Includes investments that are readily convertible to cash with original maturities of 90 days or less.

 

  

December 31, 2021

 
  

(in thousands)

 
                 

Description

 

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

  

Significant Other

Observable Inputs

(Level 2)

  

Significant

Unobservable

Inputs (Level 3)

  

Total

 

Assets measured at fair value

                

Cash and cash equivalents (1)

 $18,129  $-  $-  $18,129 

Restricted cash

  1,154   -   -   1,154 

Short-term investments

  -   80,262   -   80,262 

Long-term investments

  -   37,435   -   37,435 

Total assets measured at fair value

 $19,283  $117,697  $-  $136,980 

Liabilities measured at fair value

                

Contingent consideration

 $-  $-  $2,371  $2,371 

Total liabilities measured at fair value

 $-  $-  $2,371  $2,371 

 

(1) Includes investments that are readily convertible to cash with original maturities of 90 days or less.

 

The carrying values of accounts receivable, other current assets, accounts payable, and accrued expenses and other current liabilities as of June 30, 2022, and December 31, 2021, approximate their fair values due to the short-term nature of these items.

 

The Company’s financial liabilities consisted of contingent consideration payable to an assignee of Sofar, S.p.A., the seller, related to the Company’s 2015 acquisition of the Senhance Surgical System (the “Senhance Acquisition”). Adjustments associated with the change in fair value of contingent consideration are included in the Company’s condensed consolidated statements of operations and comprehensive loss.

 

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements for contingent consideration utilizing a Monte-Carlo simulation as of June 30, 2022 and December 31, 2021:

 

 

Valuation

Methodology

 

Significant Unobservable

Input

 

June 30, 2022

  

December 31, 2021

 
            

Contingent consideration

Probability weighted income approach

 

Milestone dates

  2031   2031 
   

Discount rate

  14.5%  9.5%
   

Revenue volatility

  40.0%  39.0%
   

EUR-to-USD exchange rate

  1.05   1.14 

 

9

 

The following table summarizes the change in fair value, as determined by Level 3 inputs for the contingent consideration for the six months ended June 30, 2022 and 2021:

 

  

Fair Value Measurement at

Reporting Date (Level 3)

 
  

(in thousands)

 
  

Series B

Warrants

  

Contingent

consideration

 

Balance at December 31, 2021

 $-  $2,371 

Change in fair value

  -   (752)

Balance at June 30, 2022

 $-  $1,619 
         

Balance at December 31, 2020

 $255  $3,936 

Exercise of warrants

  (2,236)  - 

Change in fair value

  1,981   257 

Balance at June 30, 2021

 $-  $4,193 
         

Current portion

 $-  $- 

Long-term portion

  -   1,619 

Balance at June 30, 2022

 $-  $1,619 

 

 

 

5.

Investments, available-for-sale

 

The aggregate fair values of investment securities along with unrealized gains and losses determined on an individual investment security basis and included in other comprehensive loss are as follows:

 

  

June 30, 2022

 
  

(in thousands)

 
                         
  

Amortized

Cost

  

Unrealized

Gain

  

Unrealized

Loss

  

Fair Value

  

Short-term

investments

  

Long-term

investments

 

Commercial Paper

 $35,643  $-  $(191) $35,452  $35,452  $- 

Corporate Bonds

  58,242   -   (753)  57,489   47,908   9,581 

Total Investments

 $93,885  $-  $(944) $92,941  $83,360  $9,581 

 

 

 

  

December 31, 2021

 
  

(in thousands)

 
                         
  

Amortized

Cost

  

Unrealized

Gain

  

Unrealized

Loss

  

Fair Value

  

Short-term

investments

  

Long-term

investments

 

Commercial Paper

 $50,705  $-  $(46) $50,659  $50,660  $- 

Corporate Bonds

  67,239   1   (202)  67,038   29,602   37,435 

Total Investments

 $117,944  $1  $(248) $117,697  $80,262  $37,435 

 

 

 

The following table summarizes the contractual maturities of the Company’s available-for-sale investments:

 

  

June 30, 2022

 
  

(in thousands)

 
  

Amortized

Cost

  

Fair Value

 

Mature in less than one year

 $84,173  $83,360 

Mature in one to two years

  9,712   9,581 

Total

 $93,885  $92,941 

 

Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations. There were no sales of investments or gross realized gains or losses for the six months ended June 30, 2022, and 2021, respectively.

 

10

 

 

6.

