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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2021

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: 001-39293

 

Inari Medical, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

45-2902923

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

9 Parker, Suite 100

Irvine, California

92618

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (877) 923-4747

 

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, $0.001 par value per share

 

NARI

 

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, 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 August 6, 2021, the registrant had 49,928,519 shares of common stock, $0.001 par value per share, outstanding.

 

 


Table of Contents

 

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

2

 

Condensed Consolidated Statements of Mezzanine Equity and Stockholders’ Equity (Deficit)

3

Condensed Consolidated Statements of Cash Flows

4

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

31

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

32

Item 6.

Exhibits

33

Signatures

34

 

i


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” "can," “will,” “would,” “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. All statements other than statements of historical facts contained in this Quarterly Report, including without limitation statements regarding our business model and strategic plans for our products, technologies and business, including our implementation thereof, the impact on our business, financial condition and results of operations from the ongoing and global COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, the timing of and our ability to obtain and maintain regulatory approvals, our commercialization, marketing and manufacturing capabilities and strategy, our expectations about the commercial success and market acceptance of our products, the sufficiency of our cash, cash equivalents and short-term investments, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements.

 

The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties, and assumptions, including those described under the sections in this Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

 

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon these forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. 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. We intend the forward-looking statements contained in this Quarterly Report 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”).

 

 

 

ii


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited).

Inari Medical, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share data and par value)

(unaudited)

 

 

June 30,
2021

 

 

December 31,
2020

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

91,322

 

 

$

114,229

 

Restricted cash

 

 

 

 

 

50

 

Short-term investments

 

 

84,744

 

 

 

49,981

 

Accounts receivable, net

 

 

31,497

 

 

 

28,008

 

Inventories, net

 

 

18,112

 

 

 

10,597

 

Prepaid expenses and other current assets

 

 

2,497

 

 

 

2,808

 

Total current assets

 

 

228,172

 

 

 

205,673

 

Property and equipment, net

 

 

10,827

 

 

 

7,498

 

Restricted cash

 

 

 

 

 

338

 

Operating lease right-of-use assets

 

 

868

 

 

 

 

Deposits and other assets

 

 

13,692

 

 

 

583

 

Total assets

 

$

253,559

 

 

$

214,092

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

 

10,319

 

 

 

3,047

 

Payroll-related accruals

 

 

16,041

 

 

 

8,198

 

Accrued expenses and other current liabilities

 

 

4,429

 

 

 

2,593

 

Operating lease liabilities, current portion

 

 

793

 

 

 

 

Total current liabilities

 

 

31,582

 

 

 

13,838

 

Operating lease liabilities, noncurrent portion

 

 

156

 

 

 

 

Total liabilities

 

 

31,738

 

 

 

13,838

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares
   issued and outstanding as of June 30, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, $0.001 par value, 300,000,000 shares
   authorized as of June 30, 2021 and December 31, 2020;
49,828,829 
   and
49,251,614 shares issued and outstanding as of June 30, 2021 and
   December 31, 2020, respectively

 

 

50

 

 

 

49

 

Additional paid in capital

 

 

237,764

 

 

 

227,624

 

Accumulated other comprehensive (loss) income

 

 

(107

)

 

 

4

 

Accumulated deficit

 

 

(15,886

)

 

 

(27,423

)

Total stockholders' equity

 

 

221,821

 

 

 

200,254

 

Total liabilities and stockholders' equity

 

$

253,559

 

 

$

214,092

 

 

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

1


 

Inari Medical, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$

63,453

 

 

$

25,392

 

 

$

120,850

 

 

$

52,345

 

Cost of goods sold

 

 

4,814

 

 

 

3,487

 

 

 

9,437

 

 

 

6,193

 

Gross profit

 

 

58,639

 

 

 

21,905

 

 

 

111,413

 

 

 

46,152

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

11,630

 

 

 

3,628

 

 

 

19,793

 

 

 

6,646

 

Selling, general and administrative

 

 

42,897

 

 

 

18,880

 

 

 

79,795

 

 

 

35,273

 

Total operating expenses

 

 

54,527

 

 

 

22,508

 

 

 

99,588

 

 

 

41,919

 

Income (loss) from operations

 

 

4,112

 

 

 

(603

)

 

 

11,825

 

 

