Notes to Condensed Consolidated Financial Statements
(Unaudited)
debt, making acquisitions or capital expenditures or declaring dividends. If the Company is unable to maintain sufficient financial resources, its business, financial condition and results of operations will be materially and adversely affected. The Company may be required to delay, limit, reduce or terminate its product discovery and development activities or future commercialization efforts. There can be no assurance that the Company will be able to obtain the needed financing on acceptable terms or at all.
Beginning in early March 2020, the COVID-19 pandemic and the measures imposed to contain this pandemic disrupted the Company’s business. The effects of the pandemic began to decrease in late April 2020 as electrophysiology labs began reopening and procedure volumes began increasing as compared to COVID-19 related low points in March 2020. The Company could experience similar, or even more sustained, access restrictions or decreases in procedural activities as hospitals continue to deal with the COVID-19 pandemic. If cases of COVID-19 increase and hospitals again prioritize those patients, additional restrictions may be implemented which would adversely impact our business and financial results.
Note 2—Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Acutus Medical, Inc. and its wholly-owned subsidiary Acutus Medical NV (“Acutus NV”), which was incorporated under the laws of Belgium in August 2013. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and disclosures of contingent assets and liabilities. The most significant estimates and assumptions in the Company’s condensed consolidated financial statements include, but are not limited to, revenue recognition, useful lives of intangible assets, assessment of impairment of goodwill, provisions for income taxes, measurement of operating lease liabilities, and the fair value of common stock, stock options, warrants, intangible assets, contingent consideration and goodwill. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could differ from those estimates.
Segments
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.
7
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. All of the Company’s cash equivalents have liquid markets and high credit ratings. The Company maintains its cash in bank deposits and other accounts, the balances of which, at times and as of September 30, 2020 and December 31, 2019, exceeded federally insured limits.
Restricted cash serves as collateral for the Company’s corporate credit card program. The following table reconciles cash, cash equivalents and restricted cash in the condensed consolidated balance sheets to the totals shown on the condensed consolidated statements of cash flows (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
58,302
|
|
|
$
|
9,452
|
|
Restricted cash
|
|
|
150
|
|
|
|
150
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
58,452
|
|
|
$
|
9,602
|
|
Marketable Securities
The Company considers its debt securities to be available-for-sale securities. Available-for-sale securities are classified as cash equivalents or short-term or long-term marketable securities based on the maturity date at time of purchase and their availability to meet current operating requirements. Marketable securities that mature in three months or less from the date of purchase are classified as cash equivalents. Marketable securities, excluding cash equivalents, that mature in one year or less are classified as short-term available-for-sale securities and are reported as a component of current assets.
Securities that are classified as available-for-sale are measured at fair value with temporary unrealized gains and losses reported in other comprehensive loss, and as a component of stockholders’ equity (deficit) until their disposition or maturity. See “Fair Value Measurements” below. The Company reviews all available-for-sale securities at each period end to determine if they remain available-for-sale based on the Company’s current intent and ability to sell the security if it is required to do so. Realized gains and losses from the sale of marketable securities, if any, are calculated using the specific-identification method.
Marketable securities are subject to a periodic impairment review. The Company may recognize an impairment charge when a decline in the fair value of investments below the cost basis is determined to be other-than-temporary. In determining whether a decline in market value is other-than-temporary, various factors are considered, including the cause, duration of time and severity of the impairment, any adverse changes in the investees’ financial condition and the Company’s intent and ability to hold the security for a period of time sufficient to allow for an anticipated recovery in market value. Declines in value judged to be other-than-temporary are included in the Company’s condensed consolidated statements of operations and comprehensive loss. The Company did not record any other-than-temporary impairments related to marketable securities in the Company’s condensed consolidated statements of operations and comprehensive loss for the nine-month periods ended September 30, 2020 and 2019.
Concentrations of Credit Risk and Off-Balance Sheet Risk
Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, restricted cash, accounts receivable and marketable securities. Cash and restricted cash are maintained in accounts with financial institutions, which, at times may exceed the Federal depository insurance coverage of $0.25 million. The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant. The Company’s marketable securities portfolio consists primarily of investments in money market funds, commercial paper and short-term high credit quality corporate debt securities.
8
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Revenue from Contracts with Customers
The Company accounts for revenue earned from contracts with customers under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
|
•
|
Step 1: Identify the contract with the customer.
|
|
•
|
Step 2: Identify the performance obligations in the contract.
|
|
•
|
Step 3: Determine the transaction price.
|
|
•
|
Step 4: Allocate the transaction price to the performance obligations in the contract.
|
|
•
|
Step 5: Recognize revenue when, or as, the company satisfies a performance obligation.
|
The Company usually places its medical diagnostic equipment, AcQMap System, at customer sites under loan agreements and generates revenue from disposable products used with the AcQMap System. Disposable products include AcQMap Catheters and AcQGuide Steerable Sheaths. The Company provides the disposable products in exchange for consideration, which occurs when a customer submits a purchase order and the Company provides disposables at the agreed upon prices in the invoice. Generally, customers purchase disposable products using separate purchase orders after the equipment has been provided to the customer for free with no binding agreement or requirement to purchase any disposable products. The Company also sells the AcQMap System to customers along with software updates on a when-and-if-available basis and equipment service. The Company has elected the practical expedient and accounting policy election to account for the shipping and handling as activities to fulfill the promise to transfer the disposable products and not as a separate performance obligation.
During the three months ended September 30, 2020, the Company entered into deferred equipment agreements that are generally structured such that the Company agrees to provide an AcQMap System at no up-front charge, with title of the device transferring to the customer at the end of the contract term, in exchange for the customer’s commitment to purchase disposables at a specified price over the term of the agreement, which generally ranges from two to four years. The Company determined that the deferred equipment agreements include embedded sales-type leases. The Company allocates contract consideration under deferred equipment agreements containing fixed annual disposable purchase commitments to the underlying lease and non-lease components at contract inception. The Company expenses the cost of the device at the inception of the agreement and records a financial lease asset equal to the gross consideration allocated to the lease. The lease asset will be reduced by payments for minimum disposable purchases that are allocated to the lease.
The following table sets forth the Company’s revenue for disposables and systems/service for the three and nine months ended September 30, 2020 and 2019 (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Disposables
|
|
$
|
2,179
|
|
|
$
|
643
|
|
|
$
|
4,358
|
|
|
$
|
2,155
|
|
Systems
|
|
|
965
|
|
|
|
—
|
|
|
|
1,485
|
|
|
|
—
|
|
Service/Other
|
|
|
29
|
|
|
|
3
|
|
|
|
47
|
|
|
|
12
|
|
Total
|
|
$
|
3,173
|
|
|
$
|
646
|
|
|
$
|
5,890
|
|
|
$
|
2,167
|
|
The Company’s contracts only include fixed consideration. There are no discounts, rebates, returns or other forms of variable consideration. Customers are generally required to pay within 30 to 60 days.
The delivery of disposable products are performance obligations satisfied at a point in time. The disposable products are shipped Free on Board (“FOB”) shipping point or FOB destination. For disposable products that are shipped FOB shipping point, the customer has the significant risks and rewards of ownership and legal title to the assets when the disposable products leave the Company’s shipping facilities, thus the customer obtains control and revenue is recognized at that point in time. Revenue is recognized on delivery for disposable products shipped via FOB destination.
9
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The installation and delivery of the AcQMap System is satisfied at a point in time when the installation is complete, which is when the customer can benefit and has control of the system. The Company’s software updates and equipment service performance obligations are satisfied evenly over time as the customer simultaneously receives and consumes the benefits of the Company’s performance for these services throughout the service period.
The Company allocates the transaction price to each performance obligation identified in the contract based on the relative standalone selling price (“SSP”). The Company determines SSP for the purposes of allocating the transaction price to each performance obligation based on the adjusted market assessment approach that maximizes the use of observable inputs, which includes, but is not limited to, transactions where the specific performance obligations are sold separately, list prices, and offers to customers.
