10-Q 1 nari-10q_20200930.htm 10-Q nari-10q_20200930.htm

 

 

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 September 30, 2020

OR

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

For the transition period from ___________to ___________

Commission File Number: 001-39293

 

Inari Medical, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

45-2902923

( State or other jurisdiction of

incorporation or organization)

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

 

 

9 Parker, Suite 100

Irvine, California

92618

(Address of principal executive offices)

(Zip Code)

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.001 par value per share

 

NARI

 

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  

As of November 6, 2020, the registrant had 48,710,821 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

2

 

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

3

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

31

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

34

Signatures

35

 


i


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

 

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,”, “would”, “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. All statements other than statements of historical fact contained in this Quarterly Report, including without limitation statements regarding our business model and strategic plans for our products, technologies and business, including our implementation thereof, the impact on our business, financial condition and results of operation from the ongoing and global COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, the timing of and our ability to obtain and maintain regulatory approvals, our commercialization, marketing and manufacturing capabilities and strategy, our expectations about the commercial success and market acceptance of our products, the sufficiency of our cash, cash equivalents and short-term investments, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements.

 

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

 

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon these forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. We intend the forward-looking statements contained in this Quarterly Report to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

 

 

ii


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited).

Inari Medical, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)

 

 

September 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

167,988

 

 

$

23,639

 

Restricted cash

 

 

50

 

 

 

50

 

Accounts receivable, net

 

 

20,837

 

 

 

11,302

 

Inventories, net

 

 

7,195

 

 

 

3,953

 

Prepaid expenses and other current assets

 

 

3,391

 

 

 

464

 

Total current assets

 

 

199,461

 

 

 

39,408

 

Property and equipment, net

 

 

5,476

 

 

 

3,331

 

Restricted cash

 

 

338

 

 

 

338

 

Deposits and other assets

 

 

536

 

 

 

1,469

 

Total assets

 

$

205,811

 

 

$

44,546

 

Liabilities, Mezzanine Equity and Stockholders' Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,533

 

 

$

2,549

 

Payroll-related accruals

 

 

8,596

 

 

 

5,225

 

Accrued expenses and other current liabilities

 

 

2,198

 

 

 

1,096

 

Total current liabilities

 

 

14,327

 

 

 

8,870

 

Notes payable, net

 

 

 

 

 

19,481

 

Warrant liabilities

 

 

 

 

 

1,169

 

Total liabilities

 

 

14,327

 

 

 

29,520

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Mezzanine equity

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock, par value $0.001, no shares authorized,

  issued, and outstanding as of September 30, 2020; 32,225,227 shares authorized,

  31,968,570 shares issued and outstanding as of December 31, 2019; aggregate

  liquidation preference of zero as of September 30, 2020 and $54,415 as of

  December 31, 2019

 

 

 

 

 

54,170

 

Stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and

  outstanding as of September 30, 2020; no shares authorized, issued, and outstanding

  as of December 31, 2019

 

 

 

 

 

 

Common stock, $0.001 par value, 300,000,000 and 49,019,607 shares authorized as of

  September 30, 2020 and December 31, 2019, respectively; 48,658,271 and 6,720,767

  shares issued and outstanding as of September 30, 2020 and December 31, 2019,

  respectively

 

 

49

 

 

 

7

 

Additional paid in capital

 

 

225,843

 

 

 

2,061

 

Accumulated deficit

 

 

(34,408

)

 

 

(41,212

)

Total stockholders' equity (deficit)

 

 

191,484

 

 

 

(39,144

)

Total liabilities, mezzanine equity and stockholders' equity (deficit)

 

$

205,811

 

 

$

44,546

 

 

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

1


 

Inari Medical, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

38,715

 

 

$

14,225

 

 

$

91,059

 

 

$

31,242

 

Cost of goods sold

 

 

3,228

 

 

 

1,510

 

 

 

9,420

 

 

 

3,772

 

Gross profit

 

 

35,487

 

 

 

12,715

 

 

 

81,639

 

 

 

27,470

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,217

 

 

 

1,722

 

 

 

11,863

 

 

 

4,511

 

Selling, general and administrative

 

 

23,080

 

 

 

10,100

 

 

 

58,353

 

 

 

23,328

 

Total operating expenses

 

 

28,297

 

 

 

11,822

 

 

 

70,216

 

 

 

27,839

 

Income (loss) from operations

 

 

7,190

 

 

 

893

 

 

 

11,423

 

 

 

(369

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

208

 

 

 

19

 

 

 

409

 

 

 

66

 

Interest expense

 

 

(251

)

 

 

(226

)

 

 

(1,060

)

 

 

(682

)

Change in fair value of warrant liabilities

 

 

 

 

 

(320

)

 

 

(3,317

)

 

 

(562

)

Other expenses

 

 

(651

)

 

 

 

 

 

(651

)

 

 

 

Total other expenses

 

 

(694

)

 

 

(527

)

 

 

(4,619

)

 

 

(1,178

)

Net income (loss) and comprehensive income (loss)

 

$

6,496

 

 

$

366

 

 

$

6,804

 

 

$

(1,547

)

Net income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

0.06

 

 

$

0.26

 

 

$

(0.27

)

Diluted

 

$

0.12

 

 

$

0.01

 

 

$

0.14

 

 

$

(0.27

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

48,335,443

 

 

 

5,962,665

 

 

 

26,423,681

 

 

 

5,773,263

 

Diluted

 

 

55,355,846

 

 

 

43,911,252

 

 

 

49,940,409

 

 

 

5,773,263

 

 

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

2


 

Inari Medical, Inc.

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

(in thousands, except share data)

(unaudited)

 

 

 

Redeemable Convertible

Preferred Stock

 

 

Common Stock

 

 

Subscription

 

 

Additional Paid In

 

 

Accumulated

 

 

Total

Stockholders' Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Receivable

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance, December 31, 2019

 

 

31,968,570

 

 

$

54,170

 

 

 

6,720,767

 

 

$

7

 

 

$

 

 

$

2,061

 

 

$

(41,212

)

 

$

(39,144

)

Options exercised for common

   stock

 

 

 

 

 

 

 

 

58,498

 

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

22

 

Share based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

495

 

 

 

 

 

 

495

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,112

 

 

 

4,112

 

Balance, March 31, 2020

 

 

31,968,570

 

 

 

54,170

 

 

 

6,779,265

 

 

 

7

 

 

 

 

 

 

2,578

 

 

 

(37,100

)

 

 

(34,515

)

Conversion of preferred stock to

  common stock upon initial

  public offering

 

 

(31,968,570

)

 

 

(54,170

)

 

 

31,968,570

 

 

 

32

 

 

 

 

 

 

54,138

 

 

 

 

 

 

54,170

 

Issuance of common stock in

  connection with initial public

  offering, net of issuance costs

  of $16.3 million

 

 

 

 

 

 

 

 

9,432,949

 

 

 

9

 

 

 

 

 

 

162,970

 

 

 

 

 

 

162,979

 

Conversion and reclassification of

  preferred stock warrants to common

  stock warrants upon initial public

  offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,486

 

 

 

 

 

 

4,486

 

Exercise of common stock warrants

 

 

 

 

 

 

 

 

102,533

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Options exercised for common

   stock

 

 

 

 

 

 

 

 

76,764

 

 

 

 

 

 

 

 

 

45

 

 

 

 

 

 

45

 

Share based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

505

 

 

 

 

 

 

505

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,804

)

 

 

(3,804

)

Balance, June 30, 2020

 

 

 

 

 

 

 

 

48,360,081

 

 

 

48

 

 

 

 

 

 

224,726

 

 

 

(40,904

)

 

 

183,870

 

Options exercised for common

   stock

 

 

 

 

 

 

 

 

298,139

 

 

 

1

 

 

 

 

 

 

160

 

 

 

 

 

 

161

 

Issuance of common stock upon

   vesting of restricted stock units,

   net of shares withheld for taxes

 

 

 

 

 

 

 

 

51

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Share based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

959

 

 

 

 

 

 

959

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

6,496

 

 

 

6,496

 

Balance,  September 30, 2020

 

 

 

 

$

 

 

 

48,658,271

 

 

$

49

 

 

$

 

 

$

225,843

 

 

$

(34,408

)

 

$

191,484

 

 


3


 

 

 

Redeemable Convertible

Preferred Stock

 

 

Common Stock

 

 

Subscription

 

 

Additional Paid In

 

 

Accumulated

 

 

Total

Stockholders' Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Receivable

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance, December 31, 2018

 

 

31,968,570

 

 

$

54,170

 

 

 

6,310,865

 

 

$

6

 

 

$

(758

)

 

$

1,430

 

 

$

(40,124

)

 

$

(39,446

)

Adjustment to recognize new

   revenue recognition

   standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

104

 

 

 

104

 

Options exercised for common

   stock

 

 

 

 

 

 

 

 

50,806

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Interest earned on subscription

   receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

-

 

 

 

 

 

 

(4

)

Share based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

91

 

 

 

 

 

 

91

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

(948

)

 

 

(948

)

Balance, March 31, 2019

 

 

31,968,570

 

 

 

54,170

 

 

 

6,361,671

 

 

 

6

 

 

 

(762

)

 

 

1,532

 

 

 

(40,968

)

 

 

(40,192

)

Options exercised for common

   stock

 

 

 

 

 

 

 

 

31,173

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Interest earned on subscription

   receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

(4

)

Share based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

99

 

 

 

 

 

 

99

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(965

)

 

 

(965

)

Balance, June 30, 2019

 

 

31,968,570

 

 

 

54,170

 

 

 

6,392,844

 

 

 

6

 

 

 

(766

)

 

 

1,640

 

 

 

(41,933

)

 

 

(41,053

)

Options exercised for common

   stock

 

 

 

 

 

 

 

 

229,285

 

 

 

 

 

 

 

 

 

70

 

 

 

 

 

 

70

 

Interest earned on subscription

   receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

(4

)

Proceeds from subscription receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

107

 

 

 

 

 

 

 

 

 

107

 

Share based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139

 

 

 

 

 

 

139

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

366

 

 

 

366

 

Balance, September 30, 2019

 

 

31,968,570

 

 

$

54,170

 

 

 

6,622,129

 

 

$

6

 

 

$

(663

)

 

$

1,849

 

 

$

(41,567

)

 

$

(40,375

)

 

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

4


 

Inari Medical, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

6,804

 

