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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2022

or

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

For the transition period from                      to                     

Commission File Number: 001-40545

CVRx, Inc.

(Exact name of registrant as specified in its charter)

Delaware

41-1983744

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

9201 West Broadway Avenue

Suite 650

Minneapolis, MN 55445

(Address of Principal Executive Offices)

(763) 416-2840

(Registrant’s telephone number)

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

Title of each class

Trading Symbol(s)

Name of each exchange

on which registered

Common stock,

par value $0.01 per share

CVRX

The Nasdaq Global Select Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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  

As of July 25, 2022, there were 20,576,202 shares of the registrant’s common stock, par value $0.01 per share outstanding.

Table of Contents

TABLE OF CONTENTS

`

    

    

    

    

 

    

    

Page

Part I

Financial Information

Item 1.

Financial Statements

5

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (Unaudited)

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2022 and 2021 (Unaudited)

6

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders Equity (Deficit) for the three and six months ended June 30, 2022 and 2021 (Unaudited)

7

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (Unaudited)

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

32

Part II

Other Information

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

33

Exhibit Index

Signatures

2

Table of Contents

CVRx, Inc.

Quarterly Report on Form 10-Q

For the quarterly period ended June 30, 2022

Cautionary Note on Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements, including statements regarding our future results of operations and financial position, business strategy, the impact of the ongoing and global COVID-19 pandemic on our business, financial results and financial position, clinical trial results, prospective products, product approvals, research and development costs, timing and likelihood of success, and the plans and objectives of management for future operations.

In some cases, you can identify forward-looking statements by terms such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘expect,’’ ‘‘plan,’’ ‘‘anticipate,’’ ‘‘could,’’ ‘‘intend,’’ ‘‘target,’’ ‘‘project,’’ ‘‘contemplate,’’ ‘‘believe,’’ ‘‘estimate,’’ ‘‘predict,’’ ‘‘potential’’ or ‘‘continue’’ or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of known and unknown risks, uncertainties and assumptions, including, but not limited to, the important factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which are summarized below. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Summary Risk Factors

Our business is subject to numerous risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include, but are not limited to, the following:

we have a history of significant losses, which we expect to continue, and we may not be able to achieve or sustain profitability;
our principal stockholders, management and directors (four of whom are affiliated with our principal stockholders) own a significant percentage of our stock and are able to exert significant control over matters subject to stockholder approval;
we have a limited history operating as a commercial company and are highly dependent on a single product, Barostim, and the failure to obtain market acceptance in the U.S. for Barostim would negatively impact our business, liquidity and results of operations;

3

Table of Contents

we have limited commercial sales experience marketing and selling Barostim, and if we are unable to establish and maintain sales and marketing capabilities, we will be unable to successfully commercialize Barostim or generate sustained and increasing product revenue;
we must demonstrate to physicians and patients the merits of Barostim;
if third-party payors do not provide adequate coverage and reimbursement for the use of Barostim, our revenue will be negatively impacted;
our industry is competitive; if our competitors, many of which are large, well-established companies with substantially greater resources than us and have a long history of competing in the heart failure market, are better able to develop and market products that are safer, more effective, less costly, easier to use or otherwise more attractive than Barostim, our business will be adversely impacted;
if we fail to receive access to hospitals, our sales may decrease;
we are dependent upon third-party manufacturers and suppliers, and in some cases a limited number of suppliers, making us vulnerable to supply shortages, loss or degradation in performance of the suppliers and price fluctuations, which could harm our business;
manufacturing risks may adversely affect our ability to manufacture our product and could reduce our gross margin and profitability;
a pandemic, epidemic or outbreak of an infectious disease in the U.S. or worldwide, including the outbreak of the novel strain of coronavirus disease, COVID-19, could adversely affect our business;
we may face product liability claims that could be costly, divert management’s attention and harm our reputation;
we may in the future become involved in lawsuits to protect or enforce our intellectual property, which could be expensive and time consuming, and ultimately unsuccessful, and could result in the diversion of significant resources, thereby hindering our ability to effectively commercialize our existing or future products;
if we fail to retain our key executives or recruit and hire new employees, our operations and financial results may be adversely affected while we attract other highly qualified personnel; and
we will continue to obtain long-term clinical data regarding the safety and efficacy of our products, which could impact future adoption and regulatory approvals.

