10-Q
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“333

 

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: 001-40355

 

Treace Medical Concepts, Inc.

 

(Exact name of registrant as specified in its charter)

 

 

Delaware

47-1052611

(State or other jurisdiction of incorporation or organization)

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

 

203 Fort Wade Rd, Suite 150

Ponte Vedra, Florida 32081

(Address of principal executive offices, including zip code)

 

(904) 373-5940

(Registrant’s telephone number, including area code)

 

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

TMCI

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 5, 2022, 55,403,265 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

 

 


 

TREACE MEDICAL CONCEPTS, INC.

 

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

 

Table of Contents

 

Item 1.

Unaudited Condensed Financial Statements

3

 

Condensed Balance Sheets

3

 

Condensed Statements of Operations and Comprehensive Loss

4

 

Condensed Statements of Stockholders' Equity (Deficit)

5

 

Condensed Statements of Cash Flows

6

 

Notes to Condensed Financial Statements

7

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

25

Item 4.

Controls and Procedures

25

 

 

Part II: Other Information

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

28

 

Signatures

29

 

 


 

SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS

As used in this Quarterly Report on Form 10-Q (“Quarterly Report”), unless expressly indicated or the context otherwise requires, references to “Treace Medical Concepts,” “we,” “us,” “our,” “the Company,” and similar references refer to Treace Medical Concepts, Inc. This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified 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”) concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.

These forward-looking statements include, but are not limited to, statements about:

the expected use of our products by physicians;
the expected growth of our business and our organization;
our expected uses of our existing cash and cash equivalents and the sufficiency of such resources to fund our planned operations;
our expectations regarding government and third-party payor coverage and reimbursement;
our ability to retain and recruit key personnel, including the continued development of a sales and marketing infrastructure;
our ability to obtain an adequate supply of materials and components for our products from our third-party suppliers, some of which are single-source suppliers;
our plans and expected timeline related to our products, or developing new products, to address additional indications or otherwise;
our ability to manufacture sufficient quantities of our products with sufficient quality;
our ability to obtain and maintain intellectual property protection for our products;
our ability to identify and develop new and planned products and/or acquire new products;
our ability to obtain, maintain and expand regulatory clearances for our products and any new products we create;
our ability to expand our business into new geographic markets;
our compliance with Nasdaq requirements and government laws, rules and regulations both in the United States and internationally;
our estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for, or ability to obtain, additional financing;
the effect of the COVID-19 pandemic and its impact on our business;
developments and projections relating to our competitors or our industry;
our plans to conduct further clinical trials; and
our expectations regarding the time during which we will be an emerging growth company under the JOBS Act.

We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve

1


 

known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in our Annual Report on Form 10-K under “Part I, Item 1A-Risk Factors” and listed under “Risk Factors” and elsewhere in this Quarterly Report. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements.

These forward-looking statements speak only as of the date of this Quarterly Report. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report to conform these statements to actual results or to changes in our expectations.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed with the Securities and Exchange Commission (“SEC”) as exhibits to this Quarterly Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

TREACE MEDICAL CONCEPTS, INC.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

101,533

 

 

$

105,833

 

Accounts receivable, net of allowance for doubtful accounts of $430 and $414 as of June 30, 2022 and December 31, 2021, respectively

 

 

16,501

 

 

 

18,568

 

Inventories

 

 

13,168

 

 

 

10,561

 

Prepaid expenses and other current assets

 

 

3,995

 

 

 

3,010

 

Total current assets

 

 

135,197

 

 

 

137,972

 

Property and equipment, net

 

 

8,741

 

 

 

2,849

 

Operating lease right-of-use assets

 

 

14,650

 

 

 

 

Other non-current assets

 

 

134

 

 

 

 

Total assets

 

$

158,722

 

 

$

140,821

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

3,099

 

 

$

4,056

 

Accrued liabilities

 

 

4,809

 

 

 

4,518

 

Accrued commissions

 

 

4,308

 

 

 

5,181

 

Accrued compensation

 

 

4,038

 

 

 

4,455

 

Operating lease liabilities

 

 

383

 

 

 

 

Total current liabilities

 

 

16,637

 

 

 

18,210

 

Derivative liability on term loan

 

 

 

 

 

173

 

