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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 September 30, 2023

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 October 24, 2023, there were 20,815,635 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 September 30, 2023 and December 31, 2022 (Unaudited)

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022 (Unaudited)

6

Condensed Consolidated Statements of Stockholders Equity for the three and nine months ended September 30, 2023 and 2022 (Unaudited)

7

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (Unaudited)

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

29

Part II

Other Information

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

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

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CVRx, Inc.

Quarterly Report on Form 10-Q

For the quarterly period ended September 30, 2023

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 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, 2022, which are summarized below, as updated in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. 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, 2022, as updated in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. 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 (three of whom are affiliated with our principal stockholders) own a significant percentage of our stock and will be 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 increase market acceptance in the U.S. for Barostim would negatively impact our business, liquidity and results of operations;

3

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we have limited commercial sales experience marketing and selling Barostim, and if we are unable to continue to maintain and grow sales and marketing capabilities, we will be unable to 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 highly 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, price fluctuations and ongoing supply chain disruptions, 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 or defend ourselves against intellectual property disputes, which could be expensive, 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)

    

September 30, 

    

December 31, 

2023

2022

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

82,993

$

106,194

Accounts receivable, net of allowances of $506 and $679, respectively

 

6,372

 

5,504

Inventory

 

10,887

 

6,957

Prepaid expenses and other current assets

 

3,345

 

4,223

Total current assets

 

103,597

 

122,878

Property and equipment, net

 

1,723

 

1,698

Operating lease right-of-use asset

1,058

334

Other non-current assets

 

26

 

27

Total assets

$

106,404

$

124,937

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

1,133

$

1,719

Accrued expenses

 

6,274

 

6,369

Total current liabilities

 

7,407

 

8,088

Long-term debt

14,294

6,747

Operating lease liability, non-current portion

916

117

Other long-term liabilities

 

960

 

805

Total liabilities

 

23,577

 

15,757

Commitments and contingencies (Note 10)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Common stock, $0.01 par value, 200,000,000 authorized as of September 30, 2023 and December 31, 2022; 20,813,612 and 20,663,736 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

208

 

207

Additional paid-in capital

 

551,045

 

545,362

Accumulated deficit

 

(468,218)

 

(436,182)

Accumulated other comprehensive loss

 

(208)

 

(207)

Total stockholders’ equity

 

82,827

 

109,180

Total liabilities and stockholders’ equity

$

106,404

$

124,937

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

Nine months ended

September 30, 

September 30, 

2023

    

2022

    

2023

    

2022

Revenue

$

10,511

$

6,186

$

27,990

$

15,293

Cost of goods sold

 

1,691

 

1,340

 

4,536

 

3,490

Gross profit

 

8,820

 

4,846

 

23,454

 

11,803

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

2,696

 

2,293

 

9,392

 

6,906

Selling, general and administrative

 

15,652

 

12,679

 

47,504

 

35,945

Total operating expenses

 

18,348

 

14,972

 

56,896

 

42,851

Loss from operations

 

(9,528)

 

(10,126)

 

(33,442)

 

(31,048)

Interest expense

 

(499)

 

 

(1,220)

 

Other income, net

 

1,056

 

328

 

2,734

 

237

Loss before income taxes

 

(8,971)

 

(9,798)

 

(31,928)

 

(30,811)

Provision for income taxes

 

(40)

 

(32)

 

(108)

 

(81)

Net loss

 

(9,011)

 

(9,830)

 

(32,036)

 

(30,892)

Cumulative translation adjustment

 

(21)

 

(8)

 

(1)

 

(21)

Comprehensive loss

$

(9,032)

$

(9,838)

$

(32,037)

$

(30,913)

Net loss per share, basic and diluted

$

(0.43)

$

(0.48)

$

(1.55)

$

(1.51)

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

 

20,801,350

 

20,576,838

 

20,730,024

 

20,512,254

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

6

Table of Contents

CVRx, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

Accumulated

Additional

other

Total

Common stock

paid-in

Accumulated

comprehensive

stockholders’

    

Shares

    

Amount

    

capital

    

deficit

    

loss

    

equity

Balances as of June 30, 2023

 

20,750,910

 

$

208

$

549,150

$

(459,207)

$

(187)