The Company’s contracts with customers generally have an expected duration of one year or less, and therefore the Company has elected the practical expedient in ASC 606 to not disclose information about its remaining performance obligations. Any incremental costs to obtain contracts are recorded as selling, general and administrative expense as incurred due to the short duration of the Company’s contracts. The Company’s contract balances consisted solely of accounts receivable as of September 30, 2020 and December 31, 2019.
In May 2020, the Company entered into bi-lateral distribution agreements with Biotronik SE & Co. KG (“Biotronik”) (the “Bi-Lateral Distribution Agreements”). Pursuant to the Bi-Lateral Distribution Agreements, the Company obtained a non- exclusive license to distribute a range of Biotronik’s products and accessories in the United States, Canada, China, Hong Kong and multiple Western European countries under the Company’s private label. Moreover, if an investigational device exemption (“IDE”) clinical trial is required for these products to obtain regulatory approval in the United States, or a clinical trial is required for these products to obtain regulatory approval in China, the Company will obtain an exclusive distribution right in such territories for a term of up to five years commencing on the date of regulatory approval if the Company covers the cost of the IDE or other clinical trial and the Company conducts such study within a specified period. Biotronik also agreed to distribute the Company’s products and accessories in Germany, Japan, Mexico, Switzerland and multiple countries in Asia-Pacific, Eastern Europe, the Middle East and South America. The Company also granted Biotronik a coexclusive right to distribute these products in Hong Kong. Each party will pay to the other party specified transfer prices on the sale of the other party’s products and, accordingly, will earn a distribution margin on the sale of the other party’s products.
The following table provides revenue by geographic location for the three and nine months ended September 30, 2020 and 2019 (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
United States
|
|
$
|
1,867
|
|
|
$
|
147
|
|
|
$
|
3,195
|
|
|
$
|
603
|
|
Europe
|
|
|
1,306
|
|
|
|
499
|
|
|
|
2,695
|
|
|
|
1,564
|
|
Total Revenue
|
|
$
|
3,173
|
|
|
$
|
646
|
|
|
$
|
5,890
|
|
|
$
|
2,167
|
|
Inventory
Inventory is comprised of raw materials, direct labor and manufacturing overhead and is stated at the lower of cost (first-in, first-out basis) or net realizable value. The Company recorded write-downs for excess and obsolete inventory based on management’s review of inventories on hand, compared to estimated future usage and sales, shelf-life and assumptions about the likelihood of obsolescence of $37,000 and $0.3 million, for the three months ended September 30, 2020 and 2019, respectively, and $0.1 million and $0.5 million, for the nine months ended September 30, 2020 and 2019, respectively.
Accounts Receivable
Trade accounts receivable are recorded net of allowances for uncollectible accounts. The Company evaluates the collectability of its accounts receivable based on various factors including historical experience, the length of time the receivables are past due and the financial health of the customer. The Company reserves specific receivables if collectability is no longer reasonably assured. Based upon the assessment of these factors, the Company did not record an allowance for uncollectible accounts as of September 30, 2020 and December 31, 2019.
10
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Property and Equipment, Net
Property and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, generally three to five years, or, in the case of leasehold improvements, over the lesser of the useful life of the related asset or the lease term.
Intangible Assets
Intangible assets consist of acquired developed technology, acquired in-process technology, trademarks and trade names and a customer-related intangible which were acquired as part of the acquisition of Rhythm Xience, Inc. (“Rhythm Xience”) in June 2019. The Company determines the appropriate useful life of its finite-lived intangible assets by performing an analysis of expected cash flows of the acquired assets. Finite-lived intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the economic benefits are consumed. Acquired in-process technology was classified as an indefinite-lived intangible asset, until the receipt of FDA approval for the technology in January 2020. Once the FDA approval was received, the in-process technology was classified as a finite-lived intangible and amortization for in-process technology began. Indefinite-lived intangible assets are tested for impairment at least annually and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are impaired if their estimated fair values are less than their carrying value.
Goodwill
Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed, and it is presented as goodwill in the accompanying condensed consolidated balance sheets. Under ASC 350, Intangibles – Goodwill and Other (“ASC 350”), goodwill is not amortized but is subject to periodic impairment testing. ASC 350 requires that an entity assign its goodwill to reporting units and test each reporting unit’s goodwill for impairment at least on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In the evaluation of goodwill for impairment, which is performed annually during the fourth quarter, the Company first assesses qualitative factors to determine whether the existence of events or circumstances led to a determination that it was more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company is required to perform the quantitative goodwill impairment test. The Company has one reporting unit. For the nine months ended September 30, 2020, the qualitative testing did not indicate any impairment for the carrying amount of goodwill.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss is recognized when the asset’s carrying value exceeds the total undiscounted cash flows expected from its use and eventual disposition. The amount of the impairment loss is determined as the excess of the carrying value of the asset over its fair value. For the three and nine months ended September 30, 2020 and 2019, the Company determined that there was no impairment of property and equipment or intangible assets.
Foreign Currency Translation and Transactions
The assets, liabilities and results of operations of Acutus NV are measured using their functional currency, the Euro, which is the currency of the primary foreign economic environment in which this subsidiary operates. Upon consolidating this entity with the Company, its assets and liabilities are translated to U.S. dollars at currency exchange rates as of the balance sheet date and its revenues and expenses are translated at the weighted average currency exchange rates during the applicable reporting periods. Translation adjustments resulting from the process of translating this entity’s financial statements are reported in accumulated other comprehensive income (loss) in the condensed consolidated balance sheets and foreign currency translation adjustment in the condensed consolidated statements of operations and comprehensive loss.
Lessee Leases
Effective January 1, 2019, the Company accounts for its lessee leases under ASC 842, Leases (“ASC 842”). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the
11
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
condensed consolidated balance sheet as both a right-of-use asset and a lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset results in straight-line rent expense over the lease term. Variable lease expenses are recorded when incurred.
In calculating the right-of-use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election.
Cost of Products Sold
Cost of products sold includes raw materials, direct labor, manufacturing overhead, shipping and receiving costs and other less significant indirect costs related to the production of the Company’s products.
Research and Development
The Company is actively engaged in new product research and development efforts. Research and development expenses consist primarily of salaries and employee-related costs (including stock-based compensation) for personnel directly engaged in research and development activities, clinical trial expenses, equipment costs, material costs, allocated rent and facilities costs and depreciation. Research and development expenses also include payments for the asset acquisition from Biotronik and VascoMed GmbH (collectively, the “Biotronik Parties”) for certain licenses of patents, technology, know-how rights and equipment (the “Biotronik Asset Acquisition”).
Research and development expenses relating to possible future products are expensed as incurred. The Company also accrues and expenses costs for activities associated with clinical trials performed by third parties as incurred. All other costs relative to setting up clinical trial sites are expensed as incurred. Clinical trial site costs related to patient enrollment are accrued as patients are entered into the trials.
Selling, General and Administrative
Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and employee-related costs (including stock-based compensation) for personnel in sales, executive, finance and other administrative functions, allocated rent and facilities costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, marketing costs and insurance costs. The Company expenses all SG&A costs as incurred.
Fair Value Measurements
Fair value measurements are based on the premise that fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the following three-tier fair value hierarchy has been used in determining the inputs used in measuring fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed or initial amounts recorded may not be indicative of the amount that the Company or holders of the instruments could realize in a current market
12
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
exchange. There were no transfers made among the three levels in the fair value hierarchy for the three and nine months ended September 30, 2020 and 2019.
As of September 30, 2020 and December 31, 2019, the Company’s cash (excluding cash equivalents which are recorded at fair value on a recurring basis), restricted cash, accounts receivable, accounts payable and accrued expenses were carried at cost, which approximates the fair values due to the short-term nature of the instruments.
The carrying amount of the Company’s long-term debt approximates fair value due to its variable market interest rate and management’s opinion that current rates and terms that would be available to the Company with the same maturity and security structure would be essentially equivalent to that of the Company’s long-term debt.