Long-term debt, net of discount of $1,438 and $635 as of June 30, 2022 and December 31, 2021, respectively

 

 

52,562

 

 

 

29,365

 

Operating lease liabilities, net of current portion

 

 

17,811

 

 

 

 

Total liabilities

 

 

87,010

 

 

 

47,748

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value, 300,000,000 shares authorized; 55,391,309 issued and outstanding as of June 30, 2022; 300,000,000 shares authorized; 54,181,082 issued and outstanding as of December 31, 2021

 

 

46

 

 

 

45

 

Additional paid-in capital

 

 

139,841

 

 

 

134,933

 

Accumulated deficit

 

 

(68,175

)

 

 

(41,905

)

Total stockholders’ equity

 

 

71,712

 

 

 

93,073

 

Total liabilities and stockholders’ equity

 

$

158,722

 

 

$

140,821

 

 

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

3


 

TREACE MEDICAL CONCEPTS, INC.

Condensed Statement of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

$

29,967

 

 

$

20,654

 

 

$

59,014

 

 

$

39,361

 

Cost of goods sold

 

 

5,651

 

 

 

3,944

 

 

 

11,157

 

 

 

7,271

 

Gross profit

 

 

24,316

 

 

 

16,710

 

 

 

47,857

 

 

 

32,090

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

26,250

 

 

 

14,010

 

 

 

48,173

 

 

 

26,158

 

Research and development

 

 

2,984

 

 

 

2,422

 

 

 

6,036

 

 

 

4,290

 

General and administrative

 

 

7,015

 

 

 

4,329

 

 

 

13,677

 

 

 

7,095

 

Total operating expenses

 

 

36,249

 

 

 

20,761

 

 

 

67,886

 

 

 

37,543

 

Loss from operations

 

 

(11,933

)

 

 

(4,051

)

 

 

(20,029

)

 

 

(5,453

)

Interest and other income, net

 

 

128

 

 

 

6

 

 

 

139

 

 

 

7

 

Interest expense

 

 

(946

)

 

 

(1,038

)

 

 

(1,897

)

 

 

(2,069

)

Debt extinguishment loss

 

 

(4,483

)

 

 

 

 

 

(4,483

)

 

 

 

Other expense, net

 

 

(5,301

)

 

 

(1,032

)

 

 

(6,241

)

 

 

(2,062

)

Net loss and comprehensive loss

 

 

(17,234

)

 

 

(5,083

)

 

 

(26,270

)

 

 

(7,515

)

Convertible preferred stock cumulative and undeclared dividends

 

 

 

 

 

(39

)

 

 

 

 

 

(196

)

Net loss attributable to common stockholders

 

$

(17,234

)

 

$

(5,122

)

 

$

(26,270

)

 

$

(7,711

)

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

 

$

(0.31

)

 

$

(0.10

)

 

$

(0.48

)

 

$

(0.18

)

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

 

 

55,308,273

 

 

 

49,187,285

 

 

 

55,071,368

 

 

 

43,556,107

 

 

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

4


 

TREACE MEDICAL CONCEPTS, INC.

Condensed Statement of Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(unaudited)

 

 

 

Convertible

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balances at December 31, 2021

 

 

 

 

$

 

 

 

54,181,082

 

 

$

45

 

 

$

134,933

 

 

$

(41,905

)

 

$

93,073

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

1,097,860

 

 

 

1

 

 

 

1,371

 

 

 

 

 

 

1,372

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,409

 

 

 

 

 

 

1,409

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,036

)

 

 

(9,036

)

Balances at March 31, 2022

 

 

 

 

 

 

 

 

55,278,942

 

 

 

46

 

 

 

137,713

 

 

 

(50,941

)

 

 

86,818

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

112,367

 

 

 

 

 

 

165

 

 

 

 

 

 

165

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,963

 

 

 

 

 

 

1,963

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,234

)

 

 

(17,234

)

Balances at June 30, 2022

 

 

 

 

 

 

 

 

55,391,309

 

 

$

46

 

 

$

139,841

 

 

$

(68,175

)

 

$

71,712

 

.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2020

 

 

6,687,475

 

 

$

7,935

 

 

 

37,366,865

 

 

$

28

 

 

$

14,166

 

 

$

(21,353

)

 

$

776

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

690,551

 

 

 

2

 

 

 

568

 

 

 

 

 