4

Table of Contents

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

CVRx, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

    

June 30, 

    

December 31, 

2022

2021

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

121,346

$

142,072

Accounts receivable, net

 

3,601

 

2,560

Inventory

 

5,834

 

3,880

Prepaid expenses and other current assets

 

1,155

 

2,585

Total current assets

 

131,936

 

151,097

Property and equipment, net

 

1,610

 

1,425

Operating lease right-of-use asset

465

Other non-current assets

 

26

 

26

Total assets

$

134,037

$

152,548

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

608

$

510

Accrued expenses

 

5,301

 

5,398

Total current liabilities

 

5,909

 

5,908

Operating lease liability, non-current portion

250

Other long-term liabilities

 

732

 

681

Total liabilities

 

6,891

 

6,589

Commitments and contingencies (Notes 5 and 10)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Common stock, $0.01 par value, 200,000,000 authorized as of June 30, 2022 and December 31, 2021; 20,576,149 and 20,399,337 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

 

206

 

204

Additional paid-in capital

 

542,967

 

540,707

Accumulated deficit

 

(415,816)

 

(394,754)

Accumulated other comprehensive loss

 

(211)

 

(198)

Total stockholders’ equity

 

127,146

 

145,959

Total liabilities and stockholders’ equity

$

134,037

$

152,548

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

5

Table of Contents

CVRx, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

    

Three months ended

Six months ended

June 30, 

June 30, 

2022

    

2021

    

2022

    

2021

Revenue

$

5,031

$

3,123

$

9,107

$

5,983

Cost of goods sold

 

1,201

 

913

 

2,150

 

1,780

Gross profit

 

3,830

 

2,210

 

6,957

 

4,203

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

2,355

 

2,255

 

4,613

 

4,005

Selling, general and administrative

 

12,489

 

5,627

 

23,266

 

10,087

Total operating expenses

 

14,844

 

7,882

 

27,879

 

14,092

Loss from operations

 

(11,014)

 

(5,672)

 

(20,922)

 

(9,889)

Interest expense

 

 

(608)

 

 

(1,209)

Other expense, net

 

(34)

 

(11,442)

 

(91)

 

(15,234)

Loss before income taxes

 

(11,048)

 

(17,722)

 

(21,013)

 

(26,332)

Provision for income taxes

 

(23)

 

(26)

 

(49)

 

(43)

Net loss

 

(11,071)

 

(17,748)

 

(21,062)

 

(26,375)

Cumulative translation adjustment

 

(7)

 

(1)

 

(13)

 

(5)

Comprehensive loss

$

(11,078)

$

(17,749)

$

(21,075)

$

(26,380)

Net loss per share, basic and diluted

$

(0.54)

$

(48.48)

$

(1.03)

$

(72.58)

Weighted-average common shares used to compute net loss per share, basic and diluted

 

20,505,228

 

366,066

 

20,479,427

 

363,397

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

6

Table of Contents

CVRx, INC.

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

(In thousands, except share data)

(Unaudited)

Accumulated

Total

Convertible

Additional

other

stockholders’

preferred stock

Common stock

paid-in

Accumulated

comprehensive

equity

    

Shares

    

Amount

    

Shares

    

Amount

    

capital

    

deficit

    

loss

    

(deficit)

Balances as of March 31, 2022

 

$

 

20,486,971

 

$

205

$

541,547

$

(404,745)

$

(204)

$

136,803

Exercise of stock options

 

 

 

31,497

 

 

 

26

 

 

 

26

Proceeds from Employee Stock Purchase Plan

57,681

1

294

295

Employee stock compensation

 

 

 

 

 

 

1,100

 

 

 

1,100

Net loss for the three months ended June 30, 2022

 

 

 

 

 

 

 

(11,071)

 

 

(11,071)

Cumulative translation adjustment

 

 

 

 

 

 

 

 

(7)

 

(7)

Balances as of June 30, 2022

 