The following tables classify the Company’s financial assets and liabilities measured at fair value on a recurring basis into the fair value hierarchy as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
Fair Value Measured at September 30, 2020
(unaudited)
|
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Fair Value at
September 30,
2020
|
|
Assets included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market securities
|
|
$
|
53,063
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
53,063
|
|
Marketable securities at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
—
|
|
|
|
31,455
|
|
|
|
—
|
|
|
|
31,455
|
|
U.S. treasury securities
|
|
|
—
|
|
|
|
14,361
|
|
|
|
—
|
|
|
|
14,361
|
|
Commercial paper
|
|
|
—
|
|
|
|
53,926
|
|
|
|
—
|
|
|
|
53,926
|
|
Asset-backed securities
|
|
|
—
|
|
|
|
8,789
|
|
|
|
—
|
|
|
|
8,789
|
|
Total fair value
|
|
$
|
53,063
|
|
|
$
|
108,531
|
|
|
$
|
—
|
|
|
$
|
161,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,600
|
|
|
$
|
7,600
|
|
Total fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,600
|
|
|
$
|
7,600
|
|
13
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
Fair Value Measured at December 31, 2019
|
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Fair Value at
December 31,
2019
|
|
Assets included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market securities
|
|
$
|
8,901
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,901
|
|
Marketable securities at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
—
|
|
|
|
28,224
|
|
|
|
—
|
|
|
|
28,224
|
|
Asset-backed securities
|
|
|
—
|
|
|
|
17,121
|
|
|
|
—
|
|
|
|
17,121
|
|
U.S. treasury securities
|
|
|
—
|
|
|
|
5,032
|
|
|
|
—
|
|
|
|
5,032
|
|
Commercial paper
|
|
|
—
|
|
|
|
11,974
|
|
|
|
—
|
|
|
|
11,974
|
|
Total fair value
|
|
$
|
8,901
|
|
|
$
|
62,351
|
|
|
$
|
—
|
|
|
$
|
71,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,900
|
|
|
$
|
13,900
|
|
Common and preferred stock warrant liability
|
|
|
—
|
|
|
|
—
|
|
|
|
8,919
|
|
|
|
8,919
|
|
Total fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,819
|
|
|
$
|
22,819
|
|
The fair value of the Company’s money market funds is determined using quoted market prices in active markets for identical assets.
The Company’s portfolio of marketable securities is comprised of commercial paper, asset-backed securities, U.S. treasury securities and short-term highly liquid, high credit quality corporate debt securities. The fair value for the available-for-sale marketable securities is determined based on valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.
The following table presents changes in Level 3 liabilities measured at fair value for the nine months ended September 30, 2020 (in thousands):
|
|
Common and
Preferred
Stock
Warrant
Liability
|
|
|
Contingent
Consideration
|
|
|
Total
|
|
Balance, December 31, 2019
|
|
$
|
8,919
|
|
|
$
|
13,900
|
|
|
$
|
22,819
|
|
Payment of contingent consideration
|
|
|
—
|
|
|
|
(2,636
|
)
|
|
|
(2,636
|
)
|
Issuance of preferred stock for contingent consideration
|
|
|
—
|
|
|
|
(2,197
|
)
|
|
|
(2,197
|
)
|
Reclassification of warrant liability
to stockholders' equity
|
|
|
(14,474
|
)
|
|
|
—
|
|
|
|
(14,474
|
)
|
Change in fair value
|
|
|
5,555
|
|
|
|
(1,466
|
)
|
|
|
4,089
|
|
Balance, September 30, 2020 (unaudited)
|
|
$
|
—
|
|
|
$
|
7,600
|
|
|
$
|
7,600
|
|
Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
The fair value of the common and preferred stock warrant liability has been estimated using a Monte Carlo simulation in the first quarter of 2019 and as an output of the Hybrid Method for the second and third quarter of 2019 and the first and second quarter of 2020. The underlying equity included in the Monte Carlo simulation and the Hybrid Method was determined based on the equity
14
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
value implied from the preferred stock transactions and from examination of income and market approaches for measurement dates in which a preferred transaction was not applicable. Additionally, the expected IPO value was considered in the determination of the equity value. The fair value of the warrants was impacted by the model selected as well as assumptions surrounding unobservable inputs including the underlying equity value, risk-free interest rate, expected dividend yield, contractual term and expected volatility. On August 10, 2020 when the warrants were converted and became equity classified warrants, the fair value of the common and preferred stock warrant liability was estimated using a Black-Scholes model. The underlying equity included in the Black-Scholes model was based on the IPO share price of $18.00. The weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the common and preferred stock warrant liability as of August 10, 2020 (date of conversion to equity classified warrants) and December 31, 2019 were as follows:
|
|
August 10,
|
|
|
December 31,
|
|
|
2020
|
|
|
2019
|
|
|
(unaudited)
|
|
|
|
Risk-free interest rate
|
|
0.39%
|
|
|
1.59% - 1.60%
|
Expected dividend yield
|
|
—
|
|
|
—
|
Contractual term in years
|
|
7.8 - 8.8
|
|
|
0.7 - 1.0
|
Expected volatility
|
|
65.0%
|
|
|
60.0% - 110.5%
|
The fair value of the contingent consideration from the acquisition of Rhythm Xience represents the estimated fair value of future payments due to the sellers of Rhythm Xience based on the achievement of certain milestones and revenue-based targets in certain years. The initial fair value of the revenue-based contingent consideration was calculated through the use of a Monte Carlo simulation using revenue projections for the respective earn-out period, corresponding targets and approximate timing of payments as outlined in the purchase agreement. The analyses used the following assumptions: (i) expected term; (ii) risk-adjusted net sales or earnings; (iii) risk-free interest rate and (iv) expected volatility of earnings. Estimated payments, as determined through the respective model, were further discounted by a credit spread assumption to account for credit risk. The fair value of the milestones-based contingent consideration was determined by probability weighting and discounting to the respective valuation date at the Company’s cost of debt. The Company’s cost of debt was determined by performing a synthetic credit rating for the Company and selecting yields based on companies with a similar credit rating. The contingent consideration is revalued to fair value each period, and any increase or decrease is recorded in operating loss. The fair value of the contingent consideration may be impacted by certain unobservable inputs, most significantly with regard to discount rates, expected volatility and historical and projected performance. Significant changes to these inputs in isolation could result in a significantly different fair value measurement. The weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the contingent consideration from the acquisition of Rhythm Xience as of September 30, 2020 and December 31, 2019 were as follows:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
Risk-free interest rate
|
|
0.20%
|
|
|
1.60%
|
|
Expected term in years
|
|
1.0 - 2.0
|
|
|
1.0 - 2.0
|
|
Expected volatility
|
|
20.4%
|
|
|
11.8%
|
|
Stock-Based Compensation
The Company accounts for all stock-based payments to employees and non-employees, including grants of stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and restricted stock units with non-market performance and service conditions (“PSUs”) to be recognized in the condensed consolidated financial statements, based on their respective grant date fair values. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. The RSAs, RSUs and PSUs are valued based on the fair value of the Company’s common stock on the date of grant. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The Company expenses stock-based compensation related to stock options, RSAs and RSUs over the requisite service period. As the PSUs have a performance condition, compensation expense was recognized for each vesting tranche over the respective requisite service period of each tranche upon the IPO closing on August 10, 2020, when the Company’s management deemed it probable that the performance conditions were satisfied. The Company recognized a cumulative true-up adjustment related to PSUs once the conditions became probable of being satisfied as the related service period had been completed in a prior period. All stock-based compensation costs are recorded in cost of products sold, research and development expense or SG&A
15
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
expense in the condensed consolidated statements of operations and comprehensive loss based upon the respective employee’s or non-employee’s roles within the Company. Forfeitures are recorded as they occur. See “Note 16—Stock-Based Compensation” below.
Income Taxes
Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse, and net operating loss (“NOL”) carryforwards and research and development (“R&D”) tax credit carryforwards. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.
