UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
__________________________________
(Mark one)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number 001-39430
__________________________________
(Exact name of registrant as specified in its charter)
__________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
(Registrant’s telephone number, including area code) (442 ) 232-6080
___________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
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, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
| ☒ | Smaller reporting company | |||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| Class of Common Stock | Outstanding Shares as of August 8, 2022 | |||||||
| Common Stock, $0.001 par value | ||||||||
Acutus Medical, Inc.
Form 10-Q
For the Quarter Ended June 30, 2022
Table of Contents
| Page | ||||||||
Item 1. Financial Statements.
Acutus Medical, Inc.
Condensed Consolidated Balance Sheets
| June 30, 2022 | December 31, 2021 | ||||||||||
| (in thousands, except share and per share amounts) | (unaudited) | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities, short-term | |||||||||||
| Restricted cash, short-term | |||||||||||
| Accounts receivable | |||||||||||
| Inventory | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Marketable securities, long-term | |||||||||||
| Restricted cash, long-term | |||||||||||
| Property and equipment, net | |||||||||||
| Right-of-use assets, net | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Contingent consideration, short-term | |||||||||||
| Operating lease liabilities, short-term | |||||||||||
| Warrant liability | |||||||||||
| Total current liabilities | |||||||||||
| Operating lease liabilities, long-term | |||||||||||
| Long-term debt | |||||||||||
| Contingent consideration, long-term | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 13) | |||||||||||
| Stockholders' equity | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Acutus Medical, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in thousands, except share and per share amounts) | (unaudited) | ||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Costs and operating (income) expenses: | |||||||||||||||||||||||
| Cost of products sold | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Goodwill impairment | |||||||||||||||||||||||
| Restructuring | |||||||||||||||||||||||
| Change in fair value of contingent consideration | ( | ( | |||||||||||||||||||||
| Gain on sale of business | ( | ( | |||||||||||||||||||||
| Total costs and operating (income) expenses | ( | ||||||||||||||||||||||
| Income (loss) from operations | ( | ( | ( | ||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Loss on debt extinguishment | ( | ( | |||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Total other expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) before income taxes | ( | ( | ( | ||||||||||||||||||||
| Income tax benefit | |||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
| Unrealized gain (loss) on marketable securities | ( | ||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Basic net income (loss) per common share | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Diluted net income (loss) per common share | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Basic weighted average shares outstanding | |||||||||||||||||||||||
| Diluted weighted average shares outstanding | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Acutus Medical, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
For the Three Months Ended June 30, 2022
| (in thousands, except share amounts) | Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 (unaudited) | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Unrealized gain on marketable securities | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 (unaudited) | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
For the Three Months Ended June 30, 2021
| (in thousands, except share amounts) | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 (unaudited) | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Unrealized gain on marketable securities | — | — | — | — | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock for cashless warrant exercise | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance as of June 30, 2021 (unaudited) | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Acutus Medical, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
For the Six Months Ended June 30, 2022
| (in thousands, except share amounts) | Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan shares issued | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 (unaudited) | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
For the Six Months Ended June 30, 2021
| (in thousands, except share amounts) | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Unrealized gain on marketable securities | — | — | — | — | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock for cashless warrant exercise | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance as of June 30, 2021 (unaudited) | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Acutus Medical, Inc.