 

4,233

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

35

 

 

 

146

 

 

 

103

 

 

 

201

 

Interest expense

 

 

(74

)

 

 

(463

)

 

 

(147

)

 

 

(809

)

Change in fair value of warrant liabilities

 

 

 

 

 

(2,884

)

 

 

 

 

 

(3,317

)

Other income (expense)

 

 

7

 

 

 

 

 

 

(34

)

 

 

 

Total other expenses

 

 

(32

)

 

 

(3,201

)

 

 

(78

)

 

 

(3,925

)

Income (loss) before income taxes

 

 

4,080

 

 

 

(3,804

)

 

 

11,747

 

 

 

308

 

Provision for income taxes

 

 

12

 

 

 

 

 

 

210

 

 

 

 

Net income (loss)

 

$

4,068

 

 

$

(3,804

)

 

$

11,537

 

 

$

308

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

57

 

 

 

 

 

 

(123

)

 

 

 

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

 

 

(6

)

 

 

 

 

 

12

 

 

 

 

Total other comprehensive income (loss)

 

 

51

 

 

 

 

 

 

(111

)

 

 

 

Comprehensive income (loss)

 

$

4,119

 

 

$

(3,804

)

 

$

11,426

 

 

$

308

 

Net income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.08

 

 

$

(0.16

)

 

$

0.23

 

 

$

0.02

 

Diluted

 

$

0.07

 

 

$

(0.16

)

 

$

0.21

 

 

$

0.01

 

Weighted average common shares used to compute net
      income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

49,669,652

 

 

 

24,295,900

 

 

 

49,512,800

 

 

 

15,339,755

 

Diluted

 

 

55,595,016

 

 

 

24,295,900

 

 

 

55,665,193

 

 

 

47,362,292

 

 

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

2


 

Inari Medical, Inc.

Condensed Consolidated Statements of Mezzanine Equity and Stockholders’ Equity (Deficit)

(in thousands, except share data)

(unaudited)

 

 

 

Redeemable Convertible
Preferred Stock

 

 

Common Stock

 

 

Additional Paid In

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2020

 

 

 

 

 

 

 

 

49,251,614

 

 

$

49

 

 

$

227,624

 

 

$

4

 

 

$

(27,423

)

 

$

200,254

 

Options exercised for
  common stock

 

 

 

 

 

 

 

 

296,019

 

 

 

1

 

 

 

380

 

 

 

 

 

 

 

 

 

381

 

Issuance of common stock under
  employee stock purchase plan

 

 

 

 

 

 

 

 

36,881

 

 

 

 

 

 

1,882

 

 

 

 

 

 

 

 

 

1,882

 

Issuance of common stock
  upon vesting of restricted
  stock units, net of shares
  withheld for taxes

 

 

 

 

 

 

 

 

901

 

 

 

 

 

 

(49

)

 

 

 

 

 

 

 

 

(49

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,836

 

 

 

 

 

 

 

 

 

3,836

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(162

)

 

 

 

 

 

(162

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,469

 

 

 

7,469

 

Balance, March 31, 2021

 

 

 

 

 

 

 

 

49,585,415

 

 

 

50

 

 

 

233,673

 

 

 

(158

)

 

 

(19,954

)

 

 

213,611

 

Options exercised for
  common stock

 

 

 

 

 

 

 

 

213,605

 

 

 

 

 

 

193

 

 

 

 

 

 

 

 

 

193

 

Issuance of common stock
  upon vesting of restricted
  stock units, net of shares
  withheld for taxes

 

 

 

 

 

 

 

 

29,809

 

 

 

 

 

 

(706

)

 

 

 

 

 

 

 

 

(706

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,604

 

 

 

 

 

 

 

 

 

4,604

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51

 

 

 

 

 

 

51

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,068

 

 

 

4,068

 

Balance, June 30, 2021

 

 

 

 

 

 

 

 

49,828,829

 

 

$

50

 

 

$

237,764

 

 

$

(107

)

 

$

(15,886

)

 

$

221,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

31,968,570

 

 

$

54,170

 

 

 

6,720,767

 

 

$

7

 

 

$

2,061

 

 

$

 

 

$

(41,212

)

 

 

(39,144

)

Options exercised for
  common stock

 

 

 

 

 

 

 

 

