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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 September 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 November 7, 2022 was 236,839,891.

 



 

 

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

24

Item 4.

Controls and Procedures

24

     

PART II.

OTHER INFORMATION

25

     

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

27

     
 

SIGNATURES

28

 

 

 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, but not limited to, the impact of COVID-19 and other geopolitical factors on our operating results, and the demand for our products, 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

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Revenue:

                

Product

 $1,964  $1,922  $2,565  $3,651 

Service

  335   395   1,067   1,180 

Lease

  264   254   991   925 

Total revenue

  2,563   2,571   4,623   5,756 
                 

Cost of revenue:

                

Product

  3,057   1,993   4,316   4,671 

Service

  365   342   1,506   1,344 

Lease

  982   1,015   2,752   2,794 

Total cost of revenue

  4,404   3,350   8,574   8,809 
                 

Gross loss

  (1,841)  (779)  (3,951)  (3,053)

Operating Expenses:

                

Research and development

  6,741   4,469   20,422   12,773 

Sales and marketing

  3,615   3,551   10,936   10,166 

General and administrative

  4,853   5,557   15,378   13,397 

Amortization of intangible assets

  2,398   2,804   7,601   8,533 

Change in fair value of contingent consideration

  (416)  278   (1,168)  1,013 

Property and equipment impairment

  -   -   432   - 

Total Operating Expenses

  17,191   16,659   53,601   45,882 
                 

Operating Loss

  (19,032)  (17,438)  (57,552)  (48,935)

Other Income (Expense), net

                

Gain on extinguishment of debt

  -   -   -   2,847 

Change in fair value of warrant liabilities

  -   -   -   (1,981)

Interest income

  291   122   806   253 

Interest expense

  (99)  (65)  (440)  (77)

Employee retention tax credit

  -   1,311   -   1,311 

Other (expense) income, net

  (29)  33   (261)  (3)

Total Other Income (Expense), net

  163   1,401   105   2,350 
                 

Loss before income taxes

  (18,869)  (16,037)  (57,447)  (46,585)

Income tax (expense) benefit

  (55)  (32)  (224)  4 

Net loss

  (18,924)  (16,069)  (57,671)  (46,581)
                 

Comprehensive loss:

                

Net loss

  (18,924)  (16,069)  (57,671)  (46,581)

Foreign currency translation loss

  (1,655)  (931)  (4,018)  (2,397)

Unrealized gain (loss) on available-for-sale investments

  86   (53)  (610)  (53)

Comprehensive loss

 $(20,493) $(17,053) $(62,299) $(49,031)
                 

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

 $(0.08) $(0.07) $(0.24) $(0.21)

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

  236,713   234,337   236,373   224,300 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

Asensus Surgical, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

(Unaudited)

 

  

September 30, 2022

  

December 31, 2021

 

Assets

        

Current Assets:

        

Cash and cash equivalents

 $13,870  $18,129 

Short-term investments, available-for-sale

  72,481   80,262 

Accounts receivable, net

  2,250   749 

Inventories

  9,035   8,634 

Prepaid expenses

  3,713   3,255 

Employee retention tax credit receivable

  1,147   1,311 

Other current assets

  1,034   957 

Total Current Assets

  103,530   113,297 
         

Restricted cash

  1,107   1,154 

Long-term investments, available-for-sale

  1,937   37,435 

Inventories, net of current portion

  3,441   7,074 

Property and equipment, net

  9,145   10,971 

Intellectual property, net

  1,529   9,892 

Net deferred tax assets

  227   288 

Operating lease right-of-use assets, net

  4,799   5,348 

Other long-term assets

  2,938   1,014 

Total Assets

 $128,653  $186,473 
         

Liabilities and Stockholders' Equity

        

Current Liabilities:

        

Accounts payable

 $3,637  $3,448 

Accrued employee compensation and benefits

  3,868   3,559 

Accrued expenses and other current liabilities

  1,320   1,617 

Operating lease liabilities - current portion

  662   683 

Deferred revenue

  357   543 

Total Current Liabilities

  9,844   9,850 
         

Long-Term Liabilities:

        

Contingent consideration

  1,203   2,371 

Noncurrent operating lease liabilities

  4,630   5,006 

Total Liabilities

  15,677   17,227 
         

Commitments and Contingencies (Note 14)

          
         

Stockholders' Equity:

        

Common stock $0.001 par value, 750,000,000 shares authorized at September 30, 2022 and December 31, 2021; 236,783,315 and 235,218,552 shares issued and outstanding at September 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 September 30, 2022 and December 31, 2021