Condensed Consolidated Statements of Cash Flows
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in thousands) | (unaudited) | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation expense | |||||||||||
| AcQMap Systems converted to sales | |||||||||||
| Sales-type lease gain | ( | ||||||||||
| Amortization of intangible assets | |||||||||||
| Stock-based compensation expense | |||||||||||
| Amortization of premiums and accretion of discounts on marketable securities, net | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Amortization of right-of-use assets | |||||||||||
| Goodwill impairment | |||||||||||
| Loss on debt extinguishment | |||||||||||
| Gain on sale of business | ( | ||||||||||
| Change in fair value of contingent consideration | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Inventory | ( | ||||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Other assets | ( | ||||||||||
| Accounts payable | ( | ||||||||||
| Accrued liabilities | ( | ||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Other long-term liabilities | ( | ||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities | |||||||||||
| Proceeds from sale of business | |||||||||||
| Direct costs paid related to sale of business | ( | ||||||||||
| Purchases of available-for-sale marketable securities | ( | ||||||||||
| Sales of available-for-sale marketable securities | |||||||||||
| Maturities of available-for-sale marketable securities | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Net cash provided by investing activities | |||||||||||
| Cash flows from financing activities | |||||||||||
| Repayment of debt | ( | ||||||||||
| Penalty fees paid for early prepayment of debt | ( | ||||||||||
| Borrowing under new debt | |||||||||||
| Payment of debt issuance costs | ( | ||||||||||
| Payment of deferred offering costs | ( | ||||||||||
| Payment of contingent consideration | ( | ( | |||||||||
| Repurchase of common shares to pay employee withholding taxes | ( | ||||||||||
| Proceeds from stock options exercises | |||||||||||
| Proceeds from employee stock purchase plan | |||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Net change in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash, at the beginning of the period | |||||||||||
| Cash, cash equivalents and restricted cash, at the end of the period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Cash paid for interest | $ | $ | |||||||||
| Supplemental disclosure of noncash investing and financing activities: | |||||||||||
| Amount of debt proceeds allocated to warrant liability | $ | $ | |||||||||
| Change in unrealized (gain) loss on marketable securities | $ | $ | ( | ||||||||
5
| Change in unpaid purchases of property and equipment | $ | $ | |||||||||
| Escrow release | $ | $ | |||||||||
| Unpaid transaction costs from sale of business | $ | $ | |||||||||
| Unpaid debt issuance costs | $ | $ | |||||||||
| Right-of-use assets exchanged for operating lease liabilities | $ | $ | |||||||||
| Net book value on AcQMap system sales-type leases | $ | $ | |||||||||
| Unpaid deferred offering costs | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Acutus Medical, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1—Organization and Description of Business
Acutus Medical, Inc. (the “Company”) is an arrhythmia management company focused on improving the way cardiac arrhythmias are diagnosed and treated. The Company designs, manufactures and markets a range of tools for catheter-based ablation procedures to treat various arrhythmias. The Company’s product portfolio includes novel access sheaths, transseptal crossing tools, diagnostic and mapping catheters, ablation catheters, mapping and imaging consoles and accessories, as well as supporting algorithms and software programs. The Company was incorporated in the state of Delaware on March 25, 2011, and is located in Carlsbad, California.
Liquidity, Capital Resources and Going Concern
The Company has limited revenue, has incurred significant operating losses and negative cash flows from operations since its inception, and anticipates that it will incur significant losses for at least the next several years. As of June 30, 2022 and December 31, 2021, the Company had cash, cash equivalents, restricted cash and marketable securities of $93.1 million and $108.0 million, respectively. For the six months ended June 30, 2022 and 2021, net losses were $34.3 million and $57.9 million, respectively, and net cash used in operating activities was $48.2 million and $49.9 million, respectively. As of June 30, 2022 and December 31, 2021, the Company had an accumulated deficit of $513.0 million and $478.7 million, respectively, and working capital of $93.3 million and $107.8 million, respectively.
Prior to the Company’s initial public offering (“IPO”) in August 2020, operations had been financed primarily by aggregate net proceeds from the sale of convertible preferred stock and principal of converted debt of $253.9 million, as well as other indebtedness. 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 exercise in full by the underwriters of an option to purchase additional shares of common stock, at the public offering price less underwriting discounts and commissions. The price to the public was $18.00 per share, for net proceeds of $166.3 million.
In July 2021, the Company issued 6,325,000 shares of common stock in a public offering, which included 825,000 shares of common stock issued upon the underwriter’s exercise in full of an option to purchase additional shares of common stock. The price to the public for each share was $14.00 . The Company received gross proceeds of $88.6 million from the offering. Net of underwriting discounts and commission and other offering expenses, the Company received proceeds of $82.7 million from the offering.
With the closing of the Company’s IPO in August 2020, the follow on offering in July 2021, the reduction in force (“RIF”) announced in January 2022, $50.0 million of proceeds received from the June 30, 2022 first closing in the sale of certain transseptal access and sheath assets to Medtronic, Inc. (“Medtronic”), as further discussed in Note 4 - Sale of Business, and further cost reduction actions taken in July 2022, management believes the Company’s current cash, cash equivalents and marketable securities are sufficient to fund operations for at least the next 12 months. To ensure that the Company has sufficient resources to fund operations, management continues to review cost improvement opportunities and pathways to reduce expenses and cash burn, while preserving the resources to invest in future growth.
In the future, the Company may need to raise additional funds through one or more of the following: the issuance of debt and/or equity securities or otherwise. Until such time, if ever, that the Company can generate revenue sufficient to achieve profitability, the Company expects to finance its operations through equity or debt financings, which may not be available to the Company on the timing needed or on terms that the Company deems to be favorable. To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the ownership interest of its stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting the Company’s ability to take specific actions, such as incurring additional 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.