58,498

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

22

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

495

 

 

 

 

 

 

 

 

 

495

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,112

 

 

 

4,112

 

Balance, March 31, 2020

 

 

31,968,570

 

 

 

54,170

 

 

 

6,779,265

 

 

 

7

 

 

 

2,578

 

 

 

 

 

 

(37,100

)

 

 

(34,515

)

Conversion of preferred stock
  to common stock upon
  initial public offering

 

 

(31,968,570

)

 

 

(54,170

)

 

 

31,968,570

 

 

 

32

 

 

 

54,138

 

 

 

 

 

 

 

 

 

54,170

 

Issuance of common stock in
  connection with initial
  public offering, net of
  issuance costs of $16.3 million

 

 

 

 

 

 

 

 

9,432,949

 

 

 

9

 

 

 

162,970

 

 

 

 

 

 

 

 

 

162,979

 

Conversion and
  reclassification of preferred
  stock warrants to common
  stock warrants upon initial
  public offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,486

 

 

 

 

 

 

 

 

 

4,486

 

Exercise of common stock
  warrants

 

 

 

 

 

 

 

 

102,533

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Options exercised for
  common stock

 

 

 

 

 

 

 

 

76,764

 

 

 

 

 

 

45

 

 

 

 

 

 

 

 

 

45

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

505

 

 

 

 

 

 

 

 

 

505

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,804

)

 

 

(3,804

)

Balance, June 30, 2020

 

 

 

 

$

 

 

 

48,360,081

 

 

$

48

 

 

$

224,726

 

 

$

 

 

$

(40,904

)

 

$

183,870

 

 

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

 

3


 

Inari Medical, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

11,537

 

 

$

308

 

Adjustments to reconcile net income to net cash provided by
  (used in) operating activities:

 

 

 

 

 

 

Depreciation

 

 

1,288

 

 

 

573

 

Amortization of deferred financing costs

 

 

76

 

 

 

113

 

Amortization of right-of-use assets

 

 

357

 

 

 

 

Share based compensation expense

 

 

8,440

 

 

 

1,000

 

Provision for doubtful accounts

 

 

(22

)

 

 

84

 

Loss on change in fair value of warrant liabilities

 

 

-

 

 

 

3,317

 

Changes in:

 

 

 

 

 

 

Accounts receivable

 

 

(3,470

)

 

 

(4,174

)

Inventories

 

 

(7,523

)

 

 

(1,667

)

Prepaid expenses, deposits and other assets

 

 

(11,306

)

 

 

(3,391

)

Accounts payable

 

 

7,276

 

 

 

(255

)

Payroll-related accruals, accrued expenses and other liabilities

 

 

9,796

 

 

 

2,287

 

Operating lease liabilities

 

 

(381

)

 

 

 

Net cash provided by (used in) operating activities

 

 

16,068

 

 

 

(1,805

)

Cash flows from investing activities

 

 

 

 

 

 

Purchase of property and equipment

 

 

(6,186

)

 

 

(1,418

)

Purchase of short-term investments

 

 

(84,751

)

 

 

 

Maturity of short-term investments

 

 

50,000

 

 

 

 

Net cash used in investing activities

 

 

(40,937

)

 

 

(1,418

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock upon initial public offering,
  net of issuance costs paid

 

 

 

 

 

164,361

 

Proceeds from notes payable

 

 

 

 

 

10,000

 

Debt financing costs

 

 

 

 

 

(12

)

Proceeds from issuance of common stock under employee stock purchase plan

 

 

1,882

 

 

 

-

 

Proceeds from exercise of stock options

 

 

573

 

 

 

67

 

Proceeds from exercise of warrants

 

 

 

 

 

4

 

Payment of taxes related to vested restricted stock units

 

 

(755

)

 

 

 

Net cash provided by financing activities

 

 

1,700

 

 

 

174,420

 

Effect of foreign exchange rate on cash and cash equivalents

 

 

(126

)

 

 

 

Net (decrease) increase in cash

 

 

(23,295

)

 

 

171,197

 

Cash, cash equivalents and restricted cash beginning of period

 

 

114,617

 

 

 

24,027

 

Cash, cash equivalents and restricted cash end of period

 

$

91,322

 

 

$

195,224

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid for income taxes

 

$

158

 

 

