10-Q
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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, 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: 001-40919

 

MINERVA SURGICAL, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

26-3422906

( State or other jurisdiction of

incorporation or organization)

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

4255 Burton Dr.

Santa Clara, CA

95054

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (855) 646-7874

 

Securities registered pursuant to Section 12(b) of the Act:

Draft tested, no issues noted.

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $ 0.001 par value

 

UTRS

 

The Nasdaq Stock Market LLC

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 4, 2022 the registrant had 28,859,990 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations

2

 

Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

3

 

Condensed Statements of Cash Flows

4

 

Notes to Condensed Financial Statements

5

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

34

 

 

 

PART II.

OTHER INFORMATION

36

 

 

 

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

83

Item 3.

Defaults Upon Senior Securities

83

Item 4.

Mine Safety Disclosures

83

Item 5.

Other Information

83

Item 6.

Exhibits

83

Signatures

85

 

 

 

 

 

 

 

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (Quarterly Report) contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, commercial activities and costs, research and development costs, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:

•estimates of our addressable market, market growth, future revenue, key performance indicators, expenses, capital requirements, and our needs for additional financing;

•our expectations regarding the rate and degree of physician, patient, and hospital awareness and acceptance of our treatments for abnormal uterine bleeding (AUB);

•our ability to establish and maintain intellectual property protection for our products or avoid, defend, or pursue claims of infringement;

•our ability to retain and expand our experienced commercial team and increase its productivity;

•the integration of our newly acquired products into our existing sales and marketing organization;

•the size and growth of the addressable market for the treatment of AUB;

•competitive companies and technologies and our industry;

•our ability to increase our manufacturing production and decrease our fixed manufacturing costs;

•the performance of third-party manufacturers and suppliers;

•our ability to research, develop and commercialize new products;

•the impact of COVID-19 and its variants on our business and on the market for the treatment of AUB;

•the potential effects of government regulation;

•our ability to hire and retain key personnel and to manage our future growth effectively;

•our ability to obtain additional financing in future offerings;

•the volatility of the trading price of our common stock;

•the impact of local, regional, and national and international economic conditions including inflation and events including the outbreak of war in Ukraine;

•our expectations about market trends;

•our anticipated use of our existing resources; and

•other risks and uncertainties, including those listed in the section titled “Risk factors.”

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements are current only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

 


 

Except as required by applicable law, we undertake no obligation to update or revise any forward-looking statements contained herein to reflect events or circumstances after the date of this Quarterly Report, whether as a result of any new information, future events or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Minerva Surgical, Inc.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

June 30, 2022

 

 

December 31, 2021

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,386

 

$

40,608

Restricted cash, current

 

 

7,807

 

 

7,283

Accounts receivable, net

 

 

7,017

 

 

7,292

Inventory

 

 

16,928

 

 

15,682

Prepaid expenses and other current assets

 

 

3,139

 

 

4,139

Total current assets

 

 

57,277

 

 

75,004

Restricted cash, net of current portion

 

 

  —

 

 

524

Intangible assets, net

 

 

30,916

 

 

34,970

Property and equipment, net

 

 

5,179

 

 

4,594

Operating lease right-of-use asset

 

 

586

 

 

  —

Total assets

 

$

93,958

 

$

115,092

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,273

 

$

3,629

Accrued compensation

 

 

3,467

 

 

3,518

Accrued liabilities

 

 

11,386

 

 

10,662

Contingent consideration liability, current

 

 

5,000

 

 

5,000

Operating lease liability

 

 

774

 

 

  —

Total current liabilities

 

 

23,900

 

 

22,809

Long-term debt

 

 

39,208

 

 

39,085

Contingent consideration liability, net of current portion

 

 

  —

 

 

9,094

Total liabilities

 

 

63,108

 

 

70,988

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders` equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized as of June 30, 2022 and December 31, 2021; no shares issued and outstanding as of June 30, 2022 and December 31, 2021

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 28,856,324 shares and 28,822,283 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

 

 

28

 

 

28

Additional paid-in capital

 

 

296,905

 

 

293,621

Accumulated other comprehensive income

 

 

11

 

 

11

Accumulated deficit

 

 

(266,094)

 

 

(249,556)

Total stockholders’ equity

 

 

30,850

 

 

44,104

Total liabilities and stockholders’ equity

 

$

93,958

 

$

115,092

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

1


 

Minerva Surgical, Inc.