 

570

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

402

 

 

 

 

 

 

402

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,432

)

 

 

(2,432

)

Balances at March 31, 2021

 

 

6,687,475

 

 

 

7,935

 

 

 

38,057,416

 

 

 

30

 

 

 

15,136

 

 

 

(23,785

)

 

 

(684

)

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

272,082

 

 

 

 

 

 

193

 

 

 

 

 

 

193

 

Vesting of restricted stock awards

 

 

 

 

 

 

 

 

5,866

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

875

 

 

 

 

 

 

875

 

Issuance of common stock from initial public offering, net of issuance costs and underwriting discount of $10.6 million

 

 

 

 

 

 

 

 

6,953,125

 

 

 

7

 

 

 

107,603

 

 

 

 

 

 

107,610

 

Issuance of common stock upon net exercise of warrants

 

 

 

 

 

 

 

 

621,570

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Conversion of convertible preferred stock and accrued dividends on convertible preferred stock into common stock

 

 

(6,687,475

)

 

 

(7,935

)

 

 

6,845,922

 

 

 

7

 

 

 

7,928

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,083

)

 

 

(5,083

)

Balances at June 30, 2021

 

 

 

 

$

 

 

 

52,755,981

 

 

$

45

 

 

$

131,734

 

 

$

(28,868

)

 

$

102,911

 

 

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

 

 

 

5


 

TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(26,270

)

 

$

(7,515

)

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

 

 

 

 

 

 

Depreciation and amortization expense

 

 

757

 

 

 

220

 

(Recovery) for allowance for doubtful accounts

 

 

(45

)

 

 

(72

)

Share-based compensation expense

 

 

3,372

 

 

 

1,277

 

Non-cash lease expense

 

 

1,165

 

 

 

 

Amortization of debt issuance costs

 

 

95

 

 

 

88

 

(Recovery) Provision of inventory obsolescence

 

 

(197

)

 

 

88

 

Gain on fair value adjustment to derivative liability

 

 

(173

)

 

 

 

Debt extinguishment loss

 

 

4,483

 

 

 

 

Net changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts Receivable

 

 

2,112

 

 

 

4,511

 

Inventory

 

 

(2,410

)

 

 

89

 

Prepaid expenses and other assets

 

 

(1,039

)

 

 

(2,919

)

Other non-current assets

 

 

(134

)

 

 

 

Operating lease liabilities

 

 

2,392

 

 

 

 

Accounts payable

 

 

(957

)

 

 

656

 

Accrued liabilities

 

 

(958

)

 

 

(600

)

Net cash used in operating activities

 

 

(17,807

)

 

 

(4,177

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(6,649

)

 

 

(866

)

Net cash used in investing activities

 

 

(6,649

)

 

 

(866

)

Cash flows from financing activities

 

 

 

 

 

 

Repayment of PPP loan

 

 

 

 

 

(1,788

)

Proceeds from interest bearing term debt

 

 

49,651

 

 

 

 

Proceeds from interest bearing revolving debt

 

 

3,850

 

 

 

 

Debt issuance costs paid to third parties

 

 

(989

)

 

 

 

Repayment of term loan

 

 

(33,893

)

 

 

 

Proceeds from issuance of common stock upon initial public offering, net of issuance costs and underwriting fees of $10.6 million

 

 

 

 

 

107,610

 

Proceeds from exercise of employee stock options

 

 

1,537

 

 

 

763

 

Net cash provided by financing activities

 

 

20,156

 

 

 

106,585

 

Net (decrease) increase in cash and cash equivalents

 

 

(4,300

)

 

 

101,542

 

Cash and cash equivalents at beginning of period

 

 

105,833

 

 

 

18,079

 

Cash and cash equivalents at end of period

 

$

101,533

 

 

$

119,621

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

1,897

 

 

$

2,917

 

Operating lease right-of-use assets obtained in exchange for new lease liabilities

 

$

15,300

 

 

$

 

Supplemental disclosure of noncash investing activities:

 

 

 

 

 

 

Property and equipment received in exchange for lease liability

 

$

4,115

 

 

$

 

Supplemental disclosure of noncash financing activities:

 

 

 

 

 

 

Issuance of common stock upon exercise of warrants

 

$

 

 

$

1

 

Conversion of convertible preferred stock and accrued dividends on convertible preferred stock into common stock

 

$

 

 

$

7,935

 

 

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

6


 

TREACE MEDICAL CONCEPTS, INC.