$

81

 

Cash paid for interest

 

$

76

 

 

$

618

 

Noncash investing and financing:

 

 

 

 

 

 

Common stock issued on conversion of convertible preferred stock

 

$

 

 

$

54,170

 

Common stock warrants issued on conversion of preferred stock warrants and the
  reclassification of the warrant liability

 

$

 

 

$

4,486

 

Deferred initial public offering cost recorded to additional paid in capital

 

$

 

 

$

1,382

 

Accrual of deferred interest obligation associated with debt

 

$

 

 

$

100

 

 

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

 

 

4


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Organization

Description of Business

Inari Medical, Inc. (the “Company”) was incorporated in Delaware in July 2011 and is headquartered in Irvine, California. The Company develops, manufactures, markets and sells devices for the interventional treatment of venous diseases.

Initial Public Offering

In May 2020, the Company completed an initial public offering (“IPO”) of its common stock. As part of the IPO, the Company issued and sold 9,432,949 shares of its common stock, which included 1,230,384 shares sold pursuant to the exercise of the underwriters’ over-allotment option, at a public offering price of $19.00 per share. The Company received net proceeds of approximately $163.0 million from the IPO, after deducting underwriters’ discounts and commissions of $12.6 million and offering costs of $3.7 million, of which $1.4 million was incurred as of December 31, 2019. Upon the completion of the IPO, all shares of Series A, B, and C redeemable convertible preferred stock then outstanding were converted into 31,968,570 shares of common stock on a one-to-one basis.

In addition, on the completion of the IPO, all the Company’s outstanding preferred stock warrants were converted into warrants to purchase an aggregate of 256,588 shares of common stock, which resulted in the reclassification of the convertible preferred stock warrant liability to additional paid-in capital.

In connection with the Company’s IPO, in May 2020, the Company’s certificate of incorporation was amended and restated to provide for 300,000,000 authorized shares of common stock with a par value of $0.001 per share and 10,000,000 authorized shares of preferred stock with a par value of $0.001 per share.

2. Summary of Significant Accounting Policies

COVID-19 and the Act

The global healthcare system continues to face an unprecedented challenge as a result of the novel coronavirus, or COVID-19, situation and its impact. COVID-19 is having, and may continue to have, an adverse impact on significant aspects of the Company and the business, including the demand for products, business operations, and the ability to research and develop and bring to market new products and services. The business was most acutely affected by a decline in procedural volumes during the first and second quarter of 2020, and the results for the first half of 2021 reflect some recovery from these declines the Company experienced in the first half of 2020 as a result of COVID-19. However, with cases continuing to resurge in certain areas, and hospitals at capacity in some instances due to non-COVID-19 treatments, to the extent individuals and hospital systems de-prioritize, delay or cancel deferrable medical procedures, the Company’s business, cash flows, financial condition and results of operations may continue to be negatively affected.

COVID-19 has strained hospital systems around the world, resulting in adverse financial impacts to those systems, which has resulted in and may continue to result in reduced expenditures for the Company’s products. Additionally, COVID-19’s impact on our customers may adversely affect the collectability of the Company’s current and future accounts receivable balance.

The Company continues to actively monitor the COVID-19 situation and its impact. In response to the pandemic, in March 2020 in the United States, governmental authorities recommended, and in certain cases required, that elective, specialty and other procedures and appointments, be suspended or canceled. Similarly, in March 2020, the governor of California, where the Company’s headquarters are located, issued “stay at home” orders limiting non-essential activities, travel and business operations. Such orders or restrictions significantly decreased the number of procedures performed using the Company’s products during March and April 2020 and otherwise negatively impacted operations.

In response to the impact of COVID-19, the Company implemented a variety of measures to help manage through the impact and position it to resume operations quickly and efficiently once these restrictions were lifted. The Company continues to focus its efforts on the health and safety of patients, healthcare providers and employees, while executing its mission of transforming lives of venous thromboembolism ("VTE") patients. However, the Company expects the COVID-19 pandemic may continue to negatively impact 2021 performance.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 ("the Act"), was enacted on December 27, 2020. It was a response to continued market volatility and instability resulting from COVID-19 and includes provisions to support businesses in the form of loans, grants, and tax changes, among other types of relief. The Company has reviewed and incorporated the income tax changes included in the Act, including the deductibility of meals expenses previously not deductible for tax purposes. We do not believe there

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Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

will be a material effect on the Company’s income tax provision. The Company currently does not expect to apply for loans or grants expanded by the Act.