Warrant Liability
The Company accounted for certain common stock warrants and convertible preferred stock warrants outstanding as a liability, in accordance with ASC 815, Derivatives and Hedging (“ASC 815”), at fair value. This liability was subject to re-measurement at each reporting period and upon conversion to equity-classified warrants, and any change in fair value is recognized in the condensed consolidated statements of operations and comprehensive loss. In connection with the IPO on August 10, 2020, the common stock warrants and convertible preferred stock warrants that had been liability-classified, were automatically converted into an equal number of warrants to purchase common stock and became equity-classified. The fair value of the outstanding liability on the conversion date was reclassified to additional paid-in capital in the Company’s condensed consolidated balance sheet.
Asset Acquisitions (Research and Development—License Acquired)
The Company accounts for asset acquisitions, where substantially all of the fair value of the assets acquired is concentrated in a group of similar assets (i.e., intellectual property) and therefore the acquisitions do not constitute a business, in accordance with ASC 805, Business Combinations (“ASC 805”), under the asset acquisition method. Under the asset acquisition method of accounting, the Company is required to fair value the assets transferred. The cost of the assets acquired, including transaction costs, is allocated to the individual assets acquired based on their relative fair values and does not give rise to goodwill.
Business Combinations
The Company accounts for business acquisitions using the acquisition method of accounting based on ASC 805, which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s condensed consolidated statements of operations and comprehensive loss.
16
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Accounting Pronouncements to Be Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326). The ASU sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost, available-for-sale debt securities and applies to certain off-balance sheet credit exposures. This ASU is effective for smaller reporting companies in 2023. The Company is currently assessing the impact of the adoption of this ASU on its condensed consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU No. 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to transactions affected by reference rate reform if certain criteria are met. These transactions include: contract modifications, hedging relationships and sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made (i.e., as early as the first quarter 2020). Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to have been completed. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and has yet to elect an adoption date.
Note 3—Asset Acquisition and Business Combination
Biotronik Asset Acquisition
In July 2019, the Company entered into a License and Distribution Agreement with the Biotronik Parties to obtain certain licenses to the Biotronik Parties’ patents, whereby the Company acquired certain manufacturing equipment and obtained from the Biotronik Parties a license under certain patents and technology to develop, commercialize, distribute and manufacture the AcQBlate Force ablation catheters and Qubic Force device. In exchange for the rights granted to the Company, the Company made cash payments totaling $10.0 million during the year ended December 31, 2019, and issued 273,070 shares of Series D convertible preferred stock with an implied value of $5.0 million during the nine months ended September 30, 2020. The implied value of $5.0 million was recorded as an accrued liability as of December 31, 2019. In accordance with ASC 805, the Biotronik Asset Acquisition was accounted for as an asset acquisition as substantially all of the $15.0 million value transferred to Biotronik was allocated to intellectual property. On the acquisition date, the products licensed had not yet received regulatory approval and the intellectual property did not have an alternative use. Accordingly, the $15.0 million paid to Biotronik was immediately charged to research and development expense—licensed acquired in the condensed consolidated statement of operations and comprehensive loss in July 2019.
Additional contingent milestone payments of up to $10.0 million are to be made to the Biotronik Parties contingent upon certain regulatory approvals and first commercial sale. In further consideration of the rights granted, beginning with the Company’s first commercial sale of the first force sensing ablation catheter within the licensed product line, the Company will also make per unit royalty payments. The Company has determined that as of the acquisition date and as of September 30, 2020 and December 31, 2019, the contingent milestone and royalty payments are not probable and estimable and therefore have not been recorded as a liability. Upon regulatory approval of the Company’s force sensing ablation catheter in Europe, the milestone payments will be capitalized and amortized, and the royalty payments will be recorded as cost of products sold as sales of catheters are recognized.
Rhythm Xience Business Combination
On June 18, 2019 (the “Acquisition Date”), the Company acquired an integrated family of transseptal crossing and steerable introducer systems through its acquisition of Rhythm Xience for $3.0 million in cash in exchange for all of the stock of Rhythm
17
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Xience (the “Rhythm Xience Acquisition”). The cash payment did not include the potential $17.0 million in earn out consideration, of which $2.2 million was paid with the issuance of Series D convertible preferred stock in February 2020 and the remainder is to be paid based on the achievement of certain regulatory milestones and revenue milestones. In accordance with ASC 805, the Rhythm Xience Acquisition is accounted for as a business combination.
Purchase Price Allocation
The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed for the Rhythm Xience Acquisition (in thousands):
Accounts receivable, net
|
|
$
|
3
|
|
Prepaid expenses and other current assets
|
|
|
8
|
|
Property and equipment, net
|
|
|
3
|
|
Intangible assets
|
|
|
4,360
|
|
Goodwill
|
|
|
12,026
|
|
Contingent consideration
|
|
|
(13,400
|
)
|
Cash consideration
|
|
$
|
3,000
|
|
The Company recorded $12.0 million of goodwill that arose out of synergies from the Rhythm Xience Acquisition. The Company does not expect goodwill to be deductible for tax purposes.
As part of Rhythm Xience Acquisition, the Company recorded a contingent consideration liability for potential additional payments due to the sellers of Rhythm Xience if certain regulatory approval milestones and revenue milestones are achieved. The initial contingent consideration liability of $13.4 million was based on the fair value of the contingent consideration liability at the acquisition date. During the nine months ended September 30, 2020, the Company issued 119,993 shares of Series D convertible preferred stock and paid $2.6 million of the contingent consideration for the achievement of certain regulatory milestones and revenue milestones. Additionally, the Company recorded a $0.1 million and $0.7 million increase for the three months ended September 30, 2020 and 2019, respectively, and a $1.5 million decrease and a $0.7 million increase for the nine months ended September 30, 2020 and 2019, respectively, to the fair value of the contingent consideration liability which is included in change in fair value of contingent consideration in the condensed consolidated statement of operations and comprehensive loss. As of September 30, 2020, the contingent consideration liability of $7.6 million is the fair value of the remaining payments due to the sellers of Rhythm Xience if certain additional regulatory approval milestones and revenue milestones are achieved.
Note 4—Marketable Securities
Marketable securities consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
September 30, 2020 (unaudited)
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Available-for-sale securities - short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
31,459
|
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
31,455
|
|
U.S. treasury securities
|
|
|
14,362
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
14,361
|
|
Commercial paper
|
|
|
53,926
|
|
|
|
—
|
|
|
|
—
|
|
|
|
53,926
|
|
Total available-for-sale securities - short-term
|
|
|
99,747
|
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
99,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities, long-term
|
|
|
8,789
|
|
|
|
|
|
|
|
—
|
|
|
|
8,789
|
|
Total available-for-sale securities
|
|
$
|
108,536
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
108,531
|
|
18
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
December 31, 2019
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Available-for-sale securities - short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
28,204
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
28,224
|
|
Asset-backed securities
|
|
|
17,108
|
|
|
|
13
|
|
|
|
—
|
|
|
|
17,121
|
|
U.S. treasury securities
|
|
|
5,020
|
|
|
|
12
|
|
|
|
—
|
|
|
|
5,032
|
|
Commercial paper
|
|
|
11,974
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,974
|
|
Total available-for-sale securities
|
|
$
|
62,306
|
|
|
$
|
45
|
|
|
$
|
—
|
|
|
$
|
62,351
|
|
As of December 31, 2019, all of the Company’s available-for-sale securities mature in one year or less. As of September 30, 2020, the Company’s available-for-sale securities classified as short-term of $99.7 million mature in one year or less and the available-for-sale securities classified as long-term of $8.8 million mature within two years.
Note 5—Inventory
Inventory as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
Raw materials
|
|
$
|
5,980
|
|
|
$
|
5,492
|
|
Work in process
|
|
|
864
|
|
|
|
1,605
|
|
Finished goods
|
|
|
4,088
|
|
|
|
1,327
|
|
Total inventory
|
|
$
|
10,932
|
|
|
$
|
8,424
|
|
Note 6—Lessor Sales-Type Leases
The Company recognizes revenue and costs, as well as a lease receivable, at the time embedded sales-type leases within its deferred equipment agreements commence. Lease revenue related to sales-type leases for each of the three and nine months ended September 30, 2020 was $0.7 million and is included within revenue in the accompanying condensed consolidated statements of operations and comprehensive loss. There was no lease revenue for the three and nine months ended September 30, 2019. Costs related to embedded leases within the Company’s deferred equipment agreements are included in cost of products sold in the accompanying condensed consolidated statements of operations and comprehensive loss.