7
Impact of COVID-19
COVID-19 has restricted the Company's access to hospital and other customer sites, which negatively impacted the Company's ability to install its AcQMap consoles and workstations in new accounts and for sales representatives and mappers to promote the use of the Company's products with physicians. Furthermore, the impact of COVID-19 has varied by region and by healthcare facility, which has hampered the Company’s ability to forecast the sustained impact on its business from COVID-19. The Company expects medical procedure rates to continue to vary by therapy and country, and could be impacted by regional COVID-19 case volumes, healthcare system staffing shortages, patient's willingness to schedule deferrable procedures, travel restrictions, transportation limitations, quarantine restriction, vaccine and booster immunizations rates, and new COVID-19 variants. While COVID-19 case volumes appear to be decreasing in the U.S. and certain other countries as a result of higher vaccination rates, the global COVID-19 outlook remains uncertain as new variants emerge. The magnitude of the impact of the COVID-19 pandemic on productivity, results of operations and financial position, and its disruption to the Company’s business and clinical programs and timelines, will depend, in part, on the length and severity of the pandemic, associated restrictions and other measures designed to prevent the spread of COVID-19 and on the Company’s ability to conduct business in the ordinary course. The markets the Company serves could see continued impacts from COVID-19 for the foreseeable future, and the emergence of new variants of COVID-19 creates significant uncertainty as to how long COVID-19 will continue to impact the Company’s business.
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 subsidiaries. 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, measurement of operating lease liabilities, and the fair value of common stock, stock options, warrants, intangible assets and contingent consideration. 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 as one operating segment.
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 June 30, 2022 and December 31, 2021, exceeded federally insured limits.
8
| June 30, 2022 | December 31, 2021 | ||||||||||
| (unaudited) | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash, short-term | |||||||||||
| Restricted cash, long-term | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
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 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 recognizes 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 income (loss). The Company did no
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 primarily consists of investments in commercial paper, Yankee debt securities, supranational, U.S. treasury securities, asset-backed securities and short-term high credit quality corporate debt securities.
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”), and ASC 842, Leases ("ASC 842"). The core principle of ASC 606 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.
9
•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.
ASC 842 provides guidance on determining if an agreement contains a lease. ASC 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.
For new customers, the Company places its medical diagnostic equipment, AcQMap System, at customer sites under evaluation agreements and generates revenue from the sale of disposable products used with the AcQMap System. Disposable products primarily include AcQMap catheters and AcQGuide steerable sheaths. Outside of the U.S., the Company also has a Qubic Force Device which generates revenue from the sale of the AcQBlate Force ablation catheters. 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 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.
The Company sells the AcQMap System to customers along with software updates on a when-and-if-available basis, as well as the Qubic Force Device and a transseptal crossing line of products which can be used in a variety of heart procedures and does not need to be accompanied with an AcQMap System or Qubic Force Device. Included in the transseptal crossing line of products are primarily the AcQRef introducer sheath, the AcQGuide sheaths and the AcQCross Transseptal Dilator/Needle.
The Company also enters 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 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.
Lastly, the Company enters into short-term operating leases, for the rental of the system after an evaluation. These lease agreements impose no requirement on the customer to purchase the equipment and the equipment is not transferred to the customer at the end of the lease term. The short-term nature of the lease agreements does not result in lease payments accumulating to an amount that equals the value of the equipment nor is the lease term reflective of the economic life of the equipment.
The Company’s contracts primarily include fixed consideration. Generally, 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.
For direct customers, 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. For AcQMap System sales sold to Biotronik SE & Co. KG (“Biotronik”), the installation is not a performance obligation as it is performed by Biotronik, and therefore the AcQMap System is satisfied at a point in time when they have 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
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includes, but is not limited to, transactions where the specific performance obligations are sold separately, list prices and offers to customers.
Except for the deferred equipment agreements noted above, 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 June 30, 2022 and December 31, 2021.
In May 2020, the Company entered into bi-lateral distribution agreements with 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 co-exclusive 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 sets forth the Company’s revenue for disposables, systems and service/other for the three and six months ended June 30, 2022 and 2021 (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
| Disposables | $ | $ | $ | $ | |||||||||||||||||||
| Systems | |||||||||||||||||||||||
| Service/Other | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
The following table provides revenue by geographic location for the three and six months ended June 30, 2022 and 2021 (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| Outside the United States | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
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 manufacturing scrap and 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 $1.4 million and $0.1 million for the three months ended June 30, 2022 and 2021, respectively, and $2.4 million and $0.9 million for the six months ended June 30, 2022 and 2021, respectively.