  -   - 

Additional paid-in capital

  960,676   954,649 

Accumulated deficit

  (843,045)  (785,374)

Accumulated other comprehensive loss

  (4,892)  (264)

Total Stockholders' Equity

  112,976   169,246 

Total Liabilities and Stockholders' Equity

 $128,653  $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 

Stock-based compensation

  -   -   -   -   2,033   -   -   2,033 

Award of restricted stock units

  163   -   -   -   -   -   -   - 

Return of common stock to pay withholding taxes on restricted stock

  -   -   7   -   (3)  -   -   (3)

Cancellation of treasury stock

  -   -   (7)  -   -   -   -   - 

Other comprehensive loss

  -   -   -   -   -   -   (1,569)  (1,569)

Net loss

  -   -   -   -   -   (18,924)  -   (18,924)

Balance, September 30, 2022

  236,783  $237   -  $-  $960,676  $(843,045) $(4,892) $112,976 
                                 

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 

Stock-based compensation

  -   -   -   -   2,961   -   -   2,961 

Issuance of common stock, net of issuance costs

  21   -   -   -   47   -   -   47 

Exercise of stock options and warrants

  5   -   -   -   2   -   -   2 

Award of restricted stock units

  113   -   -   -   -   -   -   - 

Return of common stock to pay withholding taxes on restricted stock

  -   -   6   -   (17)  -   -   (17)

Cancellation of treasury stock

  -   -   (6)  -   -   -   -   - 

Other comprehensive gain

  -   -   -   -   -   -   (984)  (984)

Net loss

  -   -   -   -   -   (16,069)  -   (16,069)

Balance, September 30, 2021

  234,370  $234   -  $-  $950,242  $(769,493) $518  $181,501 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

Asensus Surgical, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

   

Nine Months Ended September 30,

 
   

2022

   

2021

 

Operating Activities:

               

Net loss

  $ (57,671 )   $ (46,581 )

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

               

Depreciation

    2,481       2,416  

Amortization of intangible assets

    7,601       8,533  

Amortization of discounts and premiums on investments, net

    556       65  

Stock-based compensation

    6,361       6,589  

Gain on extinguishment of debt

    -       (2,847 )

Deferred tax expense (benefit)

    224       (4 )

Change in inventory reserves

    386       377  

Bad debt expense

    9       -  

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

    (1,168 )     1,013  
                 

Changes in operating assets and liabilities:

               

Accounts receivable

    (1,735 )     113  

Inventories

    (535 )     (1,941 )

Operating lease right-of-use assets

    237       (3,174 )

Prepaid expenses

    (693 )     1,220  

Employee retention tax credit receivable

    164       (1,311 )

Other current and long-term assets

    (2,123 )     2,098  

Accounts payable

    449       1,376  

Accrued expenses

    236       (588 )

Deferred revenue

    (139 )     (81 )

Operating lease liabilities

    (53 )     3,259  

Net cash and cash equivalents used in operating activities

    (44,884 )     (27,487 )
                 

Investing Activities:

               

Purchase of available-for-sale investments

    (25,588 )     (88,232 )

Proceeds from maturities of available-for-sale investments

    67,702       -  

Purchase of property and equipment

    (904 )     (838 )

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

    41,210       (89,070 )
                 

Financing Activities:

               

Proceeds from issuance of common stock, net of issuance costs

    -       130,361  

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

    (350 )     (1,058 )

Proceeds from exercise of stock options and warrants

    18       30,838  

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

    (332 )     160,141  
                 

Effect of exchange rate changes on cash and cash equivalents

    (300 )     (181 )

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

    (4,306 )     43,403  

Cash, cash equivalents and restricted cash, beginning of period

    19,283       17,529  

Cash, cash equivalents and restricted cash, end of period

  $ 14,977     $ 60,932  
                 

Supplemental Disclosure for Cash Flow Information

               

Cash paid for leases

  $ 729     $ 781  

Cash paid for taxes

  $ 79     $ 63  
                 

Supplemental Schedule of Non-cash Investing and Financing Activities:

               

Transfer of inventories to property and equipment

  $ 1,293     $ 2,156  

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

  $ -     $ 2,236  

Lease liabilities arising from obtaining right-of-use assets

  $ 316     $ 3,857  

 

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 nine months ended September 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 consolidated financial statements.

 

 

3.