The Company has a short-term lease receivable of $0.3 million and a long-term lease receivable of $0.4 million included in prepaid expenses and other current assets and other assets, respectively, as of September 30, 2020. There was no lease receivable as of December 31, 2019.
As of September 30, 2020, estimated future maturities of customer sales-type lease receivables for each of the following years are as follows (in thousands):
Three months ending December 31, 2020
|
|
$
|
68
|
|
Year ending December 31, 2021
|
|
|
273
|
|
Year ending December 31, 2022
|
|
|
254
|
|
Year ending December 31, 2023
|
|
|
46
|
|
Year ending December 31, 2024
|
|
|
27
|
|
Lease receivable
|
|
$
|
668
|
|
19
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7—Property and Equipment, Net
The Company’s property and equipment, net, consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
Medical diagnostic equipment
|
|
$
|
10,155
|
|
|
$
|
5,492
|
|
Furniture and fixtures
|
|
|
388
|
|
|
|
159
|
|
Office equipment
|
|
|
1,391
|
|
|
|
1,321
|
|
Laboratory equipment and software
|
|
|
3,409
|
|
|
|
2,807
|
|
Leasehold improvements
|
|
|
600
|
|
|
|
507
|
|
Construction in process
|
|
|
141
|
|
|
|
306
|
|
Total property and equipment
|
|
|
16,084
|
|
|
|
10,592
|
|
Less: accumulated depreciation
|
|
|
(6,144
|
)
|
|
|
(6,165
|
)
|
Property and equipment, net
|
|
$
|
9,940
|
|
|
$
|
4,427
|
|
Property and equipment includes certain medical diagnostic equipment, AcQMap Systems, located at customer premises. The Company retains the ownership of the equipment and has the right to remove the equipment if it is not being used according to expectations.
Depreciation expense was $0.8 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively, and $1.8 million and $1.7 million for the nine months ended September 30, 2020 and 2019, respectively.
Note 8—Goodwill and Intangible Assets
The table below summarizes goodwill and intangible assets activities as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
Goodwill
|
|
|
Intangible
Assets
|
|
Balance at December 31, 2019
|
|
$
|
12,026
|
|
|
$
|
4,110
|
|
Amortization expense
|
|
|
—
|
|
|
|
(330
|
)
|
Balance at September 30, 2020 (unaudited)
|
|
$
|
12,026
|
|
|
$
|
3,780
|
|
|
|
Estimated
Useful
|
|
Weighted
Average
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
(in years)
|
|
Life
(in years)
|
|
|
Intangible
Assets
|
|
|
Accumulated
Amortization
|
|
|
September 30,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Developed technology
|
|
10
|
|
|
8.8
|
|
|
$
|
4,200
|
|
|
$
|
(495
|
)
|
|
$
|
3,705
|
|
Trademarks and trade names
|
|
0.5
|
|
—
|
|
|
|
60
|
|
|
|
(60
|
)
|
|
|
—
|
|
Customer-related intangible
|
|
5
|
|
3.75
|
|
|
|
100
|
|
|
|
(25
|
)
|
|
|
75
|
|
Total
|
|
|
|
|
|
|
|
$
|
4,360
|
|
|
$
|
(580
|
)
|
|
$
|
3,780
|
|
20
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
Estimated
Useful
|
|
Weighted
Average
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
(in years)
|
|
Life
(in years)
|
|
Intangible
Assets
|
|
|
Accumulated
Amortization
|
|
|
December 31,
2019
|
|
Developed technology
|
|
10
|
|
9.5
|
|
$
|
3,600
|
|
|
$
|
(180
|
)
|
|
$
|
3,420
|
|
In-process technology
|
|
indefinite
|
|
|
|
|
600
|
|
|
|
—
|
|
|
|
600
|
|
Trademarks and trade names
|
|
0.5
|
|
—
|
|
|
60
|
|
|
|
(60
|
)
|
|
|
—
|
|
Customer-related intangible
|
|
5
|
|
4.5
|
|
|
100
|
|
|
|
(10
|
)
|
|
|
90
|
|
Total
|
|
|
|
|
|
$
|
4,360
|
|
|
$
|
(250
|
)
|
|
$
|
4,110
|
|
Acquired in-process technology was classified as an indefinite-lived intangible asset until the receipt of FDA approval for the technology in January 2020. Once the FDA approval was received, the in-process technology was reclassified as developed technology and amortization began. The Company recorded amortization expense related to the above intangible assets of $0.1 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively, and $0.3 million and $0.1 million for the nine months ended September 30, 2020 and 2019, respectively.
The following table shows the remaining amortization expense associated with amortizable intangible assets as of September 30, 2020 (in thousands):
|
|
Developed
Technology
|
|
|
Customer-
Related
Intangible
|
|
|
Total
Amortization
|
|
Three months ending December 31, 2020
|
|
$
|
105
|
|
|
$
|
5
|
|
|
$
|
110
|
|
Year ending December 31, 2021
|
|
|
420
|
|
|
|
20
|
|
|
|
440
|
|
Year ending December 31, 2022
|
|
|
420
|
|
|
|
20
|
|
|
|
440
|
|
Year ending December 31, 2023
|
|
|
420
|
|
|
|
20
|
|
|
|
440
|
|
Year ending December 31, 2024
|
|
|
420
|
|
|
|
10
|
|
|
|
430
|
|
Thereafter
|
|
|
1,920
|
|
|
|
—
|
|
|
|
1,920
|
|
Total
|
|
$
|
3,705
|
|
|
$
|
75
|
|
|
$
|
3,780
|
|
Note 9—Accrued Liabilities
Accrued liabilities consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
Payroll and related expenses
|
|
$
|
5,083
|
|
|
$
|
3,785
|
|
Professional fees
|
|
|
290
|
|
|
|
188
|
|
Deferred revenue
|
|
|
290
|
|
|
|
311
|
|
Sales and use tax
|
|
|
140
|
|
|
|
151
|
|
Biotronik Asset Acquisition - accrued purchase price
|
|
|
—
|
|
|
|
5,000
|
|
Other
|
|
|
697
|
|
|
|
641
|
|
Total accrued liabilities
|
|
$
|
6,500
|
|
|
$
|
10,076
|
|
21
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 10—Debt
Outstanding debt as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
2019 Credit Agreement (1)
|
|
$
|
44,550
|
|
|
$
|
44,550
|
|
Total debt, gross
|
|
|
44,550
|
|
|
|
44,550
|
|
Less: Unamortized debt discount and fees
|
|
|
(5,788
|
)
|
|
|
(6,306
|
)
|
Total long-term debt
|
|
$
|
38,762
|
|
|
$
|
38,244
|
|
(1)
|
The 2019 Credit Agreement includes final payment fees of $4.6 million.
|
2019 Credit Agreement
On May 20, 2019, the Company entered into a Credit Agreement (the “2019 Credit Agreement”). The 2019 Credit Agreement provided the Company with a senior term loan facility in aggregate principal amount of $70.0 million, of which the Company borrowed $40.0 million upon closing. Of the remaining amount of the facility, $10.0 million was available for borrowing by the Company on or prior to June 30, 2020 and $20.0 million is available for borrowing by the Company on or prior to December 31, 2020, in each case subject to the achievement of specified trailing revenue levels. The Company did not achieve the trailing revenue levels to draw the $10.0 million by June 30, 2020 but the $20.0 million remains available for borrowing on or prior to December 31, 2020 if the specified trailing revenue levels are met. The 2019 Credit Agreement bears interest per annum at 7.75% plus LIBOR for such interest period and the principal amount of term loans outstanding under the 2019 Credit Agreement is due on May 20, 2024. The 2019 Credit Agreement provides for final payment fees of an additional $4.6 million that are due upon prepayment or on the maturity date or upon acceleration.