 

$

(1,547

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

931

 

 

 

384

 

Amortization of deferred financing costs

 

 

142

 

 

 

69

 

Loss on extinguishment of debt

 

 

648

 

 

 

 

Share based compensation expense

 

 

1,959

 

 

 

329

 

Amortization of fair value of warrants issued with debt

 

 

 

 

 

12

 

Provision for doubtful accounts

 

 

15

 

 

 

 

Loss on change in fair value of warrant liabilities

 

 

3,317

 

 

 

562

 

Changes in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(9,550

)

 

 

(5,711

)

Inventories

 

 

(3,242

)

 

 

(2,042

)

Prepaid expenses and other assets

 

 

(2,945

)

 

 

(295

)

Accounts payable

 

 

984

 

 

 

1,010

 

Payroll-related accruals, accrued liabilities and other liabilities

 

 

4,473

 

 

 

3,119

 

Net cash provided by (used in) operating activities

 

 

3,536

 

 

 

(4,110

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(3,076

)

 

 

(2,062

)

Net cash used in investing activities

 

 

(3,076

)

 

 

(2,062

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

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

  issuance costs paid

 

 

164,361

 

 

 

 

Proceeds from notes payable

 

 

10,000

 

 

 

 

Repayments of notes payable

 

 

(30,250

)

 

 

 

Debt financing costs

 

 

(452

)

 

 

 

Proceeds from subscriptions receivable

 

 

 

 

 

107

 

Proceeds from exercise of stock options

 

 

226

 

 

 

91

 

Proceeds from warrants exercises

 

 

4

 

 

 

 

Net cash provided by financing activities

 

 

143,889

 

 

 

198

 

Net increase (decrease) in cash

 

 

144,349

 

 

 

(5,974

)

Cash, cash equivalents and restricted cash beginning of period

 

 

24,027

 

 

 

21,884

 

Cash, cash equivalents and restricted cash end of period

 

$

168,376

 

 

$

15,910

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

82

 

 

$

11

 

Cash paid for interest

 

$

966

 

 

$

605

 

 

 

 

 

 

 

 

 

 

Noncash investing and financing:

 

 

 

 

 

 

 

 

Common stock issued on conversion of convertible preferred stock

 

$

54,170

 

 

$

 

Common stock warrants issued on conversion of preferred stock warrants

  and the reclassification of the warrant liability

 

$

4,486

 

 

$

 

Deferred initial public offering cost recorded to additional paid in capital

 

$

1,382

 

 

$

 

 

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


 

5


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1. Organization

Description of Business

Inari Medical, Inc. (the “Company”) was incorporated in Delaware in July 2011 and is headquartered in Irvine, California. The Company develops, manufactures, markets and sells devices for the interventional treatment of venous diseases. The Company received initial 510(k) clearance from the U.S. Food and Drug Administration (the “FDA”) in February 2015 for its FlowTriever system, used primarily to treat pulmonary emboli, and in February 2017 for its ClotTriever system, used for the treatment of deep vein thrombosis.

Initial Public Offering

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

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

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

Reverse Stock Splits

In March 2020, the Company’s board of directors approved an amendment to the Company’s certificate of incorporation to effect a reverse split of shares of the Company’s common stock and redeemable convertible preferred stock on a 1-for-1.19 basis.

In May 2020, the Company’s board of directors approved an amendment to the Company’s certificate of incorporation to effect a second reverse split of shares of the Company’s common stock and redeemable convertible preferred stock on a 1-for-1.20 basis. All common stock, redeemable convertible preferred stock, warrants, stock options, RSUs and per share information presented in the financial statements have been adjusted to reflect the effect of both reverse stock splits on a retroactive basis for all periods presented. Any fractional shares resulting from the reverse stock splits are rounded down to a whole share.

2. Summary of Significant Accounting Policies

COVID-19 and CARES Act

The Company has been actively monitoring the novel coronavirus, or COVID-19, situation and its impact. In response to the pandemic, numerous state and local jurisdictions imposed “shelter-in-place” orders, quarantines and other restrictions. Starting in March 2020 in the United States, governmental authorities recommended, and in certain cases required, that elective, specialty and other procedures and appointments, be suspended or canceled. Similarly, in March 2020, the governor of California, where the Company’s headquarters are located, issued “stay at home” orders limiting non-essential activities, travel and business operations. Such orders or restrictions resulted in reduced operations at the Company’s headquarters, work stoppages, slowdowns and delays, travel restrictions and cancellation of events. These orders and restrictions significantly decreased the number of procedures performed using the Company’s products during March and April 2020 and otherwise negatively impacted operations.

In response to the impact of COVID-19, the Company implemented a variety of measures to help manage through the impact and position it to resume operations quickly and efficiently once these restrictions were lifted. Some of these measures included: adapting, expanding and improving various sales, physician outreach and training programs to address the current environment; producing approximately four months’ worth of inventory before temporarily suspending production and executing a work from home strategy for administrative functions. The impact of COVID-19 continues to change and cannot be predicted. As a result, the Company expects the pandemic could continue to negatively impact its business, financial condition and results of operations.

6


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

On March 27, 2020, the President signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The Company currently may be eligible but has not taken advantage of the payroll protection program, emergency grants and business loans under the CARES Act. The Company expects to monitor the impact that the CARES Act may have on its business, financial condition, results of operations, or liquidity.

Basis of Presentation of Unaudited Interim Condensed Consolidated Financial Statements

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain prior year reported amounts have been reclassified to conform with the 2020 presentation.

The interim condensed consolidated balance sheet as of September 30, 2020, the condensed consolidated statements of operations, mezzanine equity and stockholders’ deficit, and cash flows for the three and nine months ended September 30, 2020 and 2019 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s consolidated financial position as of September 30, 2020 and its consolidated results of operations and cash flows for the three and nine months ended September 30, 2020 and 2019. The financial data and the other financial information disclosed in the notes to the condensed consolidated financial statements related to the three and six months periods are also unaudited. The condensed consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2019 included herein was derived from the audited financial statements as of that date. These interim condensed consolidated financial statements should be read in conjunction with our audited financial statements included in the Company’s prospectus dated May 21, 2020 filed pursuant to Rule 424(b)(4) with the U.S. Securities and Exchange Commission on May 26, 2020.

Principles of Consolidation

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

Management Estimates

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

JOBS Act Accounting Election

As an emerging growth company under the Jumpstart Our Business Startups Act of 2012 ("the JOBS Act"), the Company is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company has elected to take advantage of the extended transition period for adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies.

Cash, Cash Equivalents and Restricted Cash

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

7


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

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

Restricted cash as of September 30, 2020 and December 31, 2019 consisted of a cash secured letter of credit in the amount of $338,000 representing collateral for the Company’s facility lease. Restricted cash additionally included as of September 30, 2020 and December 31, 2019 a compensating balance of $50,000 to secure the Company’s corporate purchasing cards.

Accounts Receivable, net

Trade accounts receivable are recorded at the invoiced amount, net of any allowance for doubtful accounts. Any allowance for doubtful accounts is developed based upon several factors including the customers’ credit quality, historical write-off experience and any known specific issues or disputes which exist as of the balance sheet date. Account receivable balances are written off against the allowance after appropriate collection efforts are exhausted. The allowance for doubtful accounts was $77,000 and $62,000 as of September 30, 2020 and December 31, 2019, respectively, and no accounts receivable write offs were recognized during the three and nine months ended September 30, 2020 and 2019. Despite the Company’s efforts to minimize credit risk exposure, customers could be adversely affected if future economic and industry trends, including those related to COVID-19, change in such a manner as to negatively impact their cash flows. The full effects of COVID-19 on the Company’s customers are highly uncertain and cannot be predicted. As a result, the Company’s future collection experience can differ significantly from historical collection trends. If the Company’s clients experience a negative impact on their cash flows, it could have a material adverse effect on the Company’s results of operations and financial condition.

Inventories, net

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

Property and Equipment

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

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

Deferred Initial Public Offering Costs

Specific incremental legal, accounting and other fees and costs directly attributable to a proposed or actual offering of securities may properly be deferred and charged against the gross proceeds of the offering. As of December 31, 2019, there were approximately $1,382,000 of offering costs, primarily consisting of legal, accounting and printing fees, which were capitalized in other non-current assets on the balance sheet. In May 2020, upon the closing of the IPO, total deferred costs of approximately $3,701,000 were offset against the Company’s IPO proceeds.

Impairment of Long-lived Assets

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

8


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Fair Value of Financial Instruments

The Company’s cash, cash equivalents and restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their liquidity or short maturities. Management believes that its long-term debt bears interest at the prevailing market rates for instruments with similar characteristics; accordingly, the carrying value of this instrument approximates its fair value as of September 30, 2020 and December 31, 2019.

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

 

Level 1—Quoted prices in active markets for identical assets or liabilities.

 

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

See Note 3 for further information.

Convertible Preferred Stock Warrant Liability

The Company has accounted for its freestanding warrants to purchase shares of the Company’s convertible preferred stock as liabilities at fair value upon issuance primarily because the preferred shares underlying the warrants contain contingent redemption features outside the control of the Company. The warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as the change in fair value of warrant liability and recorded to other expense in the statements of operations. The carrying value of the warrants continued to be adjusted until the completion of the IPO, which occurred in May 2020. At that time, the preferred stock warrant liability was adjusted to fair value and reclassified to additional paid-in capital, a component of stockholders’ equity (deficit) (see Note 3).

Revenue Recognition

On January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, using the modified retrospective method applied to contracts which were not completed as of that date. 

Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

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

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

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

Assuming all other revenue recognition criteria have been met, the Company recognizes revenue for arrangements where the Company has satisfied its performance obligation of delivering the product. For sales where the Company’s sales representatives hand

9


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

deliver products directly to the hospital, control of the products transfers to the customer upon such hand delivery. For sales where products are shipped, control of the products transfers either upon shipment or delivery of the products to the customer, depending on the shipping terms and conditions. As of September 30, 2020 and December 31, 2019, the Company recorded $441,000 and $330,000, respectively, of unbilled receivables, which are included in accounts receivable, net, in the accompanying balance sheets.