Basis of Presentation of Unaudited Interim Condensed Consolidated Financial Statements

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain prior year reported amounts have been reclassified to conform with the 2021 presentation.

The interim condensed consolidated balance sheet as of June 30, 2021, the condensed consolidated statements of operations and comprehensive income (loss), mezzanine equity and stockholders’ deficit, and cash flows for the three and six months ended June 30, 2021 and 2020 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s consolidated financial position as of June 30, 2021 and its consolidated results of operations and cash flows for the three and six months ended June 30, 2021 and 2020. The financial data and the other financial information disclosed in the notes to the condensed consolidated financial statements related to the three and six months periods are also unaudited. The condensed consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date. These interim condensed consolidated financial statements should be read in conjunction with our audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed on March 9, 2021.

Principles of Consolidation

In May 2020, the Company formed Inari Medical International, Inc., a wholly-owned subsidiary incorporated in Delaware. In September 2020, the Company formed Inari Medical Europe, GmbH, a wholly-owned subsidiary of Inari Medical International, Inc. organized in Switzerland. All intercompany balances and transactions have been eliminated in consolidation.

Management Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions made in the accompanying financial statements include, but are not limited to the collectability of receivables, the valuation of inventory, the fair value of common stock warrants, the fair value of preferred stock warrant liabilities, the fair value of stock options, recoverability of the Company’s net deferred tax assets and related valuation allowance, and certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.

JOBS Act Accounting Election

As an emerging growth company under the Jumpstart Our Business Startups Act of 2012 ("the JOBS Act"), the Company is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company has elected to take advantage of the extended transition period for adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies. However, we will no longer qualify as an emerging growth company as of December 31, 2021 and will no longer be able to take advantage of the extended transition period. Therefore, as of December 31, 2021, we will be required to adopt new or revised accounting standards when they are applicable to public companies that are not emerging growth companies.

Cash, Cash Equivalents and Restricted Cash

The Company considers cash on hand, cash in demand deposit accounts including money market funds, and instruments with maturity date of 90 days or less at date of purchase to be cash equivalents. The Company maintains its cash, cash equivalent and restricted cash balances with banks. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, deposits of up to

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Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

$250,000 at FDIC-insured institutions are covered by FDIC insurance. At times, deposits may be in excess of the FDIC insurance limit; however, management does not believe the Company is exposed to any significant related credit risk.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (in thousands):

 

 

 

June 30,
2021

 

 

December 31,
2020

 

Cash and cash equivalents

 

$

91,322

 

 

$

114,229

 

Restricted cash

 

 

 

 

 

388

 

Total cash, cash equivalent and restricted cash

 

$

91,322

 

 

$

114,617

 

Restricted cash as of December 31, 2020 consisted of a cash secured letter of credit in the amount of $338,000 representing collateral for the Company’s facility lease and a compensating balance of $50,000 to secure the Company’s corporate purchasing cards. In February 2021, the Company cancelled both the cash secured letter of credit and corporate purchasing card program and moved them both to its current bank, with no required cash security. Accordingly, as of June 30, 2021, the Company had no restricted cash.

Short-Term Investments

Short-term investments have been classified as available-for-sale and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. The Company determines the appropriate classification of its investments in debt securities at the time of purchase. Available-for-sale securities with original maturities less than 12 months at the date of purchase are considered short-term investments.

Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive income (loss). The Company periodically evaluates whether declines in fair values of its marketable securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on marketable securities are included in other income (expenses), net on the condensed consolidated statements of operations. The cost of investments sold is based on the specific-identification method. Interest on marketable securities is included in interest income.

