UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________
FORM
_________________________________________________
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
_________________________________________________
ASENSUS SURGICAL, INC.
(Exact name of registrant as specified in its charter)
_________________________________________________
| | | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (
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.
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).
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 | ☐ | |
| | ☒ | 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
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
|
| | |
The number of shares outstanding of the registrant’s common stock, as of November 10, 2023 was
TABLE OF CONTENTS FOR FORM 10-Q
| PART I. |
2 | |
| Item 1. |
2 | |
| Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) |
2 | |
| 3 | ||
| Condensed Consolidated Statements of Stockholders’ Equity (unaudited) |
4 | |
| 5 | ||
| Notes to Condensed Consolidated Financial Statements (unaudited) |
6 | |
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 |
| Item 3. |
23 | |
| Item 4. |
24 | |
| PART II. |
24 | |
| Item 1. |
24 | |
| Item 1A. |
24 | |
| Item 2. |
25 | |
| Item 3. |
25 | |
| Item 4. |
25 | |
| Item 5. |
25 | |
| Item 6. |
26 | |
| 27 |
Item 1. Financial Statements
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, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue: | ||||||||||||||||
| Product | $ | $ | $ | $ | ||||||||||||
| Service | ||||||||||||||||
| Lease | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of revenue: | ||||||||||||||||
| Product | ||||||||||||||||
| Service | ||||||||||||||||
| Lease | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Change in fair value of contingent consideration | ( | ) | ( | ) | ||||||||||||
| Impairment of property and equipment | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ||||||||||||||||
| Change in fair value of warrant liabilities | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income, net | ||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss per common share attributable to common stockholders - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares used in computing net loss per common share - basic and diluted | ||||||||||||||||
| Comprehensive loss: | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency translation (loss) gain | ( | ) | ( | ) | ( | ) | ||||||||||
| Unrealized gain (loss) on available-for-sale investments | ( | ) | ||||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Balance Sheets
(in thousands, except for share data)
(unaudited)
| September 30, 2023 | December 31, 2022 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments, available-for-sale | ||||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses | ||||||||
| Employee retention tax credit receivable | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Restricted cash | ||||||||
| Long-term investments, available-for-sale | ||||||||
| Inventory, net of current portion | ||||||||
| Property and equipment, net | ||||||||
| Intellectual property, net | ||||||||
| Deferred tax assets, net | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Other noncurrent assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued employee compensation and benefits | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liabilities, current | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities: | ||||||||
| Warrant liabilities | ||||||||
| Contingent consideration | ||||||||
| Operating lease liabilities, noncurrent | ||||||||
| Total Liabilities | ||||||||
| Stockholders' Equity: | ||||||||
| Common stock $ par value, shares authorized at September 30, 2023 and December 31, 2022; and issued and outstanding at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding at September 30, 2023 and December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Stockholders' Equity | ||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands)
(unaudited)
| Common Stock | Treasury Stock | Additional Paid- | Accumulated | Accumulated Other Comprehensive Income | Total Stockholders' | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in Capital | Deficit | (Loss) | Equity | |||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Issuance of common stock related to vesting of restricted stock units | ||||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement of equity awards | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Cancellation of treasury stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive income | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock related to vesting of restricted stock units | ||||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | ||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock related to vesting of restricted stock units | ||||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement of equity awards | ( | ) | ||||||||||||||||||||||||||||||
| cancellation of treasury stock | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | ||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Issuance of common stock related to vesting of restricted stock units | ||||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement of equity awards | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Cancellation of treasury stock | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Issuance of common stock related to vesting of restricted stock units | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock related to vesting of restricted stock units | ||||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement of equity awards | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Cancellation of treasury stock | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Nine Months Ended September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Cash Flows from Operating Activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: |
||||||||
| Depreciation |
||||||||
| Amortization of intangible assets |
||||||||
| Amortization of discounts and premiums on investments, net |
( |
) | ||||||
| Stock-based compensation |
||||||||
| Deferred tax expense |
||||||||
| Bad debt expense |
||||||||