Inventories

 

The components of inventories are as follows:

 

  

June 30, 2022

 
  

(in thousands)

 
  

Gross

Carrying

Amount

  

Reserve Balance

  

Net

Carrying

Amount

 

Finished goods

 $14,687  $(2,931) $11,756 

Raw materials

  6,137   (2,184)  3,953 

Total inventories

 $20,824  $(5,115) $15,709 
             

Current Portion

 $10,113  $(1,662) $8,451 

Long-term portion

  10,711   (3,453)  7,258 

Total inventories

 $20,824  $(5,115) $15,709 

 

  

December 31, 2021

 
  

(in thousands)

 
  

Gross

Carrying

Amount

  

Reserve Balance

  

Net

Carrying

Amount

 

Finished goods

 $13,066  $(2,987) $10,079 

Raw materials

  8,324   (2,695)  5,629 

Total inventories

 $21,390  $(5,682) $15,708 
             

Current Portion

 $9,931  $(1,297) $8,634 

Long-term portion

  11,459   (4,385)  7,074 

Total inventories

 $21,390  $(5,682) $15,708 

 

The Company has determined that its December 31, 2021 and March 31, 2022 inventory footnote presentation overstated raw materials and understated finished goods by approximately $2.5 million. For comparative purposes, the Company’s prior year inventory footnote has been revised to reflect the adjustment to raw materials and finished goods. The revision had no effect on the previously reported total gross and net carrying value of inventory. The revision also had no effect on the previously reported balance sheets, statements of operations and comprehensive loss, cash flows and stockholders’ equity. 

 

 

7.

Intellectual Property

 

The components of gross intellectual property, accumulated amortization, and net intellectual property are as follows:

 

  

June 30, 2022

 
  

(in thousands)

 
  

Gross

Carrying

Amount

  

Accumulated

Amortization

  

Foreign

Currency

Translation

Impact

  

Net

Carrying

Amount

 

Developed technology

 $68,838  $(64,094) $(812) $3,932 

Technology and patents purchased

  400   (220)  10   190 

Total intellectual property

 $69,238  $(64,314) $(802) $4,122 

 

  

December 31, 2021

 
  

(in thousands)

 
  

Gross

Carrying

Amount

  

Accumulated

Amortization

  

Foreign

Currency

Translation

Impact

  

Net

Carrying

Amount

 

Developed technology

 $68,838  $(58,912) $(262) $9,664 

Technology and patents purchased

  400   (199)  27   228 

Total intellectual property

 $69,238  $(59,111) $(235) $9,892 

 

The weighted average remaining useful life of the developed technology and technology and patents purchased was 2.0 years and 4.8 years, respectively, as of June 30, 2022.  

 

11

 

 

8.

Leases

 

Lessee Information

The Company determines if an arrangement contains a lease or service contract at inception. Where an arrangement contains a lease, the Company determines if it is an operating lease or a finance lease. Subsequently, if the arrangement is modified, the Company reevaluates the classification. The Company has entered into operating leases for corporate office buildings, vehicles, and machinery and equipment. Some of the lease agreements have renewal options, tenant improvement allowances, rent escalation clauses, and assignment and subletting clauses. While the operating leases range from one year to ten years, some include options to extend the lease generally between one year and six years, and some include options to terminate the leases within one year.

 

Components of operating lease expense are primarily recorded in general and administrative on the condensed consolidated statements of operations and comprehensive loss were as follows:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 
  

(in thousands)

  

(in thousands)

 

Long-term Operating

 $386  $485  $785  $923 

Short-term Operating

  -   -   -   - 

Total Operating lease expense

 $386  $485  $785  $923 

 

 

Supplemental balance sheet information related to operating leases was as follows:

 

  

June 30, 2022

  

December 31, 2021

 

Weighted-average remaining lease term (in years)

  7.4    7.8  

Weighted-average discount rate

  7.4%    7.8%  

Incremental borrowing rate

 6.1%-8.5%  6.1%-8.5 

 

 

Maturities of operating lease obligations as of June 30, 2022 were as follows (in thousands):

 

Fiscal Year

    

2022

 $430 

2023

  972 

2024

  886 

2025

  881 

2026

  822 

Thereafter

  2,958 

Total minimum lease payments

 $6,949 

Less: Amount of lease payments representing interest

  (1,760)

Present value of future minimum lease payments

 $5,189 

 

 

 

9.

Property and Equipment Impairment

 

During the three and six months ended June 30, 2022, the Company recorded a non-cash asset impairment charge of $0.4 million to reduce the carrying value of property and equipment to its estimated fair value. The property and equipment is associated with returned Senhance Systems under operating leases that are not expected to generate future cash flows sufficient to recover their net book value. The fair value was estimated based on the discounted cash flows expected to be produced by the property and equipment. The impairment was recorded in property and equipment impairment on the condensed consolidated statements of operations and comprehensive loss.

 

 

10.

Income Taxes

 

Income taxes have been accounted for using the asset and liability method in accordance with ASC 740 “Income Taxes”. The Company computes its interim provision for income taxes by applying the estimated annual effective tax rate method. The Company estimates an annual effective tax rate of (0.4)% for the year ending December 31, 2022. This rate does not include the impact of any discrete items. The Company’s effective tax rate for the three months ended June 30, 2022 and 2021 was (0.4)% and 0.0%, respectively. The Company’s effective tax rate for the six months ended June 30, 2022 and 2021 was (