Upon the occurrence and during an event of default, which includes but is not limited to payment default, covenant default or the occurrence of a material adverse change, the lenders may declare all outstanding principal and accrued and unpaid interest immediately due and payable, all unfunded commitments would be terminated, there would be an increase in the applicable interest rate by 10.0% per annum, and the lenders would be entitled to exercise their other rights and remedies provided for under the 2019 Credit Agreement. Additionally, the lenders may request repayment of a portion of obligations outstanding under the 2019 Credit Agreement to the extent of the Company’s receipt of any (i) net casualty proceeds or (ii) net asset sales proceeds, as defined. These acceleration and early payment features are an embedded derivative that is separately measured from the loan host instrument and classified with the loan host instrument.
In connection with the issuance of the 2019 Credit Agreement, the Company issued liability-classified warrants with a fair value of $0.9 million to purchase 419,992 shares of Series C convertible preferred stock at $16.67 per share. These warrants were subsequently automatically converted into warrants to purchase an equal number of shares of the Company’s Series D convertible preferred stock at a price of $16.67 per share.
The initial recognition of the warrant liability and direct fees of $1.2 million and final payment fees of $4.6 million for the 2019 Credit Agreement resulted in a discount of $6.7 million, which is being amortized to interest expense over the term of the 2019 Credit Agreement using the effective interest method.
The Company’s obligations under the 2019 Credit Agreement are secured by substantially all of its assets, including its intellectual property, and is guaranteed by Acutus NV. The 2019 Credit Agreement contains customary affirmative and negative covenants, including with respect to the Company’s ability to enter into fundamental transactions, incur additional indebtedness, grant liens, pay any dividend or make any distributions to its holders, make investments and merge or consolidate with any other person or engage in transactions with its affiliates, but does not include any financial covenants, other than a minimum liquidity requirement. As of and for the nine months ended September 30, 2020 and 2019, the Company was in compliance with all such covenants.
2019 Convertible Notes
On May 20, 2019, the Company sold and issued $37.0 million in aggregate principal amount of convertible promissory notes (the “2019 Convertible Notes”). The 2019 Convertible Notes bore interest at 13% per annum and were due on December 31, 2019.
22
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The 2019 Convertible Notes, including accrued interest, automatically converted into preferred stock at the lowest price per share paid by a cash investor in a qualified equity financing of at least $23.0 million (excluding the principal of any debt that is cancelled or converted into preferred stock in the equity financing), which occurred on June 12, 2019. In accordance with ASC 480, Distinguishing Liabilities from Equity, the 2019 Convertible Notes were recorded as share-settled debt at fair value. As the 2019 Convertible Notes converted to Series D convertible preferred stock on June 12, 2019, the initial proceeds of $37.0 million is the fair value and the settlement value of the 2019 Convertible Notes.
Note 11—Operating Leases
The Company leases approximately 50,800 square feet of office space for its corporate headquarters and manufacturing facility in Carlsbad, California under a noncancelable operating lease that expires on December 31, 2022. The lease is subject to variable charges for common area maintenance and other costs that are determined annually based on actual costs. The base rent is subject to an annual increase each year. The Company has a renewal option for an additional five-year term upon the expiration date of the lease, which has been excluded from the calculation of the right-of-use asset as it is not reasonably certain to be exercised.
The Company also leases approximately 3,900 square feet of office space in Zaventem, Belgium under a noncancelable operating lease that expires on December 31. 2021. The lease is subject to variable charges that are determined annually for common area maintenance and other costs based on actual costs, and base rent is subject to an annual increase each year based on an index rate. The Company has a renewal option for an additional three-year term upon the expiration date of the lease, which has been included in the calculation of the right-of-use asset as it is reasonably certain to be exercised.
The following table summarizes quantitative information about the Company’s operating leases for the nine months ended September 30, 2020 and 2019 (dollars in thousands):
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
Operating cash flows from operating leases
|
|
$
|
760
|
|
|
$
|
725
|
|
Right-of-use assets exchanged for operating lease
liabilities
|
|
$
|
—
|
|
|
$
|
2,978
|
|
Weighted average remaining lease term – operating
leases (in years)
|
|
|
1.7
|
|
|
|
2.2
|
|
Weighted average discount rate – operating leases
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
The following table provides the components of the Company’s lease cost (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Operating leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
216
|
|
|
$
|
216
|
|
|
$
|
648
|
|
|
$
|
648
|
|
Variable lease cost
|
|
|
73
|
|
|
|
65
|
|
|
|
238
|
|
|
|
169
|
|
Total rent expense
|
|
$
|
289
|
|
|
$
|
281
|
|
|
$
|
886
|
|
|
$
|
817
|
|
23
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of September 30, 2020, future minimum payments under the non-cancelable operating leases under ASC 842 were as follows (in thousands):
Three months ending December 31, 2020
|
|
$
|
253
|
|
Year ending December 31, 2021
|
|
|
1,044
|
|
Year ending December 31, 2022
|
|
|
1,074
|
|
Year ending December 31, 2023
|
|
|
51
|
|
Year ending December 31, 2024
|
|
|
51
|
|
Total
|
|
|
2,473
|
|
Less: present value discount
|
|
|
(201
|
)
|
Operating lease liabilities
|
|
$
|
2,272
|
|
Note 12—Commitments and Contingencies
The Company is not a party to any material legal proceedings and is not aware of any pending or threatened claims. From time to time however, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities.
Note 13—Warrants
As of September 30, 2020 and December 31, 2019, the outstanding warrants to purchase the Company’s common stock were comprised of the following:
|
|
Equity Upon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
(After Conversion)
|
|
Exercise Price
|
|
|
Expiration Date
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Warrants issued in 2015
|
|
Common Stock
|
|
$
|
5.25
|
|
|
1/30/25
|
|
|
7,616
|
|
|
|
7,616
|
|
Warrants issued with 2018 Convertible Notes
|
|
Common Stock
|
|
$
|
0.10
|
|
|
6/7/28
|
|
|
501,946
|
|
|
|
501,946
|
|
Warrants issued with 2018 Term Loan
|
|
Common Stock
|
|
$
|
16.67
|
|
|
7/31/28
|
|
|
26,998
|
|
|
|
26,998
|
|
Warrants issued with 2019 Credit Agreement
|
|
Common Stock
|
|
$
|
16.67
|
|
|
5/20/29
|
|
|
419,992
|
|
|
|
419,992
|
|
Total Warrants
|
|
|
|
|
|
|
|
|
|
|
956,552
|
|
|
|
956,552
|
|
The Company has no warrant activity for the nine months ended September 30, 2020. The remaining weighted average contractual life is 7.7 years as of September 30, 2020.
Warrants Classified as Liabilities
During 2019, in connection with the Company’s entry into the 2019 Credit Agreement, the Company issued warrants to purchase 419,992 shares of its Series C convertible preferred stock with an exercise price of $16.67 per share. These warrants were subsequently automatically converted into warrants to purchase an equal number of shares of the Company’s Series D convertible preferred stock at a price of $16.67 per share. During 2018, in connection with the issuance of the 2018 Convertible Notes and the 2018 Term Loan, the Company issued ten-year warrants to purchase 501,946 shares of common stock with an exercise price of $0.10 per share and 26,998 shares of Series C convertible preferred stock with an exercise price of $16.67 per share, respectively. The warrants for Class C convertible preferred stock were subsequently automatically converted into warrants to purchase an equal number of shares of the Company’s Series D convertible preferred stock at a price of $16.67 per share. On August 10, 2020, in connection with the closing of the IPO, the warrants to purchase 446,990 shares of Series D convertible preferred stock were automatically converted to an equal number of warrants to purchase common stock at an exercise price of $16.67 per share.