Accounts Receivable
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 no
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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 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
At December 31, 2021, intangible assets consisted 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, as well as a license agreement with Biotronik. The Rhythm Xience intangible assets were included in the assets sold to Medtronic, leaving only the license agreement with Biotronik in intangible assets on the condensed consolidated balance sheet as of June 30, 2022. 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 Food and Drug Administration (the “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.
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 six months ended June 30, 2022 and 2021, the Company determined that there was no
Foreign Currency Translation and Transactions
The assets, liabilities and results of operations of Acutus Medical N.V. and Acutus Medical UK Limited are measured using their functional currency, the Euro and British Pound Sterling, respectively, which is the currency of the primary foreign economic environment in which the subsidiaries operate. Upon consolidating these entities with the Company, their assets and liabilities are translated to U.S. dollars at currency exchange rates as of the balance sheet date and their 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 the entities’ financial statements are reported in accumulated other comprehensive loss in the condensed consolidated balance sheets and foreign currency translation adjustment in the condensed consolidated statements of operations and comprehensive income (loss).
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Lessee Leases
The Company accounts for its lessee leases under ASC 842. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the 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 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.
In April 2021, the Company and Biotronik entered into a Feasibility and Development Agreement to pursue the development of hardware, software and IT infrastructure to implement the Qubic Connect System ("QBS"). The QBS will allow data transfer from multiple diagnostic and therapeutic medical products during an electrophysiology procedure to be aggregated and analyzed for the purposes of designing improved treatment protocols.
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.
Restructuring
Restructuring expense consists of severance expenses and benefits related to employees affected by the organizational RIF. The RIF was made to align resources with the Company's current strategic direction.
Employee Retention Credit
The Coronavirus Aid, Relief and Economic Security (“CARES”) Act provides an employee retention credit (“CARES Employee Retention Credit”), which is a refundable tax credit against certain employment taxes of up to $5 thousand per employee for eligible employers. The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10 thousand of qualified wages per employee per calendar year through December 31, 2020. Additional relief provisions were passed by the United States government, which extended and expanded the qualified wage caps on these credits through September 30, 2021. Based on these additional provisions, the tax credit is now equal to 70% of qualified wages paid to employees during a quarter beginning with the first quarter of 2021, and the limit on qualified wages per employee has been increased to $10 thousand of qualified wages per quarter instead of per calendar year.
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The Company qualifies for the tax credit under the CARES Act. The Company filed 2021 Form 941-X Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund for the quarters ended March 31, 2021 and June 30, 2021 on March 24, 2022. The refunds due are an aggregate of $4.0 million for the quarters ended March 31, 2021 and June 30, 2021. The Company filed its 2020 Form 941-X Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund for the period March 12, 2020 through December 31, 2020 on March 31, 2022. The refunds due for that period are an aggregate of $0.6 million.
The Company elected to classify the ERC amounts as a reduction to payroll tax expense. During the six months ended June 30, 2022, the Company recorded $1.5 million, $1.4 million and $1.7 million related to the CARES Employee Retention Credit within cost of products sold, research and development expense and SG&A expense, respectively, on the Company’s condensed consolidated statement of operations and comprehensive income (loss). As of June 30, 2022, the Company has a $4.6 million receivable balance from the United States government related to the CARES Act, which is recorded in “Prepaid expenses and other current assets” on the Company’s condensed consolidated balance sheet.
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 exchange. There were no transfers made among the three levels in the fair value hierarchy for the three and six months ended June 30, 2022 and 2021.
As of June 30, 2022 and December 31, 2021, 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.
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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 June 30, 2022 and December 31, 2021 (in thousands):
| Fair Value Measurements as of June 30, 2022 | |||||||||||||||||||||||
| (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 June 30, 2022 | ||||||||||||||||||||
| Assets included in: | |||||||||||||||||||||||
| Cash and cash equivalents | |||||||||||||||||||||||
| Money market securities | $ | $ | $ | $ | |||||||||||||||||||
| Marketable securities at fair value | |||||||||||||||||||||||
| U.S. treasury securities | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| Yankee debt securities | |||||||||||||||||||||||
| Supranational | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Total fair value | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities included in: | |||||||||||||||||||||||
| Warrant liability | $ | $ | $ | $ | |||||||||||||||||||
| Contingent consideration | |||||||||||||||||||||||
| Total fair value | $ | $ | $ | $ | |||||||||||||||||||
| Fair Value Measurements as of December 31, 2021 | |||||||||||||||||||||||
| 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, 2021 | ||||||||||||||||||||
| Assets included in: | |||||||||||||||||||||||
| Cash and cash equivalents | |||||||||||||||||||||||
| Money market securities | $ | $ | $ | $ | |||||||||||||||||||
| Marketable securities at fair value | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| U.S. treasury securities | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||