$

89,964

Exercise of stock options

 

62,702

 

 

 

363

 

 

 

363

Employee stock compensation

 

 

 

 

1,532

 

 

 

1,532

Net loss for the three months ended September 30, 2023

 

 

 

 

 

(9,011)

 

 

(9,011)

Cumulative translation adjustment

 

 

 

 

 

 

(21)

 

(21)

Balances as of September 30, 2023

 

20,813,612

 

$

208

$

551,045

$

(468,218)

$

(208)

$

82,827

Balances as of June 30, 2022

 

20,576,149

 

$

206

$

542,967

$

(415,816)

$

(211)

$

127,146

Exercise of stock options

2,814

7

7

Employee stock compensation

 

 

 

 

929

 

 

 

929

Net loss for the three months ended September 30, 2022

 

 

 

 

 

(9,830)

 

 

(9,830)

Cumulative translation adjustment

 

 

 

 

 

 

(8)

 

(8)

Balances as of September 30, 2022

 

20,578,963

 

$

206

$

543,903

$

(425,646)

$

(219)

$

118,244

Accumulated

Additional

other

Total

Common stock

paid-in

Accumulated

comprehensive

stockholders’

    

Shares

    

Amount

    

capital

    

deficit

    

loss

    

equity

Balances as of December 31, 2022

 

20,663,736

 

$

207

$

545,362

$

(436,182)

$

(207)

$

109,180

Exercise of stock options

115,455

 

 

1

 

518

 

 

 

519

Proceeds from Employee Stock Purchase Plan

34,421

452

452

Employee stock compensation

 

 

 

 

4,713

 

 

 

4,713

Net loss for the nine months ended September 30, 2023

 

 

 

 

 

(32,036)

 

 

(32,036)

Cumulative translation adjustment

 

 

 

 

 

 

(1)

 

(1)

Balances as of September 30, 2023

 

20,813,612

 

$

208

$

551,045

$

(468,218)

$

(208)

$

82,827

Balances as of December 31, 2021

 

20,399,337

 

$

204

$

540,707

$

(394,754)

$

(198)

$

145,959

Exercise of stock options

121,945

1

80

81

Proceeds from Employee Stock Purchase Plan

57,681

1

294

295

Employee stock compensation

 

 

 

 

2,822

 

 

 

2,822

Net loss for the nine months ended September 30, 2022

 

 

 

 

(30,892)

 

 

(30,892)

Cumulative translation adjustment

 

 

 

 

 

 

(21)

 

(21)

Balances as of September 30, 2022

 

20,578,963

 

$

206

$

543,903

$

(425,646)

$

(219)

$

118,244

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)

    

Nine months ended

September 30, 

2023

    

2022

Cash flows from operating activities:

 

  

 

  

Net loss

$

(32,036)

$

(30,892)

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

 

  

 

  

Stock-based compensation

 

4,713

 

2,822

Depreciation of property and equipment

 

393

 

284

Loss on disposal of equipment

4

Amortization of deferred financing costs and loan discount

 

114

 

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

(868)

 

(2,737)

Inventory

 

(3,930)

 

(2,184)

Prepaid expenses and other current assets

 

902

 

(479)

Accounts payable

 

(586)

 

766

Accrued expenses

 

112

 

584

Net cash used in operating activities

 

(31,182)

 

(31,836)

Cash flows from investing activities:

 

  

 

  

Purchase of property and equipment

 

(422)

 

(606)

Net cash used in investing activities

 

(422)

 

(606)

Cash flows from financing activities:

 

  

 

  

Proceeds from the exercise of common stock options

 

519

 

81

Proceeds from Employee Stock Purchase Plan

452

295

Proceeds from debt financing

7,500

Debt financing costs

(67)

Net cash provided by financing activities

 

8,404

 

376

Effect of currency exchange on cash and cash equivalents

 

(1)

 

(21)

Net change in cash and cash equivalents

 

(23,201)

 

(32,087)

Cash and cash equivalents at beginning of period

 

106,194

 

142,072

Cash and cash equivalents at end of period

$

82,993

$

109,985

Supplemental Information:

 

  

 

  

Cash paid for interest

$

979

$

Cash paid for income taxes

$

4

$

4

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 September 30, 2023 and December 31, 2022, cash equivalents consisted of money market funds, which are stated at cost and approximate fair value. Additionally, as of September 30, 2023 and December 31, 2022, a majority of our cash and cash equivalents were maintained with two financial institutions in the U.S., and our current deposits are likely in excess of insured limits.