Condensed Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30

 

 

Six Months Ended June 30

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues

 

$

12,967

 

 

$

14,114

 

 

$

23,902

 

 

$

25,952

 

Cost of goods sold

 

 

5,322

 

 

 

5,382

 

 

 

10,844

 

 

 

10,387

 

Gross profit

 

 

7,645

 

 

 

8,732

 

 

 

13,058

 

 

 

15,565

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

9,691

 

 

 

8,497

 

 

 

19,164

 

 

 

14,964

 

General and administrative

 

 

1,579

 

 

 

10,125

 

 

 

6,564

 

 

 

14,128

 

Research and development

 

 

1,274

 

 

 

1,673

 

 

 

2,529

 

 

 

2,824

 

Total operating expenses

 

 

12,544

 

 

 

20,295

 

 

 

28,257

 

 

 

31,916

 

Loss from operations

 

 

(4,899

)

 

 

(11,563

)

 

 

(15,199

)

 

 

(16,351

)

Interest income

 

 

19

 

 

 

 

 

 

28

 

 

 

 

Interest expense (includes $nil million and $1.5 million to related parties in three months ended June 30, 2022 and 2021, respectively and $nil million and $2.9 million to related parties in six months ended June 30, 2022 and 2021)

 

 

(703

)

 

 

(3,601

)

 

 

(1,335

)

 

 

(7,052

)

Change in fair value of derivative liabilities

 

 

 

 

 

(2,019

)

 

 

 

 

 

(8,140

)

Gain on extinguishment of PPP loan

 

 

 

 

 

3,036

 

 

 

 

 

 

3,036

 

Other income (expense), net

 

 

(30

)

 

 

48

 

 

 

(32

)

 

 

(540

)

Net loss before income taxes

 

 

(5,613

)

 

 

(14,099

)

 

 

(16,538

)

 

 

(29,047

)

Income tax benefit (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(5,613

)

 

$

(14,099

)

 

$

(16,538

)

 

$

(29,047

)

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

 

$

(0.20

)

 

$

(5.48

)

 

$

(0.58

)

 

$

(15.49

)

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

 

 

28,550,489

 

 

 

2,573,705

 

 

 

28,515,808

 

 

 

1,875,691

 

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

2


 

Minerva Surgical, Inc.

Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)

 

 

 

Redeemable convertible
preferred stock

 

 

Common stock

 

Additional paid-in

 

Accumulated other comprehensive

 

Accumulated

 

Total stockholders'

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

capital

 

income

 

deficit

 

equity

Balances, December 31, 2021

  —

 

$

  —

 

 

28,822,283

 

$

28

 

$

293,621

 

$

11

 

$

(249,556)

 

$

44,104

Issuance of common stock upon exercise of stock options

  —

 

 

  —

 

 

5,166

 

 

  —

 

 

3

 

 

  —

 

 

  —

 

 

3

Vesting of early exercised stock options

  —

 

 

  —

 

 

  —

 

 

  —

 

 

39

 

 

  —

 

 

  —

 

 

39

Stock-based compensation expense

  —

 

 

  —

 

 

  —

 

 

  —

 

 

1,523

 

 

  —

 

 

  —

 

 

1,523

Net loss

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  (10,925)

 

 

  (10,925)

Balances, March 31, 2022

  —

 

 

  —

 

 

28,827,449

 

 

28

 

 

295,186

 

 

11

 

 

  (260,481)

 

 