$

 

20,576,149

 

$

206

$

542,967

$

(415,816)

$

(211)

$

127,146

Balances as of March 31, 2021

 

223,541,754

$

329,983

 

365,274

 

$

4

$

58,687

$

(360,303)

$

(194)

$

(301,806)

Exercise of stock options

1,068

Employee stock compensation

 

 

 

 

 

 

624

 

 

 

624

Net loss for the three months ended June 30, 2021

 

 

 

 

 

 

 

(17,748)

 

 

(17,748)

Cumulative translation adjustment

 

 

 

 

 

 

 

 

(1)

 

(1)

Balances as of June 30, 2021

 

223,541,754

$

329,983

 

366,342

 

$

4

$

59,311

$

(378,051)

$

(195)

$

(318,931)

Accumulated

Total

Convertible

Additional

other

stockholders’

preferred stock

Common stock

paid-in

Accumulated

comprehensive

equity

    

Shares

    

Amount

    

Shares

    

Amount

    

capital

    

deficit

    

loss

    

(deficit)

Balances as of December 31, 2021

 

$

 

20,399,337

 

$

204

$

540,707

$

(394,754)

$

(198)

$

145,959

Exercise of stock options

 

 

119,131

 

 

1

 

73

 

 

 

74

Proceeds from Employee Stock Purchase Plan

57,681

1

294

295

Employee stock compensation

 

 

 

 

 

 

1,893

 

 

 

1,893

Net loss for the six months ended June 30, 2022

 

 

 

 

 

 

 

(21,062)

 

 

(21,062)

Cumulative translation adjustment

 

 

 

 

 

 

 

 

(13)

 

(13)

Balances as of June 30, 2022

 

$

 

20,576,149

 

$

206

$

542,967

$

(415,816)

$

(211)

$

127,146

Balances as of December 31, 2020

 

223,541,754

$

329,983

 

360,412

 

$

4

$

58,624

$

(351,676)

$

(190)

$

(293,238)

Exercise of stock options

5,930

2

2

Employee stock compensation

 

 

 

 

 

 

685

 

 

 

685

Net loss for the six months ended June 30, 2021

 

 

 

 

 

 

(26,375)

 

 

(26,375)

Cumulative translation adjustment

 

 

 

 

 

 

 

 

(5)

 

(5)

Balances as of June 30, 2021

 

223,541,754

$

329,983

 

366,342

 

$

4

$

59,311

$

(378,051)

$

(195)

$

(318,931)

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

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CVRx, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

    

Six months ended

June 30, 

2022

    

2021

Cash flows from operating activities:

 

  

 

  

Net loss

$

(21,062)

$

(26,375)

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

 

  

 

  

Stock-based compensation

 

1,893

 

685

Depreciation of property and equipment

 

157

 

70

Amortization of deferred financing costs and loan discount

 

 

137

Changes in fair value of convertible preferred stock warrants

 

 

15,140

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

(1,041)

 

(963)

Inventory

 

(1,954)

 

181

Prepaid expenses and other current assets

 

1,421

 

(1,080)

Accounts payable

 

98

 

405

Accrued expenses

 

(252)

 

298

Net cash used in operating activities

 

(20,740)

 

(11,502)

Cash flows from investing activities:

 

  

 

  

Purchase of property and equipment

 

(342)

 

(480)

Net cash used in investing activities

 

(342)

 

(480)

Cash flows from financing activities:

 

  

 

  

Proceeds from the exercise of common stock options

 

74

 

2

Proceeds from Employee Stock Purchase Plan

295

Net cash provided by financing activities

 

369

 

2

Effect of currency exchange on cash and cash equivalents

 

(13)

 

(4)

Net change in cash and cash equivalents

 

(20,726)

 

(11,984)

Cash and cash equivalents at beginning of period

 

142,072

 

59,112

Cash and cash equivalents at end of period

$

121,346

$

47,128

Supplemental Information:

 

  

 

  

Cash paid for interest

$

$

1,011

Cash paid for income taxes

 

1

 

1

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

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CVRx, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

Business organization

CVRx, Inc. (the “Company”) was incorporated in Delaware and is headquartered in Minneapolis, Minnesota. The Company has developed and is marketing a medical device, Barostim, for heart failure (“HF”) and resistant hypertension. The Company is focused on the sale of its product in the U.S. and Europe.