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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 evaluate the collectability of our accounts receivable based on known collection risks and historical experience. In circumstances where we are aware of a specific customer's inability to meet its financial obligations to us, we record a specific allowance for bad debts against amounts due to reduce the carrying amount of accounts receivable to the amount we reasonably believe will be collected.

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 (“ASC”) 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 ASC 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 account for forfeitures as they occur. We expense the fair value of

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our equity-based compensation awards 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.

3.

Selected balance sheet information

Inventory consists of the following at:

    

September 30, 

    

December 31, 

(in thousands)

2023

2022

Raw material

$

4,875

$

2,390

Work-in-process

 

1,173

 

1,033

Finished goods

 

4,839

 

3,534

$

10,887

$

6,957

Property and equipment, net consists of the following at:

    

September 30, 

    

December 31, 

(in thousands)

2023

2022

Office furniture and equipment

$

402

$

350

Lab equipment

 

2,685

 

2,684

Computer equipment and software

 

772

 

618

Leasehold improvements

 

98

 

95

Capital equipment in process

 

425

 

231

 

4,382

 

3,978

Less: Accumulated depreciation and amortization

 

2,659

 

2,280

$

1,723

$

1,698

Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the lease. Depreciation expense was $137,000 and $127,000 for the three months ended September 30, 2023 and 2022, respectively, and $393,000 and $284,000 for the nine months ended September 30, 2023 and 2022, respectively.

Accrued expenses consist of the following at:

    

September 30, 

    

December 31, 

(in thousands)

2023

2022

Bonuses

$

2,366

$

2,303

Paid time off

 

1,212

 

960

Clinical trial and other professional fees

892

1,733

Customer rebates

382

256

Employee Stock Purchase Plan

280

Operating lease liability, current portion

170

222

Taxes

103

120

Other

 

869

 

775

$

6,274

$

6,369

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4. Debt

Innovatus Loan Agreement

On October 31, 2022, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Innovatus Life Sciences Fund I, LP, as the collateral agent and a lender, under which the Company may borrow, subject to the Company’s achievement of certain milestones, up to a total of $50.0 million in a series of term loans. On the closing date, the Company borrowed the minimum amount of $7.5 million under the Loan Agreement. On March 10, 2023, the Company borrowed the $7.5 million remaining under the first tranche of the Loan Agreement, with $4.0 million received on March 13, 2023, and $3.5 million received on March 15, 2023. The Loan Agreement initially requires interest only payments through November 2027, followed by three monthly principal and interest payments. A final payment of $0.7 million, equal to 4.5% of the original borrowed principal, is due in January 2028. The term loans advanced pursuant to the Loan Agreement (collectively, the “Term Loans”) bear interest at a floating rate per annum equal to the sum of (a) the greater of (i) the prime rate and (ii) 5.50% plus (b) 2.65%. The Term Loans are secured by substantially all of the personal property of the Company. The Company has the option to draw down (i) up to $30.0 million less the amount funded from the first tranche between September 1, 2023 and December 15, 2023 if the Company achieves trailing three months revenue of $5.75 million prior to June 30, 2023 (which was achieved), and (ii) up to $20.0 million between September 1, 2024 and December 15, 2024 if the Company achieves trailing three months revenue of $9.0 million prior to June 30, 2024. A performance covenant takes effect at the earlier of September 30, 2025 or the third tranche funding, requiring that the Company achieve 50% of the trailing twelve months revenue target set in the Board-approved revenue plan in effect for such period. The Loan Agreement requires the payment of certain penalties if the Term Loans are paid off prior to maturity for any reason, including pursuant to an acceleration clause, and includes various restrictive covenants, including a restriction on the payment of dividends or making other distributions or payments on the Company’s capital stock, subject to limited exceptions. The Company was in compliance with these covenants as of September 30, 2023.

In connection with the Loan Agreement, the Company recorded $0.8 million of debt issuance costs and discounts as a reduction of long-term debt.