34,744

Issuance of common stock upon exercise of stock options

  —

 

 

  —

 

 

28,875

 

 

  —

 

 

18

 

 

  —

 

 

  —

 

 

18

Vesting of early exercised stock options

  —

 

 

  —

 

 

  —

 

 

  —

 

 

25

 

 

  —

 

 

  —

 

 

25

Stock-based compensation expense

  —

 

 

  —

 

 

  —

 

 

  —

 

 

1,676

 

 

  —

 

 

  —

 

 

1,676

Net loss

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  (5,613)

 

 

  (5,613)

Balances, June 30, 2022

  —

 

$

  —

 

 

28,856,324

 

$

28

 

$

296,905

 

$

11

 

$

(266,094)

 

$

30,850

 

 

Redeemable convertible
preferred stock

 

 

Common stock

 

Additional paid-in

 

Accumulated other comprehensive

 

Accumulated

 

Total stockholders'

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

capital

 

income

 

deficit

 

equity

Balances, December 31, 2020

12,397,838

 

$

123,255

 

 

1,192,299

 

$

1

 

$

6,269

 

$

11

 

$

(228,092)

 

$

(221,811)

Issuance of common stock upon exercise of stock options

  —

 

 

  —

 

 

1,465,158

 

 

2

 

 

884

 

 

  —

 

 

  —

 

 

886

Issuance of common stock upon early exercise of stock options

  —

 

 

  —

 

 

363,555

 

 

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  —

Stock-based compensation expense

  —

 

 

  —

 

 

  —

 

 

  —

 

 

131

 

 

  —

 

 

  —

 

 

131

Net loss

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  (14,948)

 

 

  (14,948)

Balances, March 31, 2021

12,397,838

 

 

123,255

 

 

3,021,012

 

 

3

 

 

7,284

 

 

11

 

 

  (243,040)

 

 

  (235,742)

Issuance of common stock upon exercise of stock options

  —

 

 

  —

 

 

66,288

 

 

  —

 

 

40

 

 

  —

 

 

  —

 

 

40

Vesting of early exercised stock options

  —

 

 

  —

 

 

  —

 

 

  —

 

 

15

 

 

  —

 

 

  —

 

 

15

Stock-based compensation expense

  —

 

 

  —

 

 

  —

 

 

  —

 

 

4,478

 

 

  —

 

 

  —

 

 

4,478

Net loss

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  —

 

 

  (14,099)

 

 

  (14,099)

Balances, June 30, 2021

12,397,838

 

$

123,255

 

 

3,087,300

 

$

3

 

$

11,817

 

$

11

 

$

(257,139)

 

$

(245,308)

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

3


 

Minerva Surgical, Inc.

Condensed Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

Six Months Ended June 30,

 

 

2022

 

 

2021

Cash Flows From Operating Activities:

 

 

 

 

 

Net loss

$

(16,538)

 

$

(29,047)

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

 

 

 

 

 

Amortization of debt discount and debt issuance costs

 

123

 

 

2,232

Non-cash interest expense from long-term debt and convertible notes

 

  —

 

 

3,867

Depreciation and amortization

 

5,361

 

 

5,334

Non-cash lease expense

 

308

 

 

  —

Gain on extinguishment of PPP loan

 

  —

 

 

(3,036)

Stock-based compensation expense

 

3,199

 

 

4,609

Change in fair value of redeemable convertible preferred stock warrant liability

 

  —

 

 

532

Change in fair value of contingent consideration liability

 

(4,094)

 

 

917

Change in fair value of derivative liabilities

 

  —

 

 

8,140

Loss from disposal

 

10

 

 

  —

Net changes in operating assets and liabilities, net of acquired businesses:

 

 

 

 

 

Accounts receivable, net

 

275

 

 

992

Inventory

 

(3,043)

 

 

(4,234)

Prepaid expenses and other current assets

 

1,000

 

 

(480)

Other non-current assets

 

  —

 

 

(11)

Accounts payable

 