| Change in inventory reserves |
||||||||
| Property and equipment impairment |
||||||||
| Loss on disposal of property and equipment |
||||||||
| Change in fair value of warrant liabilities |
( |
) | ||||||
| Change in fair value of contingent consideration |
( |
) | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ||||||
| Inventory |
( |
) | ||||||
| Operating lease right-of-use assets |
( |
) | ||||||
| Prepaid expenses |
( |
) | ( |
) | ||||
| Employee retention tax credit receivable |
||||||||
| Other current and long-term assets |
( |
) | ||||||
| Accounts payable |
||||||||
| Accrued employee compensation and benefits |
||||||||
| Accrued expenses and other current liabilities |
( |
) | ||||||
| Deferred revenue |
( |
) | ( |
) | ||||
| Operating lease liabilities |
( |
) | ( |
) | ||||
| Net cash and cash equivalents used in operating activities |
( |
) | ( |
) | ||||
| Cash Flows from Investing Activities: |
||||||||
| Purchase of available-for-sale investments |
( |
) | ( |
) | ||||
| Proceeds from maturities of available-for-sale investments |
||||||||
| Purchase of property and equipment |
( |
) | ( |
) | ||||
| Net cash and cash equivalents provided by investing activities |
||||||||
| Cash Flows from Financing Activities: |
||||||||
| Proceeds from issuance of common stock and warrants, net of issuance costs |
||||||||
| Taxes paid related to net share settlement of vesting of restricted stock units |
( |
) | ( |
) | ||||
| Proceeds from exercise of stock options |
||||||||
| Net cash and cash equivalents provided by (used in) financing activities |
( |
) | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
( |
) | ( |
) | ||||
| Net increase (decrease) in cash, cash equivalents and restricted cash |
( |
) | ||||||
| Cash, cash equivalents and restricted cash, beginning of period |
||||||||
| Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||||
| Supplemental Disclosure for Cash Flow Information |
||||||||
| Cash paid for leases |
$ | $ | ||||||
| Cash paid for taxes |
|
$ | ||||||
| Supplemental Schedule of Non-cash Investing and Financing Activities: |
||||||||
| Transfer of inventory to property and equipment |
$ | $ | ||||||
| Lease liabilities arising from obtaining right-of-use assets |
$ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| 1. |
Description of Business |
Asensus Surgical, 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. Based upon the foundations of digital laparoscopy and the Senhance® Surgical System, the Company is developing the LUNA™ Surgical System, a next generation robotic and instrument system as a foundation of its digital surgery solution. These systems will be powered by the Intelligent Surgical Unit™ (ISU™) to increase surgeon’s control and reduce variability of surgical outcomes. With the addition of machine vision, augmented intelligence, and deep learning capabilities throughout the surgical experience, the Company intends to holistically address the current clinical, cognitive, and economic shortcomings that drive surgical outcomes and value-based healthcare. The Company continues market development for and commercialization of the Senhance 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 Year 2022 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.
Going Concern
The Company's condensed consolidated financial statements are prepared using U.S. GAAP applicable to a going concern basis of accounting, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company had an accumulated deficit of $
The Company will need to obtain additional financing to execute its business plan. Management's plans to obtain additional resources for the Company may include additional sales of equity, traditional financing, such as loans, entry into strategic collaborations, entry into an out-licensing arrangement or provision of additional distribution rights in some or all of its markets. However, management cannot provide any assurance that the Company will be successful in accomplishing any or all of its plans. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to meet its existing obligations, and to continue as a going concern for one year from the date that these financial statements are issued. The condensed consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
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: the historical lack of profitability; the Company’s ability to raise additional capital; its ability to successfully develop, clinically test, obtain regulatory clearance for and commercialize its products and products in development; negative impacts on the Company's operations caused by the hostilities in the Middle East, the COVID-19 pandemic and other geopolitical factors; the success of its market development efforts; the timing and outcome of the regulatory review process for its products in development; changes in the healthcare 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-based compensation expense, revenue recognition, 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, measurement of warrant liabilities and deferred tax asset valuation allowances.
Significant Accounting Policies
With the exception of the Company’s warrant policy (please see next section), 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 Fiscal Year 2022 Form 10-K.
Warrant Liabilities
The Company’s warrants (see Note 12) are measured at fair value using a simulation model which takes into account, as of the valuation date, factors including the current exercise price, the expected life of the warrant, the current price of the underlying stock, its expected volatility, holding cost and the risk-free interest rate for the term of the warrant (see Note 4). The warrant liability is revalued at each reporting period and changes in fair value are recognized in the consolidated statements of operations and comprehensive loss. The selection of the appropriate valuation model and the inputs and assumptions that are required to determine the valuation requires significant judgment and requires management to make estimates and assumptions that affect the reported amount of the related liability and reported amounts of the change in fair value. Actual results could differ from those estimates, and changes in these estimates are recorded when known.