24
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company’s warrants provide the holder the option to purchase a specified number of shares for a specified price. The holder may exercise the warrant in cash or exercise pursuant to a cashless exercise whereby a calculated number of shares are withheld upon exercise to satisfy the exercise price. The warrants do not provide the holder any voting rights until the warrants are exercised.
Prior to the IPO, in accordance with ASC 815, other than the warrants issued in 2015, the warrants were recorded as liabilities at fair value at the issuance date. Changes in the fair value were recognized in change in fair value of warrant liability and embedded derivative in the condensed consolidated statements of operations and comprehensive loss at the end of each reporting period. On August 10, 2020, in connection with the closing of the IPO, the warrants recorded as liabilities no longer met the definition of a derivative. Accordingly, the fair value of the common and preferred stock warrant liability of $14.5 million was reclassified to stockholders’ equity (deficit) in the condensed consolidated balance sheet.
Warrants Classified as Equity
In accordance with ASC 815, the warrants issued in 2015 do not meet the definition of a derivative and are classified in stockholders’ equity (deficit) in the condensed consolidated balance sheets.
Note 14—Convertible Preferred Stock
In February 2020, the Company issued 119,993 shares of its Series D convertible preferred stock with an implied value of $2.2 million in connection with a contingent consideration payment related to the Rhythm Xience Acquisition.
In February 2020, the Company issued 273,070 shares of its Series D convertible preferred stock with an implied value of $5.0 million for the stock issuance portion of the purchase consideration of the Biotronik Asset Acquisition.
On August 10, 2020, in connection with the closing of the IPO, all of the 391,210 shares of Series A, 3,088,444 shares of Series B, 4,499,921 shares of Series C and 8,593,360 shares of Series D convertible preferred stock, respectively, automatically converted into an equal number of shares of common stock.
Redemption
The convertible preferred stock was not unconditionally redeemable at the option of the holder thereof. However, the convertible preferred stock was contingently redeemable upon certain liquidation events. As redemption by the holders was not solely within the control of the Company, all of the outstanding convertible preferred stock was classified as temporary equity in the condensed consolidated balance sheets, prior to the conversion to common stock on August 10, 2020.
Dividends
The holders of shares of convertible preferred stock were entitled to receive dividends, out of any assets legally available therefore, prior and in preference to any declaration or payment of any dividend on the common stock of the Company, at the applicable dividend rate, payable on a pro rata, pari passu basis when, as and if declared by the Company’s board of directors. The dividend rate was $0.68 per annum for each share of Series A convertible preferred stock, $1.07 per annum for each share of Series B convertible preferred stock and $1.36 per annum for each share of Series C convertible preferred stock and Series D convertible preferred stock, as adjusted. The dividend rights were not cumulative.
Liquidation
The holders of the Series D convertible preferred stock were entitled to receive a liquidation preference prior to any distribution to the holders of Series A convertible preferred stock, Series B convertible preferred stock and Series C convertible preferred stock (collectively the “Junior Preferred Stock”) and the holders of common stock, in the amount of the original issue price plus declared but unpaid dividends on such shares (the “Series D Liquidation Preference”). The holders of the Junior Preferred Stock were entitled to receive a liquidation preference prior to any distribution to the holders of common stock, after payment of the Series D Liquidation Preference, in the amount of the applicable original issue price plus declared but unpaid dividends on such shares.
25
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Conversion
Each share of preferred stock was convertible, at the option of the holder thereof, at any time after the date of issuance of such share, into such number of fully paid and nonassessable shares of the Company’s common stock as was determined by dividing the original issue price, as adjusted, for such series by the applicable conversion price for such series in effect on the date the certificate is surrendered for conversion. The initial conversion price per share for each series of convertible preferred stock was the original issue price applicable to such series as follows:
Series
|
|
Conversion
Price
|
|
Series A convertible preferred stock
|
|
$
|
8.295
|
|
Series B convertible preferred stock
|
|
$
|
13.370
|
|
Series C convertible preferred stock
|
|
$
|
16.667
|
|
Series D convertible preferred stock
|
|
$
|
16.667
|
|
Each share of convertible preferred stock was automatically convertible into fully-paid, non-assessable shares of common stock at the conversion rate at the time in effect for such series of preferred stock immediately upon: (i) the date, or the occurrence of an event, specified by vote or written consent or agreement of the requisite investors; or (ii) the closing of the sale of shares of common stock to the public, at a price of at least $50.00 per share, as adjusted, in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $50.0 million of net proceeds to the Company. As noted above, on August 10, 2020, all shares of Series A, Series B, Series C and Series D convertible preferred stock were converted into common stock.
Note 15—Stockholders’ Equity (Deficit)
On August 10, 2020, the Company issued 10,147,058 shares of common stock in its IPO, which included 1,323,529 shares of common stock issued upon the underwriters’ exercise in full of an option to purchase, at the public offering price less underwriting discounts and commissions, up to an additional 1,323,529 shares. The price to the public for each share was $18.00. The Company received gross proceeds of $182.6 million from the IPO. Net of underwriting discounts and commission and other offering expenses, the Company received net proceeds of $166.3 million from the IPO.
On August 10, 2020, in connection with the closing of the IPO, the Company filed an amended and restated certificate of incorporation (the “A&R Certificate”) with the Secretary of State of the State of Delaware. The A&R Certificate amended and restated the Company’s authorized shares of common stock to 260,000,000 and authorized shares of undesignated preferred stock to 5,000,000.
As of December 31, 2019, the Company’s Amended and Restated Certificate of Incorporation authorized the issuance of 220,000,000 shares of common stock, $0.001 par value per share. Each share of common stock is entitled to one voting right. Common stock owners are entitled to dividends when funds are legally available and declared by the Board.
During the nine months ended September 30, 2020 and 2019, stock options to acquire 92,223 and 15,921 shares, respectively, were exercised for shares of common stock. The Company received approximately $0.4 million and $0.1 million for the exercise price of the stock options for the nine months ended September 30, 2020 and 2019, respectively.
Note 16—Stock-Based Compensation
2020 Equity Incentive Plan
The 2020 Equity Incentive Plan (“2020 Plan”) which permits the granting of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, performance shares and other equity-based awards to employees, directors and consultants became effective on August 5, 2020. As of September 30, 2020, 2,191,600 shares of common stock were authorized for issuance under the 2020 Plan and 1,101,996 shares remain available for issuance under the 2020 Plan.
2011 Equity Incentive Plan
The Company’s 2011 Equity Incentive Plan (the “2011 Plan”) permits the granting of incentive stock options, non-statutory stock options, restricted stock, restricted stock units and other stock-based awards to employees, directors, officers and consultants. As
26
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
of September 30, 2020, 2,823,333 shares of common stock were authorized for issuance under the 2011 Plan and no shares remain available for issuance under the 2011 Plan. No additional awards will be granted under the 2011 Plan. Shares that become available for issuance from the outstanding awards under the 2011 Plan due to forfeiture, or otherwise, will become available for issuance of future awards under the 2020 Plan.
Stock Options
The stock options generally vest over four years and have a ten-year contractual term. The fair value of each employee and non-employee stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Company became publicly traded in August 2020 and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a set of publicly traded peer companies. Due to the lack of historical exercise history, the expected term of the Company’s stock options has been determined using the “simplified” method for awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The following assumptions were used to estimate the fair value of stock option for the nine months ended September 30, 2020 and 2019:
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
Risk-free interest rate
|
|
0.4% - 0.9%
|
|
|
1.6% - 2.1%
|
|
Expected dividend yield
|
|
—
|
|
|
—
|
|
Expected term in years
|
|
|
7.0
|
|
|
6.4 - 10.0
|
|
Expected volatility
|
|
70% - 80%
|
|
|
80%
|
|
The following table summarizes stock option activity during the nine months ended September 30, 2020:
|
|
Stock
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in years)
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding as of December 31, 2019
|
|
|
2,041,205
|
|
|
$
|
9.52
|
|
|
|
7.7
|
|
|
$
|
7,857
|
|
Options granted
|
|
|
1,746,415
|
|
|
|
16.69
|
|
|
|
|
|
|
|
|
|
Option exercised
|
|
|
(139,597
|
)
|
|
|
7.24
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(231,678
|
)
|
|
|
11.91
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2020 (unaudited)
|
|
|
3,416,345
|
|
|
$
|
13.12
|
|
|
|
8.2
|
|
|
$
|
57,110
|
|
Options vested and exercisable as of September 30,
2020 (unaudited)
|
|
|
1,310,459
|
|
|
$
|
9.22
|
|
|
|
6.5
|
|
|
$
|
26,974
|
|
The aggregate intrinsic value in the above table is calculated as the difference between the fair value of the Company’s common stock as of September 30, 2020 and the exercise price of the stock options. The weighted average grant date fair value per share for the stock option awards granted during the nine months ended September 30, 2020 was $11.49. As of September 30, 2020, the total unrecognized compensation related to unvested stock option awards granted was $29.1 million, which the Company expects to recognize over a weighted average period of approximately 3.0 years.