Management expects that operating losses and negative cash flows from operations could continue in the foreseeable future. There is no assurance that the Company will generate sufficient product sales to produce positive earnings or cash flows.

2.

Summary of significant accounting policies

Statement presentation and basis of consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) applicable to interim financial statements. In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the Company’s statements of financial position, results of operations and cash flows for the periods presented. The results of operations for the interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole or any other future period.

The condensed consolidated financial statements include the accounts of CVRx, Inc., its wholly owned subsidiary, CVRx Switzerland LLC, and its sales branch in Italy. All intercompany balances and transactions have been eliminated in consolidation.

JOBS Act accounting election

The Company is an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, the Company has elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies.

Use of estimates

Preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents include highly liquid investments with an original maturity of three months or less. As of June 30, 2022 and December 31, 2021, cash equivalents consisted of money market funds, which are stated at cost and approximate fair value.

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Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Customer credit terms are established prior to shipment with the standard generally being net 30 days. We do not record an allowance on our trade accounts receivable but monitor the collectability of individual customer accounts on an ongoing basis.

Inventory

Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company regularly reviews inventory quantities in consideration of actual loss experiences, projected future demand and remaining shelf life to record a provision for excess and obsolete inventory when appropriate.

Leases

Operating leases are included in operating lease right-of-use (“ROU”) asset, accrued expenses, and operating lease liability – non-current portion in our balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. We used the incremental borrowing rate based on information readily available at the time of recognition to determine the present value of the lease payments. The determination of our incremental borrowing rate requires management judgement based on information available at lease commencement.

Revenue recognition

The Company sells its products primarily through a direct sales force and to a lesser extent through a combination of sales agents and independent distributors. The Company’s revenue consists primarily of the sale of its Barostim, which consists of two implantable components: a pulse generator and a stimulation lead.

Under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. The Company recognizes net revenue on product sales when the customer obtains control of the Company’s product, which generally occurs at a point in time upon delivery based on the contractual shipping terms of a contract.

Stock-Based Compensation

We recognize equity-based compensation expense for awards of equity instruments to employees and non-employees based on the grant date fair value of those awards in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all equity-based compensation awards to employees and non-employee directors, including grants of restricted shares and stock options, to be recognized as expense in the statements of operations and comprehensive loss based on their grant date fair values. We estimate the grant date fair value of stock options using the Black-Scholes option pricing model. We use an estimate of the value of our common stock, with the assistance of an independent appraiser, to determine the fair value of options. We account for forfeitures as they occur. We expense the fair value of our equity-based compensation awards

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granted to employees on a straight-line basis over the associated service period, which is generally the period in which the related services are received.

Recent accounting pronouncements

On January 1, 2022, the Company adopted Accounting Standards Codification Topic 842, Leases (“ASC 842”), utilizing the alternative modified retrospective transition approach. Under the alternative modified retrospective transition approach, the reported results for 2022 reflect the application of Topic 842 guidance, whereas comparative periods and their respective disclosures prior to the adoption of Topic 842 are presented using the legacy guidance of ASC 840. As a result of adopting the new standard, the Company recognized ROU assets of $579,000 and lease liabilities of $561,000 as of January 1, 2022. The lease liabilities represent the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rate as of January 1, 2022. The corresponding ROU assets are recorded based on the lease liabilities and the cumulative difference between rent expense and the amounts paid under the lease. The Company did not elect any practical expedients.

3.