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

ClotTriever

 

 

37

%

 

 

38

%

 

 

38

%

 

 

38

%

FlowTriever

 

 

63

%

 

 

62

%

 

 

62

%

 

 

62

%

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

The Company offers its standard warranty to all customers and no warranties are available for sale on a standalone basis. The Company’s warranty provides that its products are free of material defects and conform to specifications, and includes an offer to repair, replace or refund the purchase price of defective products. This assurance does not constitute a service and is not considered a separate performance obligation. The Company estimates warranty liabilities at the time of revenue recognition and records it as a charge to cost of goods sold.

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

Cost of Goods Sold

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

Shipping Costs

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

Advertising Costs

Advertising costs are charged to operations as incurred. Advertising costs were $106,000 and $30,000 for the three months ended September 30, 2020 and 2019, respectively and $217,000 and $65,000 for the nine months ended September 30, 2020 and 2019, respectively. Advertising costs are included in selling, general and administrative expenses in the accompanying statements of operations.

Research and Development

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

Patent-related Expenditures

Expenditures related to patent research and applications, which are primarily legal fees, are expensed as incurred and are included in selling, general and administrative expenses in the accompanying statements of operations.

10


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Stock-based Compensation

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

Income Taxes

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

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

Foreign Currency Transactions

Certain vendors are paid in currencies other than the US dollar. Transaction gains and losses are included in other expenses.

Comprehensive Income (Loss)

The Company’s net income (loss) equaled comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019.

Net Income (Loss) per Share of Common Stock

Basic net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for potential dilutive common shares. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net income (loss) per share calculation, redeemable convertible preferred stock and warrants, and common stock options are potentially dilutive securities. For the periods the Company is in a net loss position, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential dilutive common shares would have been anti-dilutive.

The Company allocates no loss to participating securities because they have no contractual obligation to share in the losses of the Company. The shares of the Company’s convertible preferred stock participate in any dividends declared by the Company and are therefore considered to be participating securities.

Segment Reporting

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company has determined it operates in one segment - the development and commercialization of innovative and minimally invasive mechanical thrombectomy devices to treat thromboembolism in the venous system. Geographically, the Company sells to hospitals in the United States. Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.

11


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Recently Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands guidance on accounting for share-based payment awards, which includes share-based payment transactions for acquiring goods and services from nonemployees and aligns the accounting for share-based payments for employees and non-employees. The Company adopted this guidance effective January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s financial statements.

Recent Accounting Pronouncements

In February 2017, the FASB issued ASU 2017-02, Leases, as amended, which requires lessees to recognize “right of use” assets and liabilities for all leases with terms of more than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2017-02 requires additional quantitative and qualitative financial statement note disclosures about the leases, significant judgments made in accounting for those leases and amounts recognized in the financial statements about those leases. The amended guidance will be effective for the Company on January 1, 2022 with early adoption permitted. Management is evaluating the impact that adopting this guidance will have on the financial statements, but anticipates an increase in assets and liabilities due to the recognition of the required right-of-use asset and corresponding liability for all significant lease obligations that are currently classified as operating leases. The income statement recognition of lease expense is not expected to materially change from the current methodology.

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model, which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. The guidance will be effective for the Company on January 1, 2023 with early adoption permitted. Management is evaluating the impact that adopting this guidance will have on the financial statements.

3. Fair Value Measurements

The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of September 30, 2020 and December 31, 2019 (in thousands):

 

 

 

September 30, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

$

95,003

 

 

$

 

 

$

 

 

$

95,003

 

Total assets

 

$

95,003

 

 

$

 

 

$

 

 

$

95,003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred stock warrant liability

 

$

 

 

$

 

 

$

1,169

 

 

$

1,169

 

Total liabilities

 

$

 

 

$

 

 

$

1,169

 

 

$

1,169

 

 

There were no transfers between Levels 1, 2 or 3 for the periods presented.

 


12


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

The change in the fair value of the warrant liability is summarized below (in thousands):

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Beginning balance

 

$

1,169

 

 

$

213

 

Change in fair value of warrant liability

 

 

3,317

 

 

 

562

 

Conversion of preferred stock warrants to common stock

  warrants upon the closing of the IPO

 

 

(4,486

)

 

 

 

Ending balance

 

$

 

 

$

775

 

 

The valuation of the Company’s convertible preferred stock warrant liability contains unobservable inputs that reflect the Company’s own assumptions for which there was little, if any, market activity for at the measurement date. Accordingly, the Company’s convertible preferred stock warrant liability was measured at fair value in a recurring basis using unobservable inputs and are classified as Level 3 inputs, and any change in fair value was recognized as other expense in the statements of operations (see Note 11).

4. Inventories, net

Inventories are net of reserves totaling $238,000 and $537,000 as of September 30, 2020 and December 31, 2019, respectively, and consist of the following (in thousands):

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Raw materials

 

$

1,547

 

 

$

1,067

 

Work in process

 

 

737

 

 

 

640

 

Finished goods

 

 

4,911

 

 

 

2,246

 

 

 

$

7,195

 

 

$

3,953

 

 

5. Property and Equipment. net

Property and equipment consist of the following (in thousands):

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Manufacturing equipment

 

$

3,555

 

 

$

2,190

 

Leasehold improvements

 

 

1,467

 

 

 

932

 

Computer software

 

 

351

 

 

 

296

 

Furniture and fixtures

 

 

402

 

 

 

259

 

Computer hardware

 

 

909

 

 

 

527

 

Assets in progress

 

 

1,002

 

 

 

406

 

 

 

 

7,686

 

 

 

4,610

 

Accumulated depreciation

 

 

(2,210

)

 

 

(1,279

)

 

 

$

5,476

 

 

$

3,331

 

 

Depreciation expense of $271,000 and $131,000 was included in operating expenses and $87,000 and $25,000 was included in cost of goods sold for the three months ended September 30, 2020 and 2019, respectively. Depreciation expense of $688,000 and $316,000 was included in operating expenses and $243,000 and $68,000 was included in cost of goods sold for the nine months ended September 30, 2020 and 2019, respectively.

 

 

13


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Capitalized Implementation Costs of a Hosting Arrangement

The Company has several software systems that are cloud based hosting arrangements with service contracts. The Company early and prospectively adopted ASU 2018-15, Intangibles—Goodwill and Other-Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract in the classification of costs incurred in connection with the implementation of these various software systems. Based on the guidance, the Company expenses all costs (internal and external) that are incurred in the planning and post-implementation operation stages and has capitalized approximately $220,000 in implementation costs related to the application development stage. The capitalized costs are amortized on a straight-line basis over the non-cancelable contract terms, generally three years. As of September 30, 2020 and December 31, 2019, approximately $138,000 and $46,000, respectively, of the capitalized costs were classified in current assets and $0 and $87,000, respectively, were classified in noncurrent assets. The Company starts amortizing capitalized implementation costs when the systems are placed in production and ready for their intended use. Amortization expense for the three and nine months ended September 30, 2020 was approximately $27,000 and $66,000, respectively, and is included in selling, general and administrative expenses.

6. Commitments and Contingencies

Operating Leases

In March 2019, the Company executed a five-year lease for a facility in Irvine, California, where all operations of the Company were moved when the Company obtained control of the facility in September 2019. The lease expires in September 2024 and contains two optional extension periods of five years each. In addition to the minimum future lease commitments presented below, the lease requires the Company to pay property taxes, insurance, maintenance, and repair costs. The lease includes a one-month rent holiday concession and escalation clauses for increased rent over the lease term. Rent expense is recognized using the straight-line method over the term of the lease. The Company records deferred rent calculated as the difference between rent expense and the cash rental payments. In October 2020, the Company entered into a new facility lease (See Note 17 – Subsequent Events).

Rent expense under the lease agreements for the three months ended September 30, 2020 and 2019 was $264,000 and $71,000, respectively, and $588,000 and $173,000 for the nine months ended September 30, 2020 and 2019, respectively. The Company also leases certain equipment under operating leases expiring in 2024. Future minimum commitments under all lease agreements are as follows (in thousands):

 

Year ending December 31:

 

Amount

 

Remainder of 2020

 

$

190

 

2021

 

 

761

 

2022

 

 

751

 

2023

 

 

720

 

2024

 

 

542

 

 

 

$

2,964

 

 

Indemnification

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and may provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not been subject to any claims or required to defend any action related to its indemnification obligations.

The Company’s amended and restated certificate of incorporation contains provisions limiting the liability of directors, and its amended and restated bylaws provide that the Company will indemnify each of its directors to the fullest extent permitted under Delaware law. The Company’s amended and restated certificate of incorporation and amended and restated bylaws also provide its board of directors with discretion to indemnify its officers and employees when determined appropriate by the board. In addition, the Company has entered and expects to continue to enter into agreements to indemnify its directors and executive officers.

Legal Proceedings

From time to time, the Company may become involved in legal proceedings arising out of the ordinary course of its business. Management is currently not aware of any matters that will have a material adverse effect on the financial position, results of operations or cash flows of the Company.

14


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

7. Concentrations

All the Company’s revenue is derived from the sale of catheter-based therapeutic devices in the United States. For the three and nine months ended September 30, 2020 and 2019, there were no customers which accounted for more than 10% of the Company’s revenue. There were no customers which accounted for more than 10% of the Company’s accounts receivable as of September 30, 2020 and December 31, 2019.

No vendor accounted for more than 10% of the Company’s purchases for the three and nine months ended September 30, 2020 and 2019. There were no vendors which accounted for more than 10% of the Company’s accounts payable as of September 30, 2020 and December 31, 2019.

8. Related Party

Licensed Patents

Certain stockholders of the Company are stockholders of Inceptus Medical, Inc. (“Inceptus”). Beginning in September 2011, the Company engaged Inceptus to develop the technology that has led to certain components used in the Company’s products, the FlowTriever and the ClotTriever systems. In October 2014, the Company, through a license agreement with Inceptus, obtained an exclusive, perpetual, fully paid-up irrevocable, worldwide license to the patents, patent applications and technology, including the right to grant and authorize sublicenses, to make, have made, use, sell, offer for sale, import and otherwise exploit products in connection with the licensed technology. The licensed technology is any and all technology involving a high wire count braid, excluding the tubular braiding subject to the sublicense agreement described below.

Included in prepaid expenses and other current assets was a non-interest-bearing retainer paid by the Company to Inceptus. The retainer was applied to amounts owed by the Company to Inceptus at a time mutually agreed to by both parties. For three and nine months ended September 30, 2019, the Company incurred development expenses with Inceptus of $17,000 and $24,000, respectively, which were applied against the balance of the retainer and included in research and development expense. In December 2019, Inceptus repaid in full to the Company the outstanding balance of the retainer.  For the three and nine months ended September 30, 2020, the Company incurred and paid development expenses with Inceptus of $3,000 and $16,000, respectively, which were included in research and development expense.