The annual principal maturities of debt under the Loan Agreement are as follows:

    

September 30, 

(in thousands)

2023

2023

    

$

2024

 

2025

 

2026

 

2027

10,000

2028

5,000

 

15,000

Less: Unamortized debt costs and discounts

 

(706)

Long-term debt

$

14,294

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 was scheduled to expire August 31, 2024. On April 21, 2023, we extended the operating lease for our office space in Minneapolis, Minnesota for an additional 49 consecutive months through August 31, 2028. 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 three

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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, as it is not reasonably certain of exercise.

In addition to base rent, we also pay our proportionate share of operating expenses, as defined in the lease. These payments are made monthly and are 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:

    

September 30, 

December 31, 

(in thousands)

2023

2022

Right-of-use assets:

Operating lease right-of-use asset

$

1,058

$

334

Operating lease liabilities:

Accrued expenses

170

222

Operating lease liability, non-current portion

916

117

Total operating lease liabilities

$

1,086

$

339

Maturities of our lease liability for our operating lease are as follows as of September 30, 2023:

September 30, 

(in thousands)

2023

2023, remainder

$

59

2024

223

2025

255

2026

262

2027

270

2028

161

Total undiscounted lease payments

1,230

Less: imputed interest

(144)

Present value of lease liability

$

1,086

As of September 30, 2023, the remaining lease term was 4.9 years and the discount rate was 5.0%. The operating cash outflows from our operating lease were $0.3 million for each of the nine months ended September 30, 2023 and 2022.

6.

Stockholders’ equity

Common Stock Warrants

The Company has common stock warrants 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.

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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 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 1,033,186 shares being reserved for issuance under the 2021 Plan as of January 1, 2023. 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 September 30, 2023, there were 1,724,683 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 the initial public offering (the “IPO”), 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.

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, 2022

 

3,756,835

$

8.28

 

$

36,616

Granted

 

1,086,876

 

14.06

 

  

Cancelled / Forfeited

 

(264,160)

 

10.42

 

  

Exercised

 

(115,455)

 

4.50

 

  

Balance as of September 30, 2023

 

4,464,096

$

9.66

$

37,331

Options exercisable as of September 30, 2023

 

2,311,211

$

7.05

$

25,374

As of September 30, 2023, stock options outstanding included 8,796 options that were not granted under the 2001 Plan or the 2021 Plan. For options outstanding as of September 30, 2023, the weighted average remaining contractual life was 7.5 years. For options exercisable as of September 30, 2023, the weighted average remaining contractual life was 6.4 years.

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 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 206,637 shares being reserved for issuance under the ESPP as of January 1, 2023. The ESPP permits 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

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(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 September 30, 2022. For the nine months ended September 30, 2023, 34,421 shares of common stock were purchased under the ESPP for $0.5 million of employee contributions. As of September 30, 2023, there were 540,489 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 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 nine months ended September 30, 2023 and 2022:

    

September 30, 

2023

 

2022

 

Weighted average fair value of options granted

 

$

10.59

$

4.56

Expected term (in years) — non-officer employees

 

5.5 to 6.1

5.5 to 6.1

Expected term (in years) — officer employees

 

2.5 to 6.1

3.2 to 6.1

Expected volatility

 

77.2% to 79.6

%

56.3% to 58.6

%

Expected dividend yield

 

%

%

Risk-free interest rate

 

3.40% to 4.61

%

1.75% to 3.97

%

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 nine months ended September 30, 2023 and 2022:

    

September 30, 

2023

 

2022

Weighted average fair value per ESPP purchase right

 

$

9.01

$

2.85

Expected term (in years) 

 

0.5

0.5

Expected volatility

 

76.2% to 84.6

%

51.3% to 62.9

%

Expected dividend yield

 

%

%

Risk-free interest rate

 

4.77% to 5.53

%

0.22% to 2.52

%

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.