Selected balance sheet information

Inventory consists of the following at:

    

June 30, 

    

December 31, 

(in thousands)

2022

2021

Raw material

$

2,455

$

1,593

Work-in-process

 

753

 

482

Finished goods

 

2,626

 

1,805

$

5,834

$

3,880

Property and equipment, net consists of the following at:

    

June 30, 

    

December 31, 

(in thousands)

2022

2021

Office furniture and equipment

$

350

$

271

Lab equipment

 

2,614

 

1,565

Computer equipment and software

 

576

 

556

Leasehold improvements

 

95

 

88

Capital equipment in process

 

 

813

 

3,635

 

3,293

Less: Accumulated depreciation and amortization

 

2,025

 

1,868

$

1,610

$

1,425

Depreciation expense was $95,000 and $37,000 for the three months ended June 30, 2022 and 2021, respectively, and $157,000 and $70,000 for the six months ended June 30, 2022 and 2021, respectively.

Accrued expenses consist of the following at:

    

June 30, 

    

December 31, 

(in thousands)

2022

2021

Clinical trial and other professional fees

$

1,788

$

1,607

Bonuses

 

1,610

 

2,028

Paid time off

 

878

 

699

Customer rebates

272

380

Operating lease liability, current portion

212

Other

 

541

 

684

$

5,301

$

5,398

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4.

Fair value measurements

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level 1 — Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.
Level 3 — Inputs are unobservable for the asset or liability.

There was no convertible preferred stock warranty liability as of the periods ended June 30, 2022 and December 31, 2021.

The Company’s recurring fair value measurements using significant unobservable inputs (Level 3) related solely to the Company’s convertible preferred stock warrant liability. The convertible preferred stock warrant liability was remeasured at each financial reporting period with any changes in fair value being recognized as a component of other expense, net in the condensed consolidated statements of operations and comprehensive loss. In connection with the closing of the initial public offering (“IPO”), all of the outstanding convertible preferred stock warrants were converted to common stock warrants. The related liability was remeasured at the time of the IPO and reclassed to additional paid-in capital.

The following table sets forth a summary of changes in the estimated fair value of the Company’s convertible preferred stock warrants during the six months ended:

June 30, 

(in thousands)

    

2022

    

2021

Beginning of the period

$

$

3,911

Change in fair value

 

 

15,140

Conversion to common stock warrants

End of the period

$

$

19,051

There were no transfers in or out of Level 1, Level 2 or Level 3 fair value measurements during the periods ended June 30, 2022 and 2021.

5. Leases

We lease 23,890 square feet of office space in Minneapolis, Minnesota, which houses our principal executive offices and our manufacturing facility. We lease this space under an operating lease agreement that commenced December 1, 2008 and expires July 31, 2024. We intend to add new facilities as we grow, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations. Our operating lease agreement includes an option to renew for one additional period of five years. The exercise of the lease renewal option is at our sole discretion and was not included in the lease term for the calculation of the ROU asset and lease liability upon adoption of ASC 842 on January 1, 2022, as it is not reasonably certain of exercise.

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In addition to base rent, we will also pay our proportionate share of operating expenses, as defined in the lease. These payments will be made monthly and will be adjusted annually to reflect actual charges incurred for operating expenses, such as common area maintenance, taxes and insurance.

The following table presents the lease balances within the condensed consolidated balance sheets:

    

June 30, 

(in thousands)

2022

Right-of-use assets:

Operating lease right-of-use asset

$

465

Operating lease liabilities:

Accrued expenses

212

Operating lease liability, non-current portion

250

Total operating lease liabilities

$

462

Maturities of our lease liability for our operating lease are as follows as of June 30, 2022:

June 30, 

(in thousands)

2022

2022

$

115

2023

234

2024

139

Total undiscounted lease payments

488

Less: imputed interest

(26)

Present value of lease liability

$

462

As of June 30, 2022, the remaining lease term was 2.1 years and the discount rate was 5.0%. The operating cash outflows from our operating lease were $0.6 million for the six months ended June 30, 2022.

6.

Stockholders’ equity

Initial Public Offering

On July 2, 2021, the Company closed its IPO of 8,050,000 shares of its common stock at a public offering price of $18.00 per share, which included 1,050,000 shares of common stock issued upon the exercise in full by the underwriters of their option to purchase additional shares, for net proceeds from the IPO, after deducting the underwriting discount and other offering expenses payable by the Company totaling $1.6 million, of $133.2 million.