Sublicense Agreement

In August 2019, the Company entered into a sublicense agreement with Inceptus, pursuant to which Inceptus granted to the Company a non-transferable, worldwide, exclusive sublicense to its licensed intellectual property rights related to the tubular braiding for the non-surgical removal of clots and treatment of embolism and thrombosis in human vasculature other than carotid arteries, coronary vasculature and cerebral vasculature; such rights were originally granted to Inceptus pursuant to an intellectual property license agreement with Drexel University, or Drexel License, under which Drexel retained certain rights to use, and to permit other non-commercial entities to use, the sublicensed intellectual property for educational and non-commercial research purposes. The Company is obligated to comply with, and to avoid acts or omissions that would reasonably be likely to cause a breach of the Drexel License. The sublicense agreement will continue until the expiration of the sublicensed patent, unless terminated earlier pursuant to the terms of the agreement. The Company may terminate the sublicense agreement at any time by providing prior written notice.

In connection with the sublicense agreement, during the year ended 2019 the Company paid Inceptus $139,000 for the reimbursement of expenses and milestone and administration fees. The Company was required to pay an ongoing quarterly administration fee of $18,000, which increased to $29,000 per quarter upon the completion of the Company’s IPO. Additionally, the Company is obligated to pay Inceptus an ongoing royalty ranging from 1% to 1.5% of the net sales of products utilizing the licensed intellectual property, subject to a minimum royalty quarterly fee of $1,000. For the three and nine months ended September 30, 2020, the Company recorded royalty expense of $139,000 and $325,000, respectively. For both the three and nine months ended September 30, 2019, the Company recorded royalty expense of $36,000.  Royalty expense is included in cost of goods sold.

Other Services

The Company utilizes MRI The Hoffman Group (“MRI”), a recruiting services company owned by the brother of the Chief Executive Officer and President and member of the board of directors of the Company. The Company paid for recruiting services provided by MRI amounting to $140,000 and $210,000 for the three months ended September 30, 2020 and 2019, respectively, and $387,000 and $380,000 for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the Company owed MRI $141,000, which is included in accounts payable. No amounts were due to MRI at December 31, 2019.

15


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

9. Debt

The Company had the following outstanding debt, net of deferred financing costs and discounts, as of September 30, 2020 and December 31, 2019 (in thousands):

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Revolving line of credit

 

$

-

 

 

$

5,000

 

Term loan

 

 

-

 

 

 

15,000

 

Final payment fee

 

 

-

 

 

 

150

 

Total notes payables

 

 

-

 

 

 

20,150

 

Unamortized discount and debt issuance costs

 

 

-

 

 

 

(669

)

Notes payable, net

 

$

-

 

 

$

19,481

 

 

Signature Bank Credit Facility

In December 2019, the Company entered into a $40 million credit facility with Signature Bank (the “SB Credit Facility”) and concurrently repaid and extinguished its term loan with East West Bank. The SB Credit Facility consisted of a term loan of up to $25 million and a revolving line of credit of $15 million. The term loan was available in two tranches: a $15 million tranche that was fully funded on the closing date, and a $10 million tranche available through December 2020 subject to the Company’s achievement of at least $60 million of trailing 12-month revenue no later than August 2020. The Company used part of the proceeds from the first tranche to fully repay the $10 million term loan with East West Bank. In March 2020, the Company borrowed an additional $10 million which was available under the term loan.

The maturity date of the term loan was in December 2024. Under the agreement, the Company was required to make monthly interest payments through December 2021. The term loan bore interest at an annual rate equal to the greater of 5.50% or the Prime Rate plus 0.50%.

Under the revolving line of credit, the Company could borrow, repay and re-borrow up to 80% of eligible accounts receivable up to a maximum of $15 million. The revolving line of credit bore interest at an annual rate equal to the greater of 5.00% or the prime rate.

In August 2020, the Company repaid the SB Credit Facility in full, including the final payment fee of $250,000. Upon the repayment, the Company terminated the SB Credit Facility and recorded a loss on extinguishment of debt of $648,000 resulting from the write off of the unamortized deferred financing cost related to the SB Credit Facility which is reflected as Other Expenses in the unaudited condensed statements of operations.

Bank of America Credit Facility

In September 2020, the Company entered into a senior secured revolving credit facility with Bank of America (the “Credit Agreement”), under which the Company may borrow loans up to a maximum principal amount of $30.0 million. The amount available to borrow under the Credit Agreement is comprised of a) 85% of eligible accounts receivable, plus b) pledged cash (up to $10 million).  There was no principal amount outstanding and no cash was pledged under the Credit Agreement as of September 30, 2020.

Advances under the Credit Agreement will bear interest at a base rate per annum (the “Base Rate”) plus an applicable margin (the “Margin”).  The Base Rate equals the greater of (i) the Prime Rate, (ii) the Federal funds rate plus 0.50%, or (iii) the LIBOR rate based upon an interest period of 30 days plus 1.00%. The Margin will be 1.25% until March 31, 2021 and thereafter, will range from 1.00% to 1.50% based on the Company’s applicable fixed charge coverage ratio. Advances under the Credit Agreement designated as “LIBOR Loans” will bear interest at a rate per annum equal to the LIBOR rate plus the applicable Margin of 2.25% until March 31, 2021 and thereafter, ranging from 2.00% to 2.50% based on the Company’s applicable fixed charge coverage ratio.  Interest on loans outstanding under the Credit Agreement is payable monthly. Loan principal balances outstanding under the Credit Agreement are due at maturity in September 2023. The Company may prepay any loans under the Credit Agreement at any time without any penalty or premium. The Company is also required to pay an unused line fee at an annual rate ranging from 0.25% to 0.375% per annum of the average daily unused portion of the aggregate revolving credit commitments under the Credit Agreement.

The Credit Agreement also includes a Letter of Credit subline facility (the “LC Facility”) of up to $5 million. The aggregate stated amount outstanding of letter of credits reduces the total borrowing base available under the Credit Agreement.  The Company is required to pay the following fees under the LC Facility are as follows: (a) a fee equal to the applicable margin in effect for LIBOR loans (currently 2.25%) times the average daily stated amount of outstanding letter of credits; (b) a fronting fee equal to 0.125% per

16


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

annum on the stated amount of each letter of credit outstanding.  As of September 30, 2020, the Company had one letter of credit in the amount of $1.5 million outstanding under the LC Facility (See Note 17  – Subsequent Events).

The Company paid Bank of America a closing fee of $150,000 and incurred approximately $290,000 in legal and other fees directly related to the Credit Agreement.  The Credit Agreement contains certain customary covenants and events of default, including: payment defaults, breaches of any representation, warranty or covenants, judgment defaults, cross defaults to certain other contracts, certain events with respect to governmental approvals if such events could cause a material adverse change, a material impairment in the perfection or priority of the lender's security interest or in the value of the collateral, a material adverse change in the business, operations, or condition of us or any of our subsidiaries, and a material impairment of the prospect of repayment of the loans. Upon the occurrence of an event of default, a default increase in the interest rate of an additional 2.0% could be applied to the outstanding loan balance and the lender could declare all outstanding obligations immediately due and payable and take such other actions as set forth in the loan and security agreement.

Obligations under the Credit Agreement are secured by substantially the Company’s assets, excluding intellectual property.  

 

Deferred Financing Costs

As of September 30, 2020, costs incurred directly related to debt are presented in other assets and are being amortized over the three-year life of the Credit Agreement on the straight-line basis. As of December 31, 2019, deferred financing costs were presented as a reduction of the related debt instrument and were amortized over the life of the related loan on an effective interest method as follows (in thousands):

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Deferred financing costs

 

$

440

 

 

$

686

 

Accumulated amortization

 

 

(9

)

 

 

(17

)

Unamortized deferred financing costs

 

$

431

 

 

$

669

 

 

10. Redeemable Convertible Preferred Stock

Redeemable convertible preferred stock (“convertible preferred stock”) consists of the following as of December 31, 2019 (in thousands, except share data):

 

 

 

Shares

Authorized

 

 

Shares Issued

and

Outstanding

 

 

Net Carrying

Value

 

 

Liquidation

Value

 

Series A

 

 

6,299,019

 

 

 

6,221,977

 

 

$

8,777

 

 

$

8,885

 

Series B

 

 

11,270,319

 

 

 

11,090,726

 

 

 

18,474

 

 

 

18,530

 

Series C

 

 

14,655,889

 

 

 

14,655,867

 

 

 

26,919

 

 

 

27,000

 

Total

 

 

32,225,227

 

 

 

31,968,570

 

 

$

54,170

 

 

$

54,415

 

 

In connection with the IPO in May 2020, the 31,968,570 shares of redeemable convertible preferred stock were converted into 31,968,570 shares of common stock, resulting in the reclassification of the related redeemable convertible preferred stock of $54.2 million to common stock and APIC. There are no redeemable convertible preferred stock outstanding as of June 30, 2020.

As of December 31, 2019, the Company classified its Series A, Series B, and Series C convertible preferred stock outside of stockholders’ deficit as mezzanine equity because, in the event of certain “liquidation events” that were not solely within the control of the Company (including liquidation, sale or transfer of control of the Company), the shares would become redeemable at the option of the holders. As of December 31, 2019, the Company had not adjusted the carrying values of the convertible preferred stock to their deemed liquidation values of such shares since a liquidation event was not probable at the balance sheet date.

11. Stockholder’s Equity

Authorized Stock

As of December 31, 2019, the Company had authorized capital of 81,244,834 shares of stock, consisting of 49,019,607 shares of common stock, par value $0.001 per share, and 32,225,227 shares of Preferred Stock, par value $0.001 per share, 6,299,019 of which

17


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

were designated Series A Preferred Stock, 11,270,319 of which were designated Series B Preferred Stock and 14,655,889 of which were designated Series C Preferred Stock.

Upon the closing of the IPO in May 2020, and as of September 30, 2020, the Company had authorized 310,000,000 shares of stock, of which 300,000,000 shares are designated as common stock and 10,000,000 shares are designated as preferred stock. All stock has a par value of $0.001 per share.  There are no shares of preferred stock outstanding as of September 30, 2020.