Accounts Receivable, net

Trade accounts receivable are recorded at the invoiced amount, net of any allowance for doubtful accounts. Any allowance for doubtful accounts, which is included in selling, general and administrative (“SG&A”) expenses, is developed based upon several factors including the customers’ credit quality, historical write-off experience and any known specific issues or disputes which exist as of the balance sheet date. Accounts receivable balances are written off against the allowance after appropriate collection efforts are exhausted. The allowance for doubtful accounts was $40,000 and $62,000 as of June 30, 2021 and December 31, 2020, respectively, and no accounts receivable write-offs were recognized during the three and six months ended June 30, 2021 and 2020. Despite the Company’s efforts to minimize credit risk exposure, customers could be adversely affected if future economic and industry trends, including those related to COVID-19, change in such a manner as to negatively impact their cash flows. The full effects of COVID-19 on the Company’s customers are highly uncertain and cannot be predicted. As a result, the Company’s future collection experience can differ significantly from historical collection trends. If the Company’s clients experience a negative impact on their cash flows, it could have a material adverse effect on the Company’s results of operations and financial condition.

Inventories, net

The Company values inventory at the lower of the actual cost to purchase or manufacture the inventory or net realizable value for such inventory. Cost, which includes material, labor and overhead costs, is determined on the first-in, first-out method ("FIFO"). The Company regularly reviews inventory quantities in process and on hand, and when appropriate, records a provision for obsolete and excess inventory. The Company writes down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected requirements based on future demand and as compared to remaining shelf life. The estimate of excess quantities is subjective and primarily dependent on the Company’s estimates of future demand for a particular product. If the estimate of future demand is inaccurate based on actual sales, the Company may increase the write down for

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Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

excess inventory for that component and record a charge to inventory impairment in the accompanying condensed consolidated statement of operations and comprehensive income (loss).

Property and Equipment

Property and equipment are stated at cost. Additions and improvements that extend the lives of the assets are capitalized while expenditures for repairs and maintenance are expensed as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, ranging from three to seven years. Leasehold improvements are depreciated over the shorter of the useful lives of the improvements or the lease term, including renewal periods that are reasonably assured.

Upon sale or disposition of property and equipment, any gain or loss is included in the accompanying condensed consolidated statement of operations.

Right-of-use Assets and Lease Liabilities

We determine if an arrangement contains a lease at inception and determine the classification of the lease, as either operating or finance, at commencement.

Right-of-use assets and lease liabilities are recorded based on the present value of future lease payments which factors in certain qualifying initial direct costs incurred as well as any lease incentives received. If an implicit rate is not readily determinable, we utilize inputs from third-party lenders to determine the appropriate discount rate. Lease expense for operating lease payments are recognized on a straight-line basis over the lease term. Lease terms may factor in options to extend or terminate the lease.

We adhere to the short-term lease recognition exemption for all classes of assets (i.e. facilities and equipment). As a result, leases with an initial term of twelve months or less are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. In addition, for certain equipment leases, we account for lease and non-lease components, such as services, as a single lease component as permitted.

Impairment of Long-lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount to the future net undiscounted cash flows which the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the assets. The Company has not identified any such impairment losses to date.

Fair Value of Financial Instruments

The Company’s cash, cash equivalents and restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their liquidity or short maturities.

The Company measures and records certain financial assets and liabilities at fair value on a recurring basis. U.S. GAAP provides a fair value hierarchy that distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels.

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

See Note 3 for further information.

Convertible Preferred Stock Warrant Liability

The Company accounted for its freestanding warrants to purchase shares of the Company’s convertible preferred stock as liabilities at fair value upon issuance primarily because the preferred shares underlying the warrants contained contingent redemption

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Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

features outside the control of the Company. The warrants were subject to remeasurement at each balance sheet date and any change in fair value was recognized as the change in fair value of warrant liability and included as a component of other income (expense) in the condensed consolidated statements of operations and comprehensive income (loss). The carrying value of the warrants continued to be adjusted until the completion of the IPO, which occurred in May 2020. At that time, the preferred stock warrant liability was adjusted to fair value and reclassified to additional paid-in capital, a component of stockholders’ equity (deficit) (see Note 3).

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that 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.

Product sales of the FlowTriever and ClotTriever systems are made to hospitals primarily in the United States utilizing the Company’s direct sales force. Revenue is comprised of product revenue net of returns, administration fees and sales rebates.

Performance Obligation—The Company has revenue arrangements that consist of a single performance obligation, delivery of the Company’s products. The satisfaction of this performance obligation occurs with the transfer of control of the Company’s product to its customers, either upon shipment or delivery of the product.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. The amount of revenue that is recognized is based on the transaction price, which represents the invoiced amount and includes estimates of variable consideration such as rebate and administrative fees, where applicable. The Company provides a 30-day unconditional right of return period. The Company establishes estimated provisions for returns at the time of sale based on historical experience. Historically, the actual product returns have been immaterial to the Company’s financial statements.