Revenue Recognition

 

The following table presents revenue disaggregated by type and geography:

 

   

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
   

2022

  

2021

  

2022

  

2021

 
   (in thousands)  

(in thousands)

 

U.S.

                 

Systems

 $-  $-  $-  $- 

Instruments and accessories

  60   60   142   204 

Services

  75   105   225   307 

Leases

  46   78   211   259 
Total U.S. revenue  181   243   578   770 
                  

Outside of U.S. ("OUS")

                

Systems

  1,227   1,129   1,228   2,050 

Instruments and accessories

  677   733   1,195   1,397 

Services

  260   290   842   873 

Leases

  218   176   780   666 
Total OUS revenue  2,382   2,328   4,045   4,986 
                  

Total

                 

Systems

  1,227   1,129   1,228   2,050 

Instruments and accessories

  737   793   1,337   1,601 

Services

  335   395   1,067   1,180 

Leases

  264   254   991   925 
Total revenue $2,563  $2,571  $4,623  $5,756 

 

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 September 30, 2022 was $1.8 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 September 30, 2022 and 2021 that was included in the deferred revenue balance at the beginning of each reporting period was $0.2 million and $0.1 million, respectively. Revenue recognized for the nine months ended September 30, 2022 and 2021 that was included in the deferred revenue balance at the beginning of each reporting period was $0.7 million and $0.5 million, respectively.

 

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

 

  

As of

 
  

September 30, 2022

  

December 31, 2021

 
  

(in thousands)

 

Contract Assets

 $68  $91 

Deferred Revenue

 $357  $543 

 

Senhance System Leasing

The Company enters into 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 nine months ended September 30, 2022, and 2021, variable lease revenue related to usage-based arrangements was not material.  

 

Trade Accounts Receivable

The allowance for expected credit losses 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 expected credit losses was $1.5 million and $1.7 million as of September 30, 2022, and December 31, 2021, respectively.  For the three and nine months ended September 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):

 

  

September 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)

 $13,870  $-  $-  $13,870 

Restricted cash

  1,107   -   -   1,107 

Short-term investments

  -   72,481   -   72,481 

Long-term investments

  -   1,937   -   1,937 

Total assets measured at fair value

 $14,977  $74,418  $-  $89,395 

Liabilities measured at fair value

                

Contingent consideration

 $-  $-  $1,203  $1,203 

Total liabilities measured at fair value

 $-  $-  $1,203  $1,203 

 

 

(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, prepaid expenses, employee retention tax credit receivables, other current assets, accounts payable, accrued employee compensation and benefits, accrued expenses, deferred revenue, and other current liabilities as of September 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 Three Heads Investment S.r.l., related to the Company’s 2015 acquisition of the Senhance Surgical System from an assignor to Three Heads Investment S.r.l. (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 September 30, 2022 and December 31, 2021:

 

 

Valuation

Methodology

 

Significant Unobservable

Input

 

September 30, 2022

  

December 31, 2021

 
            

Contingent consideration

Probability weighted

income approach

 

Milestone dates

 

2031

  

2031

 
   

Discount rate

  16.5%  9.5%
   

Revenue volatility

  45.0%  39.0%
   

EUR-to-USD exchange rate

  0.98   1.14 

 

9

 

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

 

  

Fair Value

Measurement at

Reporting Date (Level

3)

 
  

(in thousands)

 
  

Contingent

consideration

 

Balance at December 31, 2021

 $2,371 

Change in fair value

  (1,168)

Balance at September 30, 2022

 $1,203 
     

Current portion

 $- 

Long-term portion

  1,203 

Balance at September 30, 2022

 $1,203 
     

Balance at December 31, 2020

 $3,936 

Exercise of warrants

  - 

Change in fair value

  1,013 

Balance at September 30, 2021

 $4,949 
     

Current portion

 $- 

Long-term portion

  4,949 

Balance at September 30, 2021

 $4,949 

 

 

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:

 

  

September 30, 2022

 
  

(in thousands)

 
                         
  

Amortized

Cost

  

Unrealized

Gain

  

Unrealized

Loss

  

Fair Value

  

Short-term

investments

  

Long-term

investments

 

Commercial Paper

 $18,869  $-  $(85) $18,784  $18,784  $- 

Corporate Bonds

  55,407   -   (768)  54,639   53,697   942 

U.S. Government Agencies

  999   -   (4)  995   -   995 

Total Investments

 $75,275  $-  $(857) $74,418  $72,481  $1,937 

 

  

 

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) $