Upon the closing of the IPO, all shares of convertible preferred stock were automatically converted into common stock. Series G convertible preferred stock was converted into common stock on a 15.819-for-1 basis, and all other shares of convertible preferred stock were automatically converted into common stock on a 39.548-for-1 basis. The conversion of the outstanding preferred stock resulted in an aggregate of 11,929,584 shares of common stock.

Reverse Stock Split

In connection with the IPO, the Company’s Board of Directors and stockholders approved a 1-for-39.548 reverse stock split of the Company’s common stock. The reverse stock split became effective on June 22, 2021. The par value of the common stock was not adjusted as a result of the reverse stock split. Adjustments corresponding to the reverse stock split were made to the ratio at which the convertible preferred stock converted into common stock in connection with the closing of the IPO. Accordingly, all share and per-share

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amounts for all periods presented in these financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split and the adjustment of the conversion ratio of the convertible preferred stock.

Common Stock Warrants

In connection with the IPO, the warrants to purchase shares of convertible preferred stock automatically converted into warrants to purchase common stock, resulting in the reclassification of the related convertible preferred stock warrant liability to additional paid-in capital. Upon the closing of the IPO, these warrants to purchase convertible preferred stock became exercisable for 716,131 shares of common stock upon conversion at a weighted average exercise price of $2.39 per share.

7.

Stock-Based compensation

Summary of plans and activity

In June 2001, the Company’s Board of Directors and stockholders established the 2001 Stock Incentive Award Plan (“2001 Plan”). Under the 2001 Plan, as amended, 2,674,749 shares of common stock had been reserved for the issuance of incentive stock options granted to employees, non-employee directors, consultants or independent contractors. Options granted under the 2001 Plan have vesting terms that range from the date of grant to four years and expire within a maximum term of 10 years from the grant date.

In connection with the IPO in 2021, the Company’s Board of Directors and stockholders established the 2021 Equity Incentive Plan (“2021 Plan”). The number of shares of common stock initially reserved for issuance under the 2021 Plan was 1,854,490 newly reserved shares in addition to the 600,737 shares that remained available for issuance under the 2001 Plan. The shares available for issuance under the 2021 Plan will automatically increase on the first day of each year, commencing January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to 5% of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of each automatic increase, or such lesser number of shares as determined by the Board of Directors. The annual increase resulted in an additional 1,019,967 shares being reserved for issuance under the 2021 Plan as of January 1, 2022. The 2021 Plan provides for the issuance of stock options, stock appreciation rights, restricted stock awards, stock unit awards and other stock-based awards and cash incentive awards to employees, consultants and non-employee directors of the Company and its subsidiaries. Awards granted under the 2021 Plan will have such vesting schedules and other terms as determined by the Compensation Committee and stock options and stock appreciation rights have a maximum term of 10 years from the grant date. No further awards can be made under the 2001 Plan following the adoption of the 2021 Plan. As of June 30, 2022, there were 1,850,346 shares available for future issuance under the 2021 Plan.

Options are granted at exercise prices not less than the fair market value (as determined by the Board of Directors) of the Company’s common stock on the date of grant.

During the years 2008 through June 30, 2022, the Board of Directors authorized the grant of stock options for the purchase of shares of common stock to the employers of certain non-employee directors. The options were not granted under the 2001 Plan or the 2021 Plan, but terms are substantially the same as the Company’s standard form of option agreement for non-employee directors as they have an exercise price not less than the fair market value on the grant date and vest over 48 months from the date of grant.

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The following is a summary of stock option activity:

    

    

Weighted 

    

Number 

Average 

Aggregate 

of 

Exercise 

Intrinsic 

Options

Price

Value

 

(in  thousands)

Balance as of December 31, 2021

 

2,749,441

$

7.93

 

  

Granted

 

1,062,318

 

7.56

 

  

Cancelled / Forfeited

 

(240,548)

 

6.26

 

  

Exercised

 

(119,131)

 

0.62

 

  

Balance as of June 30, 2022

 

3,452,080

$

8.18

$

4,095

Options exercisable as of June 30, 2022

 

1,417,978

$

5.50

$

3,435

As of June 30, 2022, stock options outstanding included 8,796 options that were not granted under the 2001 Plan or the 2021 Plan. For options outstanding as of June 30, 2022, the weighted average remaining contractual life was 8.0 years. For options exercisable as of June 30, 2022, the weighted average remaining contractual life was 6.8 years.