Assuming all other revenue recognition criteria have been met, the Company recognizes revenue for arrangements where the Company has satisfied its performance obligation of shipping or delivering the product. For sales where the Company’s sales representatives hand deliver products directly to the hospital, control of the products transfers to the customer upon such hand delivery. For sales where products are shipped, control of the products transfers either upon shipment or delivery of the products to the customer, depending on the shipping terms and conditions. As of June 30, 2021 and December 31, 2020, the Company recorded $335,000 and $498,000, respectively, of unbilled receivables, which are included in accounts receivable, net, in the accompanying condensed consolidated balance sheets.

Revenue for ClotTriever and FlowTriever products as a percentage of total revenue was derived as follow:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ClotTriever

 

 

33

%

 

 

40

%

 

 

34

%

 

 

38

%

FlowTriever

 

 

67

%

 

 

60

%

 

 

66

%

 

 

62

%

 

The Company offers payment terms to its customers of less than three months and these terms do not include a significant financing component. The Company excludes taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price.

The Company offers its standard warranty to all customers. The Company does not sell any warranties on a standalone basis. The Company’s warranty provides that its products are free of material defects and conform to specifications, and includes an offer to repair, replace or refund the purchase price of defective products. This assurance does not constitute a service and is not considered a separate performance obligation. The Company estimates warranty liabilities at the time of revenue recognition and records it as a charge to cost of goods sold.

Costs associated with product sales include commissions and are recorded in SG&A expenses. The Company applies the practical expedient and recognizes commissions as an expense when incurred because the amortization period is less than one year.

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Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Cost of Goods Sold

Cost of goods sold consists primarily of the cost of raw materials, components, direct labor and manufacturing overhead. Overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management, including stock-based compensation. Cost of goods sold also includes depreciation expense for production equipment and certain direct costs such as shipping costs and royalty expense.

Shipping Costs

Shipping costs billed to customers are not included in revenue and are reported as a reduction of costs of goods sold.

Advertising Costs

Advertising costs are charged to operations as incurred. Advertising costs were $74,000 and $74,000 for the three months ended June 30, 2021 and 2020, and $145,000 and $111,000 for the six months ended June 30, 2021 and 2020, respectively. Advertising costs are included in SG&A expenses in the accompanying condensed consolidated statements of operations.

Research and Development

Research and development costs are expensed as incurred and include the costs to design, develop, test, deploy and enhance new and existing products. Research and development costs also include expenses associated with clinical studies, registries and sponsored research. These costs include direct salary and employee benefit related costs for research and development personnel, costs for materials used and costs for outside services.

Patent-related Expenditures

Expenditures related to patent research and applications, which are primarily legal fees, are expensed as incurred and are included in SG&A expenses in the accompanying condensed consolidated statements of operations.

Share-based Compensation

The Company’s employee and non-employee share-based awards result in a cost that is measured at fair value on the awards’ grant date, based on the estimated number of awards that are expected to vest. Share-based compensation is recognized over the service period.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Management assesses the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to the Company’s historical operating performance and the recorded cumulative net losses in prior fiscal periods, the net deferred tax assets have been fully offset by a valuation allowance.

The Company recognizes uncertain income tax positions at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Changes in recognition or measurement are reflected in the period in which judgment occurs. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of provision for income taxes.

Foreign Currency Translation

When the functional currencies of the Company’s foreign subsidiaries are currencies other than the U.S. dollar, the assets and liabilities of the foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect on the balance sheet date. Income and expense items of the subsidiaries are translated into U.S. dollars at the average exchange rates prevailing during the period. Gains or losses from these translation adjustments are reported as a separate component of stockholders’ equity in accumulated other comprehensive income (loss) until there is a sale or complete or substantially complete liquidation of the Company’s investment in the foreign subsidiaries at which time the gains or losses will be realized and included in net income (loss).  Certain vendors are paid in currencies other than the U.S. dollar. Transaction gains and losses are included in other income (expense) and have not been significant for the periods presented.

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Inari Medical, Inc.

Notes