Impact of Recently Issued Accounting Standards
The Company has evaluated issued Accounting Standards Updates (“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, | |||||||||||||||
| (In thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| U.S. | ||||||||||||||||
| Systems | $ | $ | $ | $ | ||||||||||||
| Instruments and accessories | ||||||||||||||||
| Services | ||||||||||||||||
| Leases | ||||||||||||||||
| Total U.S. revenue | ||||||||||||||||
| Outside of U.S. ("OUS") | ||||||||||||||||
| Systems | ||||||||||||||||
| Instruments and accessories | ||||||||||||||||
| Services | ||||||||||||||||
| Leases | ||||||||||||||||
| Total OUS revenue | ||||||||||||||||
| Total | ||||||||||||||||
| Systems | ||||||||||||||||
| Instruments and accessories | ||||||||||||||||
| Services | ||||||||||||||||
| Leases | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
Remaining Performance Obligations
The 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. The transaction price allocated to remaining performance obligations as of September 30, 2023 was $
Contract Assets and Liabilities
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 (included in accounts receivable, net in the condensed consolidated balance sheets) for the periods presented.
Revenue recognized for the three months ended September 30, 2023 and 2022 that was included in the deferred revenue balance at the beginning of each reporting period was $
The following information summarizes the Company’s contract assets and liabilities:
| September 30, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
| (In thousands) | ||||||||||||
| Contract Assets | $ | $ | $ | |||||||||
| Deferred Revenue | $ | $ | $ | |||||||||
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 right to purchase the leased Senhance 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 Senhance System. For the three and nine months ended September 30, 2023, and 2022, variable lease revenue related to usage-based arrangements was not material.
Accounts Receivable
Accounts receivable are recorded at net realizable value, which includes an allowance for expected credit losses. The allowance for expected credit losses is based on the Company’s assessment of the 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 $
The Company had
| 4. |
Fair Value Measurements |
The Company records certain assets and liabilities at fair value. Accounting Standards Codification (“ASC”) 820 – Fair Value Measurement states that fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. As such, the fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tiered fair value hierarchy that prioritizes the inputs used in measuring fair value, is comprised of:
Level 1 - Quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than Level 1, that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities;
Level 3 - Unobservable inputs that are supported by little or no market data, and that are significant to the fair value of the assets and liabilities.
As of September 30, 2023 and December 31, 2022, the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:
| September 30, 2023 |
||||||||||||||||
| (In thousands) |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
| Assets: |
||||||||||||||||
| Cash and cash equivalents (1) |
$ | $ | $ | $ | ||||||||||||
| Restricted cash |
||||||||||||||||
| Short-term investments |
||||||||||||||||
| Total assets |
$ | $ | $ | $ | ||||||||||||
| Liabilities: |
||||||||||||||||
| Contingent consideration |
$ | $ | $ | $ | ||||||||||||
| Warrant liabilities |
||||||||||||||||
| Total liabilities |
$ | $ | $ | $ | ||||||||||||
(1) Includes investments that are readily convertible to cash with original maturities of 90 days or less.
| December 31, 2022 |
||||||||||||||||
| (In thousands) |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
| Assets: |
||||||||||||||||
| Cash and cash equivalents (1) |
$ | $ | $ | $ | ||||||||||||
| Restricted cash |
||||||||||||||||
| Short-term investments |
||||||||||||||||
| Long-term investments |
||||||||||||||||
| Total assets |
$ | $ | $ | $ | ||||||||||||
| Liabilities: |
||||||||||||||||
| Contingent consideration |
$ | $ | $ | $ | ||||||||||||
| Total liabilities |
$ | $ | $ | $ | ||||||||||||
(1) Includes investments that are readily convertible to cash with original maturities of 90 days or less.
As of September 30, 2023 and December 31, 2022, carrying amounts reported on the Company’s balance sheet for cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses, employee retention tax credit receivable, other current assets, accounts payable, accrued employee compensation and benefits, accrued expenses and other current liabilities, and deferred revenue approximate their respective fair value due to liquidity and short-term nature of these items.
At September 30, 2023, the Company’s financial liabilities consisted of contingent consideration and warrant liability:
Contingent Consideration
Contingent consideration represents a liability related to the Company’s 2015 acquisition of the Senhance System (the “Senhance Acquisition”). Adjustments associated with changes in fair value of contingent consideration are included in the Company’s condensed consolidated statements of operations and comprehensive loss. The following table summarizes changes in estimated fair value of the contingent consideration for the nine months ended September 30, 2023:
| (In thousands) |
Fair Value |
|||
| Balance at December 31, 2022 |
$ | |||
| Change in fair value |
||||
| Balance at March 31, 2023 | ||||
| Change in fair value | ||||
| Balance at June 30, 2023 | ||||
| Change in fair value | ||||
| Balance at September 30, 2023 |
$ | |||
The following table presents quantitative information about the inputs and valuation methodologies used for fair value measurement of contingent consideration liability utilizing a Monte-Carlo simulation method as of September 30, 2023 and December 31, 2022:
| Valuation Methodology |
Significant Unobservable Inputs |
September 30, 2023 |
December 31, 2022 |
|||||||||
| Contingent consideration |
Probability weighted income approach |
Milestone date |
|
|
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| Revenue discount rate |
||||||||||||
| Revenue volatility |
||||||||||||
| EUR-to-USD exchange rate |
||||||||||||
Warrant Liabilities
During the three months ended September 30, 2023, the Company recorded warrant liabilities related to common stock warrants issued in the registered direct offering in July 2023 (for additional information about the offering, please refer to Note 12 -Equity Offerings).