(338)

 

 

2,929

Accrued liabilities

 

1,065

 

 

1,340

Accrued compensation

 

(51)

 

 

(271)

Operating lease liability

 

(397)

 

 

  —

Net cash used in operating activities

 

(13,120)

 

 

(6,187)

Cash Flows From Investing Activities:

 

 

 

 

 

Purchase of property and equipment

 

(123)

 

 

(481)

Net cash used in investing activities

 

(123)

 

 

(481)

Cash Flows From Financing Activities:

 

 

 

 

 

Proceeds from issuance of common stock

 

21

 

 

926

Payment of contingent consideration

 

(5,000)

 

 

  —

Net cash (used in) provided by financing activities

 

(4,979)

 

 

926

Net decrease in cash, cash equivalents and restricted cash

 

(18,222)

 

 

(5,742)

Cash, cash equivalents and restricted cash at the beginning of the period

 

48,415

 

 

25,166

Cash, cash equivalents and restricted cash at the end of the period

$

30,193

 

$

19,424

Reconciliation of cash, cash equivalents and restricted cash to balance sheets

 

 

 

 

 

Cash and cash equivalents

$

22,386

 

$

11,617

Restricted cash

 

7,807

 

 

7,807

Cash, cash equivalents and restricted cash in balance sheets

$

30,193

 

$

19,424

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash paid for interest

$

1,182

 

$

929

Supplemental Disclosure of Non-cash Items:

 

 

 

 

 

Forgiveness of PPA loan

$

  —

 

$

(3,036)

Vesting of early exercised stock options

$

64

 

$

15

Purchases of property and equipment included in accounts payable

$

18

 

$

24

Net reclassification of inventory to property and equipment for customer usage agreements

$

1,797

 

$

1,936

Right of use asset acquired under operating lease on the adoption of ASC 842

$

894

 

$

  —

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

4


 

Minerva Surgical, Inc.

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

1. Formation and Business of the Company

The Company

Minerva Surgical, Inc. (the Company, we, us, and our) was incorporated in the state of Delaware on November 3, 2008. The Company's headquarters are in Santa Clara, California. The Company is a medical device company that develops therapeutic devices that treat abnormal uterine bleeding in a minimally invasive manner. The Company commenced commercial introduction of its products in the United States in 2015 following the clearance by the U.S. Food and Drug Administration (FDA).

In May 2020, the Company acquired certain assets from Boston Scientific Corporation (BSC) to broaden its product offerings to its customers. The Company derives all of its revenue from sales to customers in the United States through a direct sales force.

Initial Public Offering

On October 21, 2021, the Company's registration statement on Form S-1 (File No. 333- 259832) relating to its initial public offering (IPO) of common stock became effective. The Company issued and sold 6,250,000 shares of its common stock at a public offering price of $12.00 per share, for aggregate gross proceeds of $75.0 million. The Company received $69.8 million in net proceeds after deducting underwriting discounts and commissions. The total IPO offering costs other than underwriting discounts and commissions were $3.2 million.

In connection with the completion of its IPO, on October 21, 2021, the Company's certificate of incorporation was amended and restated to provide for 100,000,000 authorized shares of common stock with a par value of $0.001 per share and 5,000,000 authorized shares of preferred stock with a par value of $0.001 per share.

Immediately prior to the IPO, $79.2 million in aggregate outstanding principal and accrued interest of the convertible promissory notes converted into 7,006,228 shares of redeemable convertible preferred stock at a conversion price of $11.31 per share. Also, immediately prior to the closing, all outstanding shares of the Company's redeemable convertible preferred stock (including those issued upon conversion of the convertible promissory notes) converted into 19,404,066 shares of common stock which resulted in the reclassification of the carrying value of the preferred stock to common stock and additional paid-in capital.

 

Liquidity

 

In accordance with ASC 205-40, Presentation of Financial Statements – Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern.

 

The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.