Notes to Condensed Financial Statements

(unaudited)

1. Formation and Business of the Company

The Company

Treace Medical Concepts, LLC was formed on July 29, 2013 as a Florida limited liability company. Effective July 1, 2014, the entity converted to a Delaware corporation and changed its name to Treace Medical Concepts, Inc. (the “Company”). The Company is a medical technology company driving a fundamental shift in the surgical treatment of Hallux Valgus (commonly known as “bunions”). The Company received 510(k) clearance for the Lapiplasty® System in March 2015 and began selling its surgical medical devices in September 2015. The Company has pioneered the proprietary Lapiplasty 3D Bunion Correction System – a combination of innovative instruments, implants and surgical methods designed to improve the inconsistent clinical outcomes of traditional approaches to bunion surgery. In addition, the Company offers other advanced instrumentation and implants for use in the Lapiplasty Procedure or other ancillary procedures performed in high frequency with bunion surgery. The Company recently expanded its offerings with the Adductoplasty™ Midfoot Correction System, designed for reproducible correction of the midfoot to provide further support to hallux valgus patients. The Company operates from its corporate headquarters located in Ponte Vedra, Florida.

Initial Public Offering

On April 27, 2021, the Company completed its initial public offering (“IPO”) of 12,937,500 shares of its common stock, which included the exercise in full of the underwriters’ option to purchase additional shares. As part of the IPO, 6,953,125 shares of common stock were issued and sold by the Company (inclusive of 703,125 shares pursuant to the exercise of the underwriters’ option) and 5,984,375 shares of common stock that were sold by the selling stockholders named in the prospectus (inclusive of 984,375 shares pursuant to the exercise of the underwriters’ option), at a price to the public of $17.00 per share. The Company received net proceeds of approximately $107.6 million, after deducting underwriting discounts and commissions of $8.3 million and offering expenses payable by the Company of $2.3 million. The Company did not receive any proceeds from the sale of the shares by the selling stockholders. Upon the completion of the IPO, all 6,687,475 shares of Series A convertible preferred stock then outstanding were converted into shares of common stock on a one-to-one basis plus 158,447 shares of common stock were issued to pay accrued cumulative dividends on Series A convertible preferred stock of $2.5 million.

 

Liquidity and Capital Resources

The Company has incurred operating losses to date and has an accumulated deficit of $68.2 million as of June 30, 2022. During the six months ended June 30, 2022 and 2021, the Company used $17.8 million and $4.2 million of cash in its operating activities, respectively. As of June 30, 2022, the Company had cash and cash equivalents of $101.5 million.

Management believes that the Company’s existing cash and cash equivalents will allow the Company to continue its planned operations for at least the next 12 months from the date of the issuance of these interim condensed financial statements.

2. Summary of Significant Accounting Policies

The Company prepared the unaudited interim condensed financial statements included in this report in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission related to quarterly reports on Form 10-Q.

Basis of Presentation

The condensed financial statements have been prepared on the same basis as the Company’s annual financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 4, 2022. The unaudited condensed financial statements included herein reflect all adjustments, including normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for future quarters or for the fiscal year ending December 31, 2022.

7


 

Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Use of Estimates

The preparation of condensed financial statements in conformity with 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 condensed financial statements and the reported amounts of revenues and expenses during the reporting periods. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Significant estimates and assumptions include reserves and write-downs related to accounts receivable, inventories, the recoverability of long-term assets, valuation of equity instruments, valuation of common stock, stock-based compensation, deferred tax assets and related valuation allowances and impact of contingencies. The Company had no accrued contingent liabilities as of June 30, 2022 and December 31, 2021.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash, cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents balances with established financial institutions and, at times, such balances with any one financial institution may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limits.

The Company earns revenue from the sale of its products to customers such as hospitals and ambulatory surgery centers. The Company’s accounts receivable is derived from revenue earned from customers. The Company performs ongoing credit evaluations of its customers’ financial condition. At June 30, 2022 and December 31, 2021, no customer accounted for more than 10% of accounts receivable. For the six months ended June 30, 2022 and 2021, there were no customers that represented 10% or more of revenue.

Leases