Warrant liabilities were recorded at their initial estimated fair value. Adjustments associated with changes in fair value of the warrant liabilities are included in the Company’s condensed consolidated statements of operations and comprehensive loss. The following table summarizes changes in estimated fair value of the warrant liabilities for the warrants issued in July 2023 as of September 30, 2023:
| (In thousands) |
Fair Value |
|||
| Balance at June 30, 2023 |
$ | |||
| Issuance of warrants |
||||
| Change in fair value |
( |
) | ||
| Balance at September 30, 2023 |
$ | |||
The fair value of the warrant liabilities were estimated using the Black-Scholes option pricing model, which is based on unobservable inputs and is designated as Level 3 in the fair value hierarchy. The following table summarizes the assumptions used in determining fair value of warrant liabilities:
| As of July 31, 2023 | As of September 30, 2023 | |||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected life (in years) | ||||||||
| Expected dividend yield | % | % | ||||||
During the nine months ended September 30, 2023, there were no transfers of assets or liabilities between Level 1, Level 2, or Level 3 fair value categories.
| 5. | Investments, Available for Sale |
The aggregate fair values of investment securities along with cumulative unrealized gains and losses determined on an individual investment security basis and included in accumulated other comprehensive loss in the condensed consolidated balance sheets are as follows:
| September 30, 2023 | ||||||||||||||||||||||||
| Balance Sheet Classification | ||||||||||||||||||||||||
| (In thousands) | Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | Short-term investments | Long-term investments | ||||||||||||||||||
| Commercial Paper | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Corporate Bonds | ( | ) | ||||||||||||||||||||||
| US Treasuries | ||||||||||||||||||||||||
| U.S. Government Agencies | ( | ) | ||||||||||||||||||||||
| Total Investments | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||
| Balance Sheet Classification | ||||||||||||||||||||||||
| (In thousands) | Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | Short-term investments | Long-term investments | ||||||||||||||||||
| Commercial Paper | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
| Corporate Bonds | ( | ) | ||||||||||||||||||||||
| U.S. Government Agencies | ( | ) | ||||||||||||||||||||||
| Total Investments | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
As of September 30, 2023, contractual maturities of available-for-sale investments were one year or less. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations. There were
| 6. |
Inventory |
The components of inventory are as follows:
| September 30, 2023 | ||||||||||||
| (In thousands) | Gross Carrying Amount | Reserve Balance | Net Carrying Amount | |||||||||
| Finished goods | $ | $ | ( | ) | $ | |||||||
| Raw materials | ( | ) | ||||||||||
| Total inventories | $ | $ | ( | ) | $ | |||||||
| Current portion | $ | $ | ( | ) | $ | |||||||
| Long-term portion | ( | ) | ||||||||||
| Total inventories | $ | $ | ( | ) | $ | |||||||
| December 31, 2022 | ||||||||||||
| (In thousands) | Gross Carrying Amount | Reserve Balance | Net Carrying Amount | |||||||||
| Finished goods | $ | $ | ( | ) | $ | |||||||
| Raw materials | ( | ) | ||||||||||
| Total inventory | $ | $ | ( | ) | $ | |||||||
| Current portion | $ | $ | ( | ) | $ | |||||||
| Long-term portion | ( | ) | ||||||||||
| Total inventory | $ | $ | ( | ) | $ | |||||||
| 7. | Intellectual Property |
The components of gross intellectual property, accumulated amortization, and net intellectual property are as follows:
| September 30, 2023 | ||||||||||||||||
| (In thousands) | Gross Carrying Amount | Accumulated Amortization | Foreign Currency Translation Impact | Net Carrying Amount | ||||||||||||
| Developed technology | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| Technology and patents purchased | ( | ) | ||||||||||||||
| Total intellectual property | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| December 31, 2022 | ||||||||||||||||
| (In thousands) | Gross Carrying Amount | Accumulated Amortization | Foreign Currency Translation Impact | Net Carrying Amount | ||||||||||||
| Developed technology | $ | $ | ( | |||||||||||||