 

The Company’s financial statements have been prepared on a going concern basis, which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company incurred a net loss of $16.5 million during the six months ended June 30, 2022 and had an accumulated deficit of $266.1 million as of June 30, 2022. The Company had cash and cash equivalents of $22.4 million as of June 30, 2022. The Company has prepared an internal forecast that was reviewed with our Board of Directors that includes plans to raise additional capital within the next six to nine months. Should the plan to raise capital within this timeline not be consummated, this forecast presents the possibility of a financial covenant

5


 

violation related to the company’s minimum cash position within the twelve-month period from the issuance of these financial statements. A potential financial covenant violation, should it occur, would put the company in technical default per the terms of the CIBC Agreement and provide for remedies to the bank per that agreement.

This potential future covenant violation could impact the Company's ability to fund its current business plan within the twelve-months from the date of issuance of these financial statements. The presence of this condition raises substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

 

The Company is currently in discussions with a number of potential lenders and investors to raise additional capital through debt, equity or a combination financing. Such additional financing may or may not be available to the Company on acceptable terms, or at all. If the Company is unable obtain adequate financing on acceptable terms, the Company may terminate or delay the development of one or more of its products, delay sales and marketing efforts or other activities necessary to commercialize its products, or modify its operations to operate within available resources. Failure to manage discretionary spending or raise additional financing as needed, may adversely impact the Company’s ability to achieve its intended business objectives. While we believe our plans will alleviate the conditions that raise substantial doubt, these plans are not entirely within our control and cannot be assessed as being probable of occurring.

 

Impact of the COVID-19 pandemic

The COVID-19 pandemic and the resulting economic downturn have impacted business conditions in the industry in which the Company operates. Since March 2020, the Company’s net sales were negatively impacted by the COVID-19 pandemic as hospitals and ambulatory surgical centers (ASCs) delayed or canceled elective procedures. In response to the pandemic, many state and local governments in the U.S. issued orders that temporarily precluded elective procedures in order to conserve scarce health system resources. The decrease in hospital and ASCs admission rates and elective surgeries reduced both the number of patients being evaluated for treatment with and demand for elective procedures using the Company's products.

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 have resulted in reduced operations at the Company’s headquarters (including manufacturing facility), work stoppages, slowdowns and delays, travel restrictions and cancellation of events and have restricted the efforts of the Company’s sales representatives, thereby significantly and negatively impacting the Company’s operations. These orders and restrictions have significantly decreased the number of procedures performed using the Company’s products and otherwise negatively impacted sales and operations.

The Company continued to experience a slower than expected revenue growth in the six months ended June 30, 2022, a trend that continued from the second half of 2021. While reinstated hospital and ASC closures for elective procedures due to COVID-19 have been lifted in most hospitals and ASCs in the first six months ended June 30, 2022, a nationwide staffing shortage in the hospital work environment resulted in a negative impact on the numbers of ablation procedures scheduled during that time.

The Company has taken necessary precautions to safeguard its employees, patients, customers, and other stakeholders from the COVID-19 pandemic, while maintaining business continuity to support its patients, customers and employees. The timing, extent and continuation of any increase in procedures, and any corresponding increase in sales of the Company’s products, and whether there could be a future decrease in the current level of procedures as a result of the COVID-19 pandemic or otherwise, remain uncertain and are subject to a variety of factors.

The Company is continuing to monitor the impact of the COVID-19 pandemic on its employees and customers and on the markets in which it operates and will take further actions that the Company considers prudent to address the COVID-19 pandemic, while ensuring that it can support its customers and continue to develop its products.

The ultimate extent of the impact of the COVID-19 pandemic on the Company is highly uncertain and subject to change. This impact may result in a material, adverse impact on liquidity, capital resources, supply chain, operations and revenue and may affect third parties in which the Company relies and could worsen over time. The extent of the continuing resurgence of COVID-19, the efficacy and extent of distribution of vaccines, and the impact of variants of COVID-19 is unpredictable.