In connection with the IPO, the Company’s Board of Directors and stockholders also established an Employee Stock Purchase Plan (the “ESPP”). The number of shares of common stock initially reserved for issuance under the ESPP was 278,170. The shares available for issuance under the ESPP will automatically increase on the first day of each year, commencing January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to 1% of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of each automatic increase, or such lesser number of shares as determined by the Board of Directors. The annual increase resulted in an additional 203,993 shares being reserved for issuance under the ESPP as of January 1, 2022. The ESPP will permit certain of the Company’s U.S. employees to purchase shares of the Company’s common stock at a price per share not less than 85% of the lower of (i) the closing market price per share of the Company’s common stock on the first day of the applicable purchase period or (ii) the closing market price per share of the Company’s common stock on the purchase date at the end of the applicable six-month purchase period. The first purchase date under the ESPP was June 30, 2022. Accordingly, as of June 30, 2022, 57,681 shares of common stock have been purchased under the ESPP for $0.3 million of employee contributions. As of June 30, 2022, there were 424,482 shares available for issuance under the ESPP.

Stock-based compensation expense

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and ESPP purchase rights on the grant date. The Company measures stock-based compensation expense based on the grant date fair value of the award and recognizes compensation expense over the requisite service period, which is generally the vesting period for stock options and the offering period for ESPP purchase rights. The amount of stock-based compensation expense recognized for stock option awards during a period is based on the portion of the awards that are ultimately expected to vest. The amount of stock-based

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compensation expense recognized for ESPP purchase rights during a period is based on the estimated purchase rights as of the grant date. The Company accounts for forfeitures as they occur.

The following table provides the weighted average fair value of options granted to employees and the related assumptions used in the Black-Scholes option pricing model for the six months ended June 30, 2022:

    

June 30, 

2022

 

2021

 

Weighted average fair value of options granted

 

$

4.41

$

5.16

Expected term (in years) — non-officer employees

 

5.5 to 6.1

2.7

Expected term (in years) — officer employees

 

3.2 to 6.1

3.0

Expected volatility

 

56.3% to 58.6

%

61.6 to 63.4

%

Expected dividend yield

 

%

%

Risk-free interest rate

 

1.75% to 3.07

%

0.17% to 0.47

%

The following table provides the weighted average fair value of ESPP purchase rights and the related assumptions used in the Black-Scholes option pricing model for the six months ended June 30, 2022:

    

June 30, 

2022

 

Weighted average fair value per ESPP purchase right

 

$

1.76

Expected term (in years) 

 

0.5

Expected volatility

 

51.3

%

Expected dividend yield

 

%

Risk-free interest rate

 

0.22

%

There were no ESPP purchase rights for the six months ended June 30, 2021.

The Company reviews these assumptions on a periodic basis and adjusts them, as necessary. The expected term of a stock option award was determined based on the Company’s analysis of historical exercise behavior while taking into consideration various participant demographics and option characteristics. The expected term of an ESPP purchase right is based on the offering period. We utilize the simplified method to develop the estimate of the expected term. The expected volatility is based upon observed volatility of comparable public companies. The expected dividend yield is assumed to be zero, as the Company has never paid dividends and has no current plans to do so. The risk-free interest rate is based on the yield on U.S. Treasury securities for a period approximating the expected term of the options being valued.

The following table presents the components and classification of stock-based compensation expense for the periods indicated:

Three Months Ended

Six months ended

    

June 30, 

    

June 30, 

(in thousands)

2022

2021

2022

2021

Stock options

$

998

$

624

$

1,791

$

685

Employee Stock Purchase Plan

102

102

Total stock-based compensation expense

$

1,100

$

624

$

1,893

$

685

Selling, general & administrative

$

943

$

431

$

1,617

$

477

Research & development

133

 

190

235

 

204

Cost of goods sold

24

 

3

41

 

4

$

1,100

$

624

$

1,893

$

685

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As of June 30, 2022, unrecognized compensation expense related to unvested stock-based compensation arrangements was $8.7 million. As of June 30, 2022, the related weighted average period over which the expense is expected to be recognized is approximately 2.8 years.

Early exercise of stock options

Under the 2001 Plan, the Company has issued options to certain executive officers with early-exercise provisions. The options may be exercised by the holder any time after they are granted. The Company has the right to repurchase, at the original option exercise price, shares issued pursuant to such early-exercise provisions, upon the termination of employment or death of the stockholder. This repurchase right expires based upon the original option vesting schedule. As of June 30, 2022 and 2021, there have been no early exercises and therefore there is no liability recorded for the early exercise of stock options.

8.

Income taxes

As of June 30, 2022 and December 31, 2021, a valuation allowance was recorded against all deferred tax assets due to the Company’s cumulative net loss position. Provision for income taxes for the three months ended June 30, 2022 and 2021 was $23,000 and $26,000, respectively. Provision for income taxes for the six months ended June 30, 2022 and 2021 was $49,000 and $43,000, respectively.

As of December 31, 2021, the Company had federal and state net operating loss carryforwards (“NOLs”) of approximately $324.8 million and $6.5 million, respectively. The federal NOLs began expiring in 2021 and the state NOLs began expiring in 2020. As of December 31, 2021, the Company had federal and state tax credit carryforwards of approximately $8.9 million and $1.6 million, respectively. The federal tax credit carryforwards began expiring in 2021 and the state tax credit carryforwards will begin expiring in 2028.

Utilization of NOLs may be subject to an annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986 and similar state provisions. The Company has not performed a detailed analysis to determine whether an ownership change has occurred. Such a change of ownership would limit the Company’s utilization of the NOLs and could be triggered by subsequent sales of securities by the Company or its stockholders.

9. (Loss) Earnings Per Share

Basic and diluted net loss per share attributable to common stockholders was calculated for the periods indicated (in thousands, except share and per share data):

    

Three Months Ended

    

Six months ended

June 30, 

June 30, 

2022

2021

2022

2021

Numerator:

  

 

  

  

 

  

Net loss

$

(11,071)

$

(17,748)

$

(21,062)

$

(26,375)

Denominator:

 

  

 

  

 

  

 

  

Weighted average common shares outstanding — basic and diluted

 

20,505,228

 

366,066

 

20,479,427

 

363,397

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

$

(0.54)

$

(48.48)

$

(1.03)

$

(72.58)

The Company’s potentially dilutive securities, which include stock options, shares of convertible preferred stock, warrants to purchase shares of convertible preferred stock and warrants to purchase shares of common stock, have been excluded from the computation of diluted net loss per share attributable to common stockholders, as the effect would be to reduce the net loss per share attributable to common stockholders. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period

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end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

    

Six months ended

June 30, 

2022

    

2021

Options to purchase common stock

 

3,452,080

 

2,654,042

Warrants to purchase redeemable convertible preferred stock (as converted to common stock)

 

 

108,406

Warrants to purchase common stock

716,131

Redeemable convertible preferred stock (as converted to common stock)

 

 

11,929,584

 

4,168,211

 

14,692,032

10.

Commitments and contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. There have been no contingent liabilities requiring accrual or disclosure as of June 30, 2022 or December 31, 2021.

11.

Employee benefit plans

The Company sponsors a voluntary defined-contribution employee retirement plan (the “401(k) plan”) for its U.S. employees. The 401(k) plan provides that each participant may contribute pre-tax or post-tax compensation up to the statutory limit allowable. Under the 401(k) plan, each participant is fully vested in his or her deferred salary contributions when contributed. The Company does not provide matching contributions to employees.

12.

Segment, geographic information and revenue disaggregation

The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region, for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single reportable and operating segment structure. The Company and its Chief Executive Officer evaluate performance based primarily on revenue in the geographic locations in which the Company operates.

The Company derives all its revenues from sales to customers in Europe and the U.S. The following table provides revenue by country for each location accounting for more than 10% of the total revenue for the periods indicated (in thousands):