Performance-Based Restricted Stock Units and Restricted Stock Units
In June 2019, the Company granted 567,509 PSUs, with a grant date fair value of $13.37. Vesting of the PSUs was dependent upon the satisfaction of both a service condition and a performance condition, which is an IPO or a change of control. The Company began recording compensation expense related to the PSUs upon the declaration of the Company’s IPO becoming effective on August 5, 2020, as the performance conditions were satisfied. The compensation expense was determined using the original grant date fair value and is being recognized over the remaining service period.
27
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company’s PSU and RSU activity for the nine months ended September 30, 2020 was as follows:
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant Price
|
|
Unvested as of December 31, 2019
|
|
|
567,509
|
|
|
$
|
13.37
|
|
Granted
|
|
|
215,846
|
|
|
|
18.35
|
|
Forfeited
|
|
|
(1,388
|
)
|
|
|
18.00
|
|
Vested
|
|
|
(285,375
|
)
|
|
|
13.37
|
|
Unvested as of September 30, 2020 (unaudited)
|
|
|
496,592
|
|
|
$
|
15.52
|
|
Restricted Stock
The Company’s RSA activity for the nine months ended September 30, 2020 was as follows:
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant Price
|
|
Unvested as of December 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
32,921
|
|
|
|
16.55
|
|
Vested
|
|
|
(32,921
|
)
|
|
|
16.55
|
|
Unvested as of September 30, 2020 (unaudited)
|
|
|
—
|
|
|
$
|
—
|
|
The following table summarizes the total stock-based compensation expense for the stock options, PSUs, RSUs and RSAs recorded in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019 (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Cost of products sold
|
|
$
|
126
|
|
|
$
|
56
|
|
|
$
|
292
|
|
|
$
|
162
|
|
Research and development
|
|
|
319
|
|
|
|
179
|
|
|
|
697
|
|
|
|
471
|
|
Selling, general and administrative
|
|
|
5,929
|
|
|
|
577
|
|
|
|
8,283
|
|
|
|
1,541
|
|
Total stock-based compensation
|
|
$
|
6,374
|
|
|
$
|
812
|
|
|
$
|
9,272
|
|
|
$
|
2,174
|
|
Employee Stock Purchase Plan
The 2020 Employee Stock Purchase Plan (“2020 ESPP”), which permits employees to purchase shares of the Company’s common stock, became effective on August 10, 2020 and 387,063 shares of common stock were authorized for sale under the 2020 ESPP. As of September 30, 2020, there were no purchase of shares under the 2020 ESPP.
28
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 17—Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per common share excludes the potential impact of the Company’s convertible preferred stock, common stock options and warrants because their effect would be anti-dilutive due to the Company’s net loss. Since the Company had a net loss in the periods presented, basic and diluted net loss per common share are the same.
The table below provides potentially dilutive securities not included in the calculation of the diluted net loss per common share because to do so would be anti-dilutive:
|
|
Nine Months Ended
September 30,
|
|
Shares issuable upon:
|
|
2020
|
|
|
2019
|
|
Conversion of Series A Preferred Stock
|
|
|
—
|
|
|
|
391,210
|
|
Conversion of Series B Preferred Stock
|
|
|
—
|
|
|
|
3,088,444
|
|
Conversion of Series C Preferred Stock
|
|
|
—
|
|
|
|
4,499,921
|
|
Conversion of Series D Preferred Stock
|
|
|
—
|
|
|
|
6,418,437
|
|
Exercise of stock options
|
|
|
3,416,345
|
|
|
|
1,751,616
|
|
Exercise of common stock warrants
|
|
|
956,552
|
|
|
|
509,562
|
|
Exercise of preferred stock warrants
|
|
|
—
|
|
|
|
446,990
|
|
Vesting of PSUs and RSUs
|
|
|
496,592
|
|
|
|
—
|
|
Total
|
|
|
4,869,489
|
|
|
|
17,106,180
|
|
For the nine months ended September 30, 2019, the PSUs are not included in the above table as awards with performance conditions are not included in the calculation of diluted earnings per share until the performance conditions for the PSU are considered probable.
Note 18—401(k) Retirement Plan
The Company has a 401(k) retirement savings plan that provides retirement benefits to substantially all full-time U.S. employees. Eligible employees may contribute a percentage of their annual compensation, subject to Internal Revenue Service limitations. The Company did not provide any contributions to the 401(k) retirement savings plan for the nine months ended September 30, 2020 and 2019.
Note 19—Related Party Transactions
The Company licenses certain patent rights from a former director and shareholder. The license agreement provides for royalty payments to the shareholder of 3% of net product sales, as defined in the agreement. Royalties earned prior to the director’s resignation were $22,000 and $10,000 for the three months ended September 30, 2020 and 2019, respectively, and $61,000 and $32,000 for the nine months ended September 30, 2020 and 2019, respectively. Additionally, the former director and shareholder also works for one of the Company’s customers and can significantly influence the customer to purchase the Company’s product. Prior to the director’s resignation, the Company recorded sales to this customer of $8,000 and $50,000 for the three months ended September 30, 2020 and 2019, respectively, and $0.5 million and $0.2 million for the nine months ended September 30, 2020 and 2019, respectively.
The Company has a consulting agreement with a director and chairman of the Company’s board of directors. The Company recorded $55,000 and $81,000 for the three months ended September 30, 2020 and 2019, respectively, and $0.1 million and $0.2 million for the nine months ended September 30, 2020 and 2019, respectively, in SG&A expense in the condensed consolidated statements of operations and comprehensive loss, for the consulting services. With the completion of the IPO, the performance condition was satisfied for certain performance stock units granted to the director and chairman of the Company’s board of directors. The Company recorded $4.0 million of stock-based compensation expense for these awards for the three and nine months ended September 30, 2020 in SG&A expense in the condensed consolidated statements of operations and comprehensive loss.
29
Acutus Medical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company had a consulting agreement with an officer of the Company in the prior year. The Company recorded $93,000 for the three months ended September 30, 2019, and $0.3 million for the nine months ended September 30, 2019 in SG&A expense in the condensed consolidated statements of operations and comprehensive loss, for the consulting services.
The Company had a consulting arrangement with a current director and officer of the Company, prior to his full-time employment. The Company recorded $0.2 million and $0.4 million for the three and nine months ended September 30, 2019, respectively, in SG&A expense in the condensed consolidated statements of operations and comprehensive loss, for the consulting services.
Multiple preferred stock shareholders entered into the 2018 and 2019 Convertible Notes that also contained detached warrants. Additionally, Orbimed Royalty Opportunities II, LP and Deerfield Private Design Fund II, L.P. entered into the 2019 Credit Agreement with the Company in 2019 for a total of $70.0 million, with $40.0 million being drawn as of September 30, 2020. The Company recorded $1.4 million and $1.4 million for the three months ended September 30, 2020 and 2019, respectively, and $4.1 million and $2.1 million for the nine months ended September 30, 2020 and 2019, respectively, in interest expense related to these debt agreements.
30