Warrants

The Company previously issued common stock warrants and redeemable convertible preferred stock warrants.

Warrants issued and outstanding as of September 30, 2020 are as follows:

 

 

Warrants Outstanding

 

 

Number of

warrants

 

 

Exercise

Price

 

 

Expiration

Common stock warrants

 

 

179,558

 

 

$

1.67

 

 

4/28/2026 - 3/30/2027

Total outstanding warrants

 

 

179,558

 

 

 

 

 

 

 

Warrants issued and outstanding as of December 31, 2019 were as follows:

 

 

 

Warrants Outstanding

 

 

Number of

warrants

 

 

Exercise

Price

 

 

Expiration

Common stock warrants

 

 

27,810

 

 

$

0.14

 

 

10/19/2025

Series A preferred stock warrants

 

 

77,030

 

 

$

1.43

 

 

12/10/2021

Series B preferred stock warrants

 

 

179,558

 

 

$

1.67

 

 

4/28/2026 - 3/30/2027

Total preferred stock warrants

 

 

256,588

 

 

 

 

 

 

 

Total outstanding warrants

 

 

284,398

 

 

 

 

 

 

 

 

The Series A and Series B redeemable convertible preferred stock warrants (“Preferred Warrants”) allowed the holders to obtain shares of redeemable convertible preferred stock that contain a liquidation preference. Because this liquidation preference may have been payable in cash upon a change in control of the Company or upon exercise of redemption rights and because such a transaction was considered to be outside of the control of the Company, the Preferred Warrants were classified as liabilities on the accompanying balance sheets and were presented at their estimated fair values at each reporting date.  On the completion of the IPO, all the outstanding Preferred Warrants were converted into warrants to purchase an aggregate of 256,588 shares of common stock, which resulted in the reclassification of the convertible preferred stock warrant liability to additional paid-in capital.

In June 2020, 27,810 common stock warrants were exercised for cash.  In addition, 77,030 warrants were net exercised and the Company issued 74,723 shares of common stock.

The fair value of the Preferred Warrants was determined using the Black Scholes option pricing model with the following assumptions:

 

 

 

May 21, 2020 (1)

 

 

December 31, 2019

 

 

 

Series A

 

 

Series B

 

 

Series A

 

 

Series B

 

Expected volatility

 

 

51.10

%

 

 

50.00

%

 

 

41.40

%

 

 

39.80

%

Preferred stock fair value (per share)

 

$

19.00

 

 

$

19.00

 

 

$

5.88

 

 

$

5.94

 

Dividend yield

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

Risk free interest rates

 

 

0.17

%

 

 

0.53

%

 

 

1.58

%

 

 

1.83

%

Expected remaining term in years

 

 

1.55

 

 

5.94-6.86

 

 

 

1.95

 

 

6.33-7.25

 

 

(1) Date the Company’s registration statement on Form S-1 was declared effective

18


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

12. Equity Incentive Plans

2011 Equity Incentive Plan and 2020 Incentive Award Plan

In 2011, the Company adopted the 2011 Equity Incentive Plan (the “2011 Plan”) to permit the grant of share-based awards, such as stock grants and incentives and non-qualified stock options to employees, directors, consultants and advisors. The Board has the authority to determine to whom awards will be granted, the number of shares, the term and the exercise price. 

In March 2020, the Company adopted the 2020 Incentive Award Plan (the “2020 Plan”), which became effective in connection with the IPO. As a result, the Company may not grant any additional awards under the 2011 Plan. The 2011 Plan will continue to govern outstanding equity awards granted thereunder. The Company has initially reserved 3,468,048 shares of common stock for the issuance of a variety of awards under the 2020 Plan, including stock options, stock appreciation rights, awards of restricted stock and awards of restricted stock units. In addition, the number of shares of common stock reserved for issuance under the 2020 Plan will automatically increase on the first day of January for a period of up to ten years, commencing on January 1, 2021, in an amount equal to 3% of the total number of shares of the Company’s capital stock outstanding on the last day of the preceding year, or a lesser number of shares determined by the Company’s board of directors. As of September 30, 2020, there were 3,592,873 shares available for issuance under the 2020 Plan, including 269,268 shares which remained available under the 2011 Plan at the time the 2020 Plan became effective.

Stock Options

A summary of stock option activity under the 2011 Plan for the nine months ended September 30, 2020 is as follows (intrinsic value in thousands):

 

 

 

Number of

Awards

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Fair Value

 

 

Weighted

Average

Remaining

Contractual

Life (in years)

 

 

Intrinsic

Value

 

Outstanding, December 31, 2019

 

 

4,082,302

 

 

$

0.90

 

 

$

0.74

 

 

 

8.76

 

 

$

22,667

 

Granted

 

 

305,494

 

 

 

7.47

 

 

 

3.73

 

 

 

 

 

 

 

 

 

Exercised

 

 

(433,402

)

 

 

0.52

 

 

 

0.50

 

 

 

 

 

 

 

21,053

 

Cancelled

 

 

(98,380

)

 

 

8.50

 

 

 

3.63

 

 

 

 

 

 

 

1,007

 

Outstanding, September 30, 2020

 

 

3,856,014

 

 

$

1.27

 

 

$

0.93

 

 

 

8.18

 

 

$

261,235

 

Vested and exercisable at September 30, 2020

 

 

1,494,281

 

 

$

0.64

 

 

$

0.54

 

 

 

7.80

 

 

$

102,179

 

Vested and expected to vest at September 30, 2020

 

 

3,845,366

 

 

$

1.19

 

 

$

0.87

 

 

 

8.10

 

 

$

260,821

 

 

The aggregate intrinsic values of options outstanding, vested and exercisable, and vested and expected to vest were calculated as the difference between the exercise price of the options and the estimated fair value of the Company’s common stock.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions for the nine months ended September 30, 2020 and 2019:

 

 

 

2020

 

 

2019

 

Expected volatility

 

40.60%

 

 

64.60% - 93.40%

 

Weighted-average volatility

 

40.60%

 

 

90.06%

 

Common stock fair value (per share)

 

$7.88 - $9.05

 

 

$0.59 - $3.87

 

Dividend yield

 

0.00%

 

 

0.00%

 

Risk free interest rates

 

1.46% - 1.68%

 

 

1.67% - 2.44%

 

Expected remaining term in years

 

5.90 - 6.07

 

 

5.02 - 6.06

 

Restricted Stock Units

In March 2019, the Company granted, under the 2011 Plan, 2,867,326 restricted stock unit awards (“RSUs”) to certain employees that vest only upon the satisfaction of both a time-based service condition and a performance-based condition. The time-based service condition for these awards generally is satisfied over four years. The performance-based condition is a liquidity event

19


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

requirement that was satisfied on the effective date of the IPO of the Company’s common stock. The RSUs vest on the first date upon which both the service-based and performance-based requirements are satisfied. If the RSUs vest, the actual number of RSUs that will vest will be dependent on the per share value of the Company’s common stock, which is a market-based condition, determined based on the average closing price of the Company’s common stock for the three-month period immediately preceding the satisfaction of the service condition.

The probabilities of the actual number of RSUs expected to vest are reflected in the grant date fair values, and the compensation expense for these awards will be recognized assuming the requisite service period is rendered, and only if the performance-based condition is considered probable to be satisfied.

Through May 21, 2020, no stock-based compensation expense had been recognized for these awards because the liquidity event performance condition described above for the RSUs was not considered probable of being satisfied. Upon the completion of the Company’s IPO, the Company recognized $159,000 of cumulative stock-based compensation expense related to such awards.

2020 Plan

RSUs are share awards that entitle the holder to receive freely tradable shares of the Company’s common stock upon vesting. The RSUs cannot be transferred and the awards are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions. The RSUs generally vest over a four-year period with straight-line vesting and a 25% one-year cliff or over a three-year period in equal amounts on a quarterly basis, provided the employee remains continuously employed with the Company. The fair value of the RSUs is equal to the closing price of the Company’s common stock on the grant date.

RSU activity under the 2020 Plan is set forth below (intrinsic value in thousands):

 

 

 

Number of

Awards

 

 

Weighted

Average

Fair Value

 

 

Intrinsic

Value

 

Outstanding, December 31, 2019

 

 

 

 

$

 

 

$

 

Granted

 

 

173,548

 

 

 

55.54

 

 

 

9,619

 

Vested

 

 

(80

)

 

 

51.41

 

 

 

4

 

Cancelled

 

 

(3,200

)

 

 

41.41

 

 

 

165

 

Outstanding, September 30, 2020

 

 

170,268

 

 

$

55.62

 

 

$

11,752

 

Total compensation cost for all share-based payment arrangements recognized was as follows (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Cost of goods sold

 

$

37

 

 

$

19

 

 

$

109

 

 

$

31

 

Research and development

 

 

199

 

 

 

27

 

 

 

323

 

 

 

67

 

Selling, general and administrative

 

 

723

 

 

 

94

 

 

 

1,527

 

 

 

232

 

 

 

$

959

 

 

$

140

 

 

$

1,959

 

 

$

330

 

 

Total compensation costs as of September 30, 2020 related to all non-vested awards to be recognized in future periods was $11,631,000 and is expected to be recognized over the remaining weighted average period of 3.4 years.

 

Employee Share Purchase Plan (ESPP)

In May 2020, the Company adopted the 2020 Employee Stock Purchase Plan (“ESPP”), which became effective on the date the ESPP was adopted by the Company’s board of directors. The Company has initially reserved 990,870 shares of common stock for purchase under the ESPP. Each offering to the employees to purchase stock under the ESPP will begin on each August 1 and February 1 and will end on the following January 31 and July 31, respectively. The first offering period began on August 1, 2020 and ends on January 31, 2021. On each purchase date, which falls on the last date of each offering period, ESPP participants will purchase shares of common stock at a price per share equal to 85% of the lesser of (1) the fair market value per share of the common stock on the offering date or (2) the fair market value of the common stock on the purchase date. The occurrence and duration of offering periods under the ESPP are subject to the determinations of the Company’s Compensation Committee, in its sole discretion.

20


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

As of September 30, 2020, no shares of common stock have been purchased under the ESPP.

14. Income Taxes

The following table reflects the Company’s provision (benefit) for income taxes for the periods indicated (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Income (loss) before taxes

 

$

6,496

 

 

$

366

 

 

$

6,804

 

 

$

(1,547

)

Income tax provision (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

6,496

 

 

$

366

 

 

$

6,804

 

 

$

(1,547

)

Income tax provision (benefit) as a percentage of income taxes

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

The Company’s effective tax was 0% for the three and nine months ended September 30, 2020 and 2019. The Company’s effective tax rate for all periods is driven by pre-tax income (loss), business credits, equity compensation, debt warrants, and the change in valuation allowance. No tax provision (benefit) was recorded for the three and nine months ended September 30, 2020 and 2019.

Valuation Allowance

ASC 740 requires that the tax benefit of net operating losses, or NOLs, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryback or carryforward periods. Management believes that recognition of the deferred tax assets arising from the above-mentioned tax benefits from NOLs and credit carryforwards is currently not likely to be realized and, accordingly, has provided a valuation allowance against its deferred tax assets.

Uncertain Tax Positions

The Company has recorded uncertain tax positions related to its federal and California research and development credit carryforwards, which is recorded as a reduction of the deferred tax asset related R&D Credit Carryforwards. No interest or penalties have been recorded related to the uncertain tax positions due to available NOLs to offset the uncertain tax positions. It is not expected that there will be a significant change in uncertain tax position in the next 12 months. The Company is subject to U.S. federal and state income tax. In the normal course of business, the Company is subject to examination by tax authorities. As of the date of the financial statements, there are no tax examinations in progress. The statute of limitations for tax years ended after December 31, 2016 and December 31, 2017 are open for state and federal tax purposes, respectively.

CARES Act

The Coronavirus Aid, Relief, and Economic Security, or CARES, Act became effective on March 27, 2020. It was a response to the market volatility and instability resulting from the coronavirus pandemic and includes provisions to support businesses in the form of loans, grants, and tax changes, among other types of relief. The Company has reviewed the income tax changes included in the CARES Act, which primarily includes the expansion of the carryback period for NOLs, changes to the deduction and limitation on interest, and acceleration of depreciation for Qualified Improvement Property. The Company has analyzed these changes and does not believe there will be a material effect on the Company’s income tax provision. The Company currently does not expect to apply for loans or grants under the CARES Act.

15. Retirement Plan

In December 2017, the Company adopted the Inari Medical, Inc. 401(k) Plan which allows eligible employees after one month of service to contribute pre-tax and Roth contributions to the plan, as allowed by law. The plan assets are held by Vanguard and the plan administrator is Ascensus. The Company does not currently make fund-matching contributions.

16. Net Loss Per Share

The Company did not have any anti-dilutive common stock equivalents for the three and nine months ended September 30, 2020 and for the three months ended September 30, 2019. The following outstanding potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share for the period presented due to their anti-dilutive effect:

21


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Nine Months Ended

September 30, 2019

 

Convertible preferred stock

 

 

31,968,570

 

Common stock options

 

 

3,833,299

 

RSUs

 

 

2,867,326

 

Restricted stock subject to future vesting

 

 

481,698

 

Convertible preferred stock warrants

 

 

256,588

 

Common stock warrants

 

 

27,810

 

 

 

 

39,435,291

 

 

 

17. Subsequent  Events

 

New Facility Lease

 

In October 2020, the Company entered into a ten-year lease for a facility in Irvine, California. The new lease is expected to commence in the second quarter of 2021, at which time the Company will move all of its operations to this new facility. The lease contains two optional extension periods of five years each. In connection with the lease, the Company maintains a letter of credit for the benefit of the landlord in the amount of $1.5 million, which is secured by the Company’s Credit Agreement. The future minimum lease payments over the initial ten-year term total approximately $23.3 million.

 

Concurrently, the Company entered into a termination agreement that will release the Company from its current facility lease obligation within up to 180 days of the new lease commencement date.

 

22


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and  our audited financial statements and related notes thereto for the year ended December 31, 2019, included in our prospectus dated May 21, 2020 filed with the U.S. Securities and Exchange Commission, pursuant to Rule 424(b)(4) under the Securities Act.

Overview

We are a commercial-stage medical device company focused on developing products to treat and transform the lives of patients suffering from venous diseases. Our initial product offering consists of two minimally-invasive, novel catheter-based mechanical thrombectomy devices. We purpose-built our products for the specific characteristics of the venous system and the treatment of the two distinct manifestations of venous thromboembolism, or VTE – deep vein thrombosis and pulmonary embolism. Our ClotTriever product is FDA-cleared for the removal of clot from peripheral blood vessels and is used to treat patients suffering from deep vein thrombosis, or DVT. Our FlowTriever product is the first thrombectomy system FDA-cleared for the treatment of pulmonary embolism, or PE.

We believe the best way to treat VTE and improve the quality of life of patients suffering from this disease is to safely and effectively remove the blood clot. With that in mind, we designed and purpose-built our ClotTriever and FlowTriever products to remove large clots from large vessels and eliminate the need for thrombolytic drugs. We believe our products are transformational and could be the catalyst to drive an evolution of treatment for venous diseases, establishing our products as the standard of care for DVT and PE.

We believe our venous-focused commercial organization provides a significant competitive advantage. Our most important relationships are between our sales representatives and our target physicians, which include interventional cardiologists, interventional radiologists and vascular surgeons. We have developed systems and processes to harness the information gained from these relationships and we leverage this information to rapidly iterate products, introduce and execute physician education and training programs and scale our sales organization. We market and sell our products to hospitals, which are reimbursed by various third-party payors. We have dedicated meaningful resources to building a direct sales force in the United States, and we are actively expanding our sales organization through additional sales representatives and territories.

On May 27, 2020, we completed our IPO, which resulted in the issuance and sale of 9,432,949 shares of common stock, including 1,230,384 shares sold pursuant to the exercise of the underwriters’ over-allotment option, at the IPO price of $19.00 per share. We received net proceeds of approximately $163.0 million from the IPO, after deducting underwriters’ discounts and commissions of $12.6 million and offering costs of $3.7 million.

Prior to our IPO, our primary sources of capital were private placements of preferred stock, debt financing arrangements and revenue from sales of our products. Since inception, we have raised a total of approximately $54.2 million in net proceeds from private placements of preferred stock. As of September 30, 2020, we had cash and cash equivalents of $168.0 million, no long-term debt outstanding and an accumulated deficit of $34.4 million.

For the three months ended September 30, 2020, we generated revenue of $38.7 million, with a gross margin of 91.7% and net income of $6.5 million, compared to revenue of $14.2 million, with a gross margin of 89.4% and net income of $0.4 million for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, we generated revenue of $91.1 million, with a gross margin of 89.7% and net income of $6.8 million, compared to revenue of $31.2 million, with a gross margin of 87.9% and net loss of $1.6 million for the nine months ended September 30, 2019.

COVID-19

In December 2019, a novel strain of coronavirus, SARS-CoV-2, was identified in Wuhan, China. Since then, SARS-CoV-2, and the resulting disease, COVID-19, has spread to most countries, including all 50 states in the United States. In response to the pandemic, numerous state and local jurisdictions imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. For example, in the United States, governmental authorities recommended, and in certain cases required, that elective, specialty and other procedures and appointments be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19 patients. Similarly, on March 19, 2020, the governor of California, where our headquarters are located, issued “stay at home” orders limiting non-essential activities, travel and business operations. Such orders or restrictions resulted in reduced operations at our headquarters (including our manufacturing facility), work stoppages, slowdowns and delays, travel restrictions and cancellation of events. These orders and restrictions significantly decreased the number of procedures performed using our products during March and April 2020 and otherwise negatively impacted our operations, including new customer procurement and onboarding.

23


 

In response to the impact of COVID-19, we implemented a variety of measures to help us manage through its impact and position us to resume operations quickly and efficiently once these restrictions were lifted. These measures existed across several operational areas and included:

 

 

Continuing to build our team, including identifying and recruiting our next group of new sales representatives;

 

 

Enhancing our physician outreach and training with the launch of our Clot Warrior Academy consisting of a series of live webinars and an online education portal;

 

 

Continuing to support procedures using our products both in-person and virtually;

 

Adapting, expanding and improving our sales training programs and customer engagement to address the current environment;

 

 

Continuing to expand our engineering infrastructure and focusing on organic opportunities;

 

Producing approximately four months’ worth of inventory before temporarily suspending production in April 2020;

 

 

Continuing to protect and support our employees, including no layoffs, furloughs or compensation reductions to date;

 

 

Executing a successful work-from-home strategy for administrative functions that includes launching various efficiency projects in information technology, accounting and operations;

 

 

Monitoring and reviewing recent case studies of VTE patients suffering from COVID-19;

 

Initiating market assessment and commercial entry planning for our international expansion; and

 

Accessing the remaining $10.0 million on our term loan on March 23, 2020, which was repaid in full along with all our long term-debt in August 2020.

Despite the negative impacts from COVID-19, for the nine months ended September 30, 2020, approximately 8,600 procedures were performed using our products, compared to approximately 2,800 procedures in the nine months ended September 30, 2019. During the second quarter, we experienced disruptions to our procedure volume beginning in mid-March as a result of COVID-19, and weekly procedure volumes declined by approximately 40% by mid-April when compared to weekly procedure volumes in early March. The decrease in procedure volume impacted DVT procedures and PE procedures relatively equally, with both types of procedures declining during this period. However, we saw a recovery in procedure volume in June that was higher than our pre COVID-19 peak. During the third quarter, we saw continued sequential growth beyond previous quarters.

While we are encouraged by our third quarter results, we are aware that the actual and perceived impact of COVID-19 is changing and cannot be predicted. As a result, we cannot assure you that our recent procedure volumes are indicative of future results or that we will not experience additional negative impacts associated with COVID-19, which could be significant. The COVID-19 pandemic has negatively impacted our business, financial condition and results of operations by significantly decreasing and delaying the number of procedures performed using our products, and we expect the pandemic could continue to negatively impact our business, financial condition and results of operations.

Procedure Volume

We regularly review various operating and financial metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plan and make strategic decisions. We believe the number of procedures performed to treat DVT and PE using our products is an indicator of our ability to drive adoption and generate revenue. We believe this is an important metric for our business; however, we anticipate that additional metrics may become important as our business grows. The following table lists the number of procedures performed in each of the three-month periods as indicated:

 

 

 

Three Months Ended

 

Procedures(1)

 

Sept 30, 2020

 

 

June 30, 2020

 

 

March 31, 2020

 

 

Dec. 31, 2019

 

 

Sept 30, 2019

 

 

June 30, 2019

 

 

March 31, 2019

 

DVT

 

 

2,000

 

 

 

1,400

 

 

 

1,300

 

 

 

1,000

 

 

 

700

 

 

 

500

 

 

 

300

 

PE

 

 

1,700

 

 

 

1,100

 

 

 

1,100

 

 

 

800

 

 

 

600

 

 

 

400

 

 

 

300

 

 

 

 

3,700

 

 

 

2,500

 

 

 

2,400

 

 

 

1,800

 

 

 

1,300

 

 

 

900

 

 

 

600

 

 

(1)

We define a procedure as any instance in which a physician treats DVT or PE using our products. We estimate the number of procedures performed based on records created by our sales representatives. This metric has limitations as we only have records for the procedures where our sales representatives have notice that a procedure has been performed. Revenue is recognized based on hospital purchase orders, not based on the procedure records created by our sales representatives. Numbers are rounded to the nearest hundred.

24


 

Components of our Results of Operations

Revenue

We currently derive all our revenue from the sale of our ClotTriever and FlowTriever products to hospitals in the United States. Our customers typically purchase an initial stocking order of our products and then reorder replenishment product as procedures are performed. No single customer accounted for 10% or more of our revenue during the three and nine months ended September 30, 2020 and 2019. For the three and nine months ended September 30, 2020, approximately 54% of our customers used both of our products, 34% used ClotTriever only and 12% used FlowTriever only. We expect revenue to increase in absolute dollars as we expand our sales organization and sales territories, add customers, expand the base of physicians that are trained to use our products, expand awareness of our products with new and existing customers and as physicians perform more procedures using our products. Revenue for ClotTriever and FlowTriever products as a percentage of total revenue is as follows:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

ClotTriever

 

 

37

%

 

 

38

%

 

 

38

%

 

 

38

%

FlowTriever

 

 

63

%

 

 

62

%

 

 

62

%

 

 

62

%

For the nine months ended September 30, 2020, our blended revenue per procedure was approximately $9,100. Blended revenue per procedure represents the average of the average selling price per ClotTriever and the average price per FlowTriever procedure.

Cost of Goods Sold and Gross Margin

We manufacture and/or assemble all our products at our facility in Irvine, California. Cost of goods sold consists primarily of the cost of raw materials, components, direct labor and manufacturing overhead. Overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management, including stock-based compensation. Cost of goods sold also includes depreciation expense for production equipment and certain direct costs such as shipping costs and royalty expense. Shipping costs billed to customers are reported as a reduction of cost of goods sold. We expect cost of goods sold to increase in absolute dollars as our revenue grows and more of our products are sold.

We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, including average selling prices, product sales mix, production and ordering volumes, manufacturing costs, product yields, headcount and cost-reduction strategies. Our gross margin could fluctuate from quarter to quarter as we introduce new products, and as we adopt new manufacturing processes and technologies.

Treatments using the FlowTriever may involve one or more Triever aspiration catheters and one or more FlowTriever catheters. We charge customers the same price for each FlowTriever procedure, regardless of the number of components used. As a result, changes in the number of components used, the cost of these components and the introduction of additional components can impact our gross margin.

 

Research and Development Expenses

Research and development, or R&D, expenses consist primarily of engineering, product development, clinical studies to develop and support our products, regulatory expenses, and other costs associated with products that are in development. These expenses include employee compensation, including stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation and an allocation of facility overhead expenses. Additionally, R&D expenses include costs associated with our clinical trials and registries, including clinical study design, clinical study site initiation and study costs, data management, and internal and external costs associated with our regulatory compliance, including the costs of outside consultants and contractors that assist in the process of submitting and maintaining regulatory filings. We expense R&D costs as incurred. We expect R&D expenses as a percentage of revenue to vary over time depending on the level and timing of our new product development efforts, as well as our clinical development, clinical trials and registries and other related activities.

25


 

Selling, General and Administrative Expenses

Selling, general and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation, related to selling and marketing functions, physician education programs, commercial operations and analytics, finance, information technology and human resource functions. Other SG&A expenses include sales commissions, travel expenses, promotional activities, marketing initiatives, market research and analysis, conferences and trade shows, physician training, professional services fees (including legal, audit and tax fees), insurance costs, general corporate expenses and facilities-related expenses. We expect SG&A expenses to continue to increase in absolute dollars as we expand our sales and marketing organization and infrastructure to both drive and support the anticipated growth in revenue and due to additional legal, accounting, insurance and other expenses associated with being a public company.

Interest Income

Interest income consists primarily of interest income earned on our cash and cash equivalents.

Interest Expense

Interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount and issuance costs associated with our indebtedness.

Change in Fair Value of Warrant Liabilities

Change in fair value of warrant liabilities consists of gains and losses resulting from the remeasurement of the fair value of our preferred stock warrant liabilities at each balance sheet date. Upon the closing of our IPO, our outstanding preferred stock warrants automatically converted into warrants to purchase shares of our common stock. At such time, the final fair value of the warrant liability was reclassified to stockholders’ equity (deficit). We will no longer record any related periodic fair value adjustments.

Results of Operations

Comparison of the three months ended September 30, 2020 and 2019

The following table sets forth the components of our unaudited statements of operations in dollars and as percentage of revenue for the periods presented (dollars in thousands):

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2020

 

 

%

 

 

2019

 

 

%

 

 

Change $

 

Revenue

 

$

38,715

 

 

 

100.0

%

 

$

14,225

 

 

 

100.0

%

 

$

24,490

 

Cost of goods sold

 

 

3,228

 

 

 

8.3

%

 

 

1,510

 

 

 

10.6

%

 

 

1,718

 

Gross profit

 

 

35,487

 

 

 

91.7

%

 

 

12,715

 

 

 

89.4

%

 

 

22,772

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,217

 

 

 

13.5

%

 

 

1,722

 

 

 

12.1

%

 

 

3,495

 

Selling, general and

   administrative

 

 

23,080

 

 

 

59.6

%

 

 

10,100

 

 

 

71.0

%

 

 

12,980

 

Total operating expenses

 

 

28,297

 

 

 

73.1

%

 

 

11,822

 

 

 

83.1

%

 

 

16,475

 

Income from operations

 

 

7,190

 

 

 

18.6

%

 

 

893

 

 

 

6.3

%

 

 

6,297

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

208

 

 

 

0.5

%

 

 

19

 

 

 

0.1

%

 

 

189

 

Interest expense

 

 

(251

)

 

 

(0.6

%)

 

 

(226

)

 

 

(1.6

%)

 

 

(25

)

Other expenses

 

 

(651

)

 

 

(1.7

%)

 

 

 

 

 

0.0

%

 

 

(651

)

Change in fair value of

   warrant liabilities

 

 

 

 

 

0.0

%

 

 

(320

)

 

 

(2.2

%)

 

 

320

 

Total other expenses, net

 

 

(694

)

 

 

(1.8

%)

 

 

(527

)

 

 

(3.7

%)

 

 

(167

)

Net income and comprehensive income

 

$

6,496

 

 

 

16.8

%

 

$

366

 

 

 

2.6

%

 

$

6,130

 

 

26


 

Revenue. Revenue increased $24.5 million, or 172%, to $38.7 million during the three months ended September 30, 2020, compared to $14.2 million during the three months ended September 30, 2019. The increase in revenue was due primarily to an increase in the number of products sold and an increase in the average selling prices of our products.

Cost of Goods Sold and Gross Margin. Cost of goods sold increased $1.7 million, or 114%, to $3.2 million during the three months ended September 30, 2020, compared to $1.5 million during the three months ended September 30, 2019. This increase was due to the increase in the number of products sold and additional manufacturing overhead costs incurred as we invested significantly in our operational infrastructure to support anticipated future growth. Gross margin for the three months ended September 30, 2020 increased to 91.7%, compared to 89.4% for the three months ended September 30, 2019, due to an increase in the average selling prices of our products and improved operating leverage.

Research and Development Expenses. R&D expenses increased $3.5 million, or 203%, to $5.2 million during the three months ended September 30, 2020, compared to $1.7 million during the three months ended September 30, 2019. The increase in R&D expenses was primarily due to increases of $1.6 million of personnel-related expenses, $0.8 million in materials and supplies, $0.8 million of clinical study and registry expenses, and $0.2 million in professional fees.

Selling, General and Administrative Expenses. SG&A expenses increased $13.0 million, or 129%, to $23.1 million during the three months ended September 30, 2020, compared to $10.1 million during the three months ended September 30, 2019. The increase in SG&A costs was primarily due to an increase of $10.0 million in personnel-related expenses as a result of increased headcount across our organization and increased commissions due to higher revenue, an increase of $1.0 million in professional fees, an increase of $1.0 million in insurance costs, and an increase of $0.3 million in facility costs.

Interest Income. Interest income increased by $189,000 to $208,000 during the three months ended September 30, 2020, compared to $19,000 during the three months ended September 30, 2019. The increase in interest income was primarily due to an increase in average cash and cash equivalents during the three months ended September 30, 2020, compared to the three months ended September 30, 2019.

Interest Expense. Interest expense increased by $25,000 or 11% during the three months ended September 30, 2020, compared to the three months ended September 30, 2019, due primarily to the higher average borrowings during the three months ended September 30, 2020.

Change in Fair Value of Warrant Liabilities. We recorded no change in fair value of warrant liabilities for the three months ended September 30, 2020, compared to $0.3 million for three months ended September 30, 2019.

Other expenses. Other expenses for the three months ended September 30, 2020 consisted primarily of a $0.7 million loss on extinguishment of debt related to the payoff of our debt facility with Signature Bank.

Comparison of the nine months ended September 30, 2020 and 2019

The following table sets forth the components of our unaudited statements of operations in dollars and as percentage of revenue for the periods presented (dollars in thousands):

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2020

 

 

%

 

 

2019

 

 

%

 

 

Change $

 

Revenue

 

$

91,059

 

 

 

100.0

%

 

$

31,242

 

 

 

100.0

%

 

$

59,817

 

Cost of goods sold

 

 

9,420

 

 

 

10.3

%

 

 

3,772

 

 

 

12.1

%

 

 

5,648

 

Gross profit

 

 

81,639

 

 

 

89.7

%

 

 

27,470

 

 

 

87.9

%

 

 

54,169

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

11,863

 

 

 

13.0

%

 

 

4,511

 

 

 

14.4

%

 

 

7,352

 

Selling, general and

   administrative

 

 

58,353

 

 

 

64.1

%

 

 

23,328

 

 

 

74.7

%

 

 

35,025

 

Total operating expenses

 

 

70,216

 

 

 

77.1

%

 

 

27,839

 

 

 

89.1

%

 

 

42,377

 

Income (loss) from operations

 

 

11,423

 

 

 

12.6

%

 

 

(369

)

 

 

(1.2

%)

 

 

11,792

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

409

 

 

 

0.4

%

 

 

66

 

 

 

0.2

%

 

 

343

 

Interest expense

 

 

(1,060

)

 

 

(1.2

%)

 

 

(682

)

 

 

(2.2

%)

 

 

(378

)

Other expenses

 

 

(651

)

 

 

(0.7

%)

 

 

 

 

 

0.0

%

 

 

(651

)

Change in fair value of

   warrant liabilities

 

 

(3,317

)

 

 

(3.6

%)

 

 

(562

)

 

 

(1.8

%)

 

 

(2,755

)

Total other expenses, net

 

 

(4,619

)

 

 

(5.1

%)

 

 

(1,178

)

 

 

(3.8

%)

 

 

(3,441

)

Net income (loss) and comprehensive income (loss)

 

$

6,804

 

 

 

7.5

%

 

$

(1,547

)

 

 

(5.0

%)

 

$

8,351

 

27


 

 

Revenue. Revenue increased $59.8 million, or 192%, to $91.1 million during the nine months ended September 30, 2020, compared to $31.2 million during the nine months ended September 30, 2019. The increase in revenue was due primarily to an increase in the number of products sold and an increase in the average selling prices of our products. The increase in revenue was offset in part by the negative impact of the COVID-19 pandemic on procedure volume and new orders during the nine months ended September 30, 2020.

Cost of Goods Sold and Gross Margin. Cost of goods sold increased $5.6 million, or 150%, to $9.4 million during the nine months ended September 30, 2020, compared to $3.8 million during the nine months ended September 30, 2019. This increase was due to the increase in the number of products sold and additional manufacturing overhead costs incurred as we invested significantly in our operational infrastructure to support anticipated future growth. Cost of goods sold for the nine months ended September 30, 2020 was also impacted by $1.1 million in idle production capacity costs associated with the COVID-19 pandemic. Gross margin for the nine months ended September 30, 2020 increased to 89.7%, compared to 87.9% for the nine months ended September 30, 2019 due to an increase in the average selling prices of our products and improved operating leverage.

Research and Development Expenses. R&D expenses increased $7.4 million, or 163%, to $11.9 million during the nine months ended September 30, 2020, compared to $4.5 million during the nine months ended September 30, 2019. The increase in R&D expenses was primarily due to increases of $3.1 million of personnel-related expenses, $1.9 million of clinical study and registry expenses, $1.8 million in materials and supplies, and $0.3 million in professional fees.

Selling, General and Administrative Expenses. SG&A expenses increased $35.0 million, or 150%, to $58.4 million during the nine months ended September 30, 2020, compared to $23.3 million during the nine months ended September 30, 2019. The increase in SG&A costs was primarily due to an increase of $27.8 million in personnel-related expenses as a result of increased headcount across our organization and increased commissions due to higher revenue, an increase of $2.7 million in professional fees, an increase of $1.4 million in insurance costs, an increase of $0.7 million in facility costs, and an increase in $0.6 million in travel costs.

Interest Income. Interest income increased by $343,000 to $409,000 during the nine months ended September 30, 2020, compared to $66,000 during the nine months ended September 30, 2019. The increase in interest income was primarily due to an increase in average cash and cash equivalents during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.

Interest Expense. Interest expense increased by $0.4 million or 55% during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. This increase was primarily due to higher average borrowings under our credit facilities during the nine months ended September 30, 2020.

Change in Fair Value of Warrant Liabilities. Change in fair value of warrant liabilities increased $2.7 million to $3.3 million for the nine months ended September 30, 2020, compared to $0.6 million for nine months ended September 30, 2019. This increase was due to the fair value remeasurement of our convertible preferred stock warrant liabilities.

Other expenses. Other expenses for the nine months ended September 30, 2020 consisted primarily of a $0.7 million loss on extinguishment of debt related to the payoff of our debt facility with Signature Bank.

Liquidity and Capital Resources

To date, our primary sources of capital have been the net proceeds we received through private placements of preferred stock, debt financing agreements, the sale of common stock in our IPO, and revenue from the sale of our products. On May 27, 2020, we completed our IPO, including the underwriters full exercise of their over-allotment option, selling 9,432,949 shares of our common stock at $19.00 per share. Upon completion of our IPO, we received net proceeds of approximately $163.0 million, after deducting underwriting discounts and commissions and offering expenses. In August 2020, we repaid in full the $30.0 million of principal owed under the credit facility with Signature Bank.  As of September 30, 2020, we had cash and cash equivalents of $168 million, and an accumulated deficit of $34.4 million.  In September 2020, we entered into a new revolving Credit Agreement with Bank of America which provides for loans up to a maximum of $30 million.  As of September 30, 2020, we had no principal outstanding under the Credit Agreement and the amount available to borrow was approximately $25.2 million.

Based on our current planned operations, we expect that our cash and cash equivalents and available borrowings will enable us to fund our operating expenses for at least 12 months from the date hereof.

28


 

If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements including because of lower demand for our products as a result of the risks described in this Quarterly Report, we may seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our platform technologies or products or grant licenses on terms that are not favorable to us. Additional capital may not be available on reasonable terms, or at all.

Cash Flows

The following table summarizes our cash flows for each of the nine-month periods indicated (in thousands):

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

2020

 

 

2019

 

Net Cash (used in) provided by:

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

$

3,536

 

 

$

(4,110

)

Investing activities

 

 

 

 

(3,076

)

 

 

(2,062

)

Financing activities

 

 

 

 

143,889

 

 

 

198

 

Net increase (decrease) in cash

   and cash equivalent

 

 

 

$

144,349

 

 

$

(5,974

)

 

Net Cash Used in Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2020 was $3.5 million, consisting primarily of net income of $6.8 million and non-cash charges of $7.0 million, offset by an increase in net operating assets of $10.3 million. The increase in net operating assets was primarily due to increases in accounts receivable of $9.6 million and inventories of $3.2 million to support the growth of our operations, an increase in prepaid and other assets of $2.9 million primarily from prepaid insurance, which were partially offset by increases in accounts payable of $1.0 million and accrued liabilities of $4.5 million due to timing of payments and growth of our operations. The non-cash charges primarily consisted of $3.3 million in change in fair value of the preferred stock warrant liabilities, stock-based compensation of $2.0 million, $0.9 million in depreciation, and $0.6 million in loss on extinguishment of debt.

Net cash used in operating activities for the nine months ended September 30, 2019 was $4.1 million, consisting primarily of a net loss of $1.5 million and an increase in net operating assets of $3.9 million, partially offset by non-cash charges of $1.3 million. The increase in net operating assets was primarily due to an increase in accounts receivable of $5.7 million due to increase in sales and inventories of $2.0 million to support the growth of our operations, partially offset by increases in account payable of $1.0 million and accrued liabilities of $3.1 million due to timing of payments and growth of our operations. Non-cash charges consisted primarily of $0.4 million in depreciation, stock-based compensation of $0.3 million, and the change in fair value of the convertible preferred stock warrants of $0.6 million.

Net Cash Used in Investing Activities

Net cash used in investing activities in the nine months ended September 30, 2020 and 2019 was $3.1 million and $2.1 million, respectively, consisting of purchases of property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities in the nine months ended September 30, 2020 was $143.9 million primarily consisting of net IPO proceeds of $164.4 million and net proceeds of $10.0 million received from additional borrowings under the credit facility with Signature Bank, partially offset by the $30.3 million repayment of the amount outstanding under the credit facility.

There were no significant cash flow financing activities in the nine months ended September 30, 2019.

29


 

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by applicable regulations of the U.S. Securities and Exchange Commission, that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations and Commitments

There have been no material changes outside the ordinary course of business to  the Company’s contractual obligations from those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the prospectus dated May 21, 2020 filed with the U.S. Securities and Exchange Commission pursuant to Rule 424(b)(4) under the Securities Act.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

There were no material changes to our critical accounting policies or in the methodology used for estimates from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Prospectus.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

The risk associated with fluctuating interest rates is primarily limited to our debt. As of September 30, 2020, we had repaid in full the SB Credit Facility and had no long-term debt outstanding. A hypothetical 10% relative change in interest rates during any of the periods presented would not have had a material impact on our financial statements. We do not currently engage in hedging transactions to manage our exposure to interest rate risk.

Credit Risk

As of September 30, 2020, our cash and cash equivalents were maintained with three financial institutions in the United States, and our current deposits are likely in excess of insured limits. We do not believe we are exposed to any significant credit risk. Our cash equivalents are invested in highly rated money market funds.

Our accounts receivable primarily relate to revenue from the sale of our products to hospitals and medical centers in the United States. No customer represented 10% or more of our accounts receivable as of September 30, 2020.

Foreign Currency Risk

Our business is currently primarily conducted in U.S. dollars. Any transactions that may be conducted in foreign currencies are not expected to have a material effect on our results of operations, financial position or cash flows.

30


 

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15I and 15d-15(e) under the Exchange Act prior to the filing of this Quarterly Report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were not effective as described below.

However, our management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that, notwithstanding the identified material weaknesses in our internal control over financial reporting, the condensed consolidated financial statements in this Quarterly Report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

Material Weakness in Internal Control Over Financial Reporting

In connection with the preparation of our financial statements for the year ended December 31, 2019, we concluded there were material weaknesses in our internal controls over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses that were identified related to the segregation of duties throughout various financial processes and our documentation of internal controls.

Management’s Plan to Remediate the Material Weaknesses

With the oversight of senior management and our audit committee, we began the implementation of remediation steps in late 2019 and these measures were ongoing during the nine months ended September 30, 2020. These efforts focus on (i) the hiring of personnel with technical accounting and financial reporting experience and (ii) the implementation of improved accounting and financial reporting procedures and systems to improve the completeness, timeliness and accuracy of our financial reporting and disclosures including the assessment of more judgmental areas of accounting. We believe these measures will remediate the material weaknesses identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and we will continue to diligently and vigorously review our financial reporting controls and procedures.

Changes in Internal Control Over