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

Three Months Ended

Nine months ended

    

September 30, 

    

September 30, 

(in thousands)

2023

2022

2023

2022

Stock options

$

1,419

$

866

$

4,403

$

2,657

Employee Stock Purchase Plan

113

63

310

165

Total stock-based compensation expense

$

1,532

$

929

$

4,713

$

2,822

Selling, general & administrative

$

1,290

$

785

$

3,728

$

2,402

Research & development

221

 

132

927

 

367

Cost of goods sold

21

 

12

58

 

53

$

1,532

$

929

$

4,713

$

2,822

As of September 30, 2023, unrecognized compensation expense related to unvested stock-based compensation arrangements was $14.1 million. As of September 30, 2023, the related weighted average period over which the expense is expected to be recognized is approximately 2.5 years.

8.

Income taxes

As of September 30, 2023 and December 31, 2022, 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 September 30, 2023 and 2022 was $40,000 and $32,000, respectively. Provision for income taxes for the nine months ended September 30, 2023 and 2022 was $108,000 and $81,000, respectively.

As of December 31, 2022, the Company had federal and state net operating loss carryforwards (“NOLs”) of approximately $361.0 million and $6.2 million, respectively. The federal NOLs began expiring in 2021 and the state NOLs began expiring in 2020. As of December 31, 2022, the Company had federal and state tax credit carryforwards of approximately $9.3 million and $1.8 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.

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9. Loss 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

    

Nine months ended

September 30, 

September 30, 

2023

2022

2023

2022

Numerator:

  

 

  

  

 

  

Net loss

$

(9,011)

$

(9,830)

$

(32,036)

$

(30,892)

Denominator:

 

  

 

  

 

  

 

  

Weighted average common shares outstanding — basic and diluted

 

20,801,350

 

20,576,838

 

20,730,024

 

20,512,254

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

$

(0.43)

$

(0.48)

$

(1.55)

$

(1.51)

The Company’s potentially dilutive securities, which include stock options 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 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:

    

Nine months ended

September 30, 

2023

    

2022

Options to purchase common stock

 

4,464,096

 

3,723,499

Warrants to purchase common stock

716,131

716,131

 

5,180,227

 

4,439,630

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 September 30, 2023 or December 31, 2022.

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

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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):

    

Three months ended

Nine months ended

    

September 30, 

September 30, 

2023

    

2022

2023

    

2022

U.S.

$

9,579

$

5,039

$

24,818

$

12,035

Germany

 

802

 

933

 

2,819

 

2,744

Other countries

 

130

 

214

 

353

 

514

$

10,511

$

6,186

$

27,990

$

15,293

As of September 30, 2023 and December 31, 2022, long-lived assets were located primarily in the U.S.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a commercial-stage medical device company focused on developing, manufacturing, and commercializing innovative and minimally invasive neuromodulation solutions for patients with cardiovascular disease. Our proprietary platform technology, Barostim, is designed to leverage the power of the brain and nervous system to address the imbalance of the Autonomic Nervous System, which causes HF with reduced Ejection Fraction (“HFrEF”) and other cardiovascular diseases. Our second-generation product, Barostim, is the first and only commercially available neuromodulation device indicated to improve symptoms for patients with HFrEF. Barostim provides Baroreflex Activation Therapy by sending imperceptible and persistent electrical pulses to baroreceptors located in the wall of the carotid artery to signal the brain to modulate cardiovascular function. Barostim is currently approved by the U.S. Food and Drug Administration (“FDA”) to improve the symptoms of patients with HFrEF and is CE Marked for HFrEF and resistant hypertension.

Since our inception, our activities have consisted primarily of developing Barostim Therapy, conducting our BeAT-HF pre-market and post-market pivotal studies in the U.S., and filing for regulatory approvals. Our ability to generate significant revenue from product sales and become profitable will depend on our ability to continue to successfully commercialize Barostim and any product enhancements we may advance in the future. We expect to derive future revenue by continuing to both expand our own dedicated salesforce and increase awareness of Barostim among payors, physicians, and patients.

Our sales and marketing efforts are directed at electrophysiologists, HF specialists, interventional and general cardiologists, and vascular surgeons because they are the primary users of our technology. However, we consider hospitals, where the procedures are performed primarily in an outpatient setting, to be our customers, as they are the purchasing entities of Barostim in the U.S. We intend to continue making significant investments building our U.S. commercial infrastructure by expanding and training our U.S. sales force. We have dedicated significant resources to educate physicians who treat HFrEF about the advantages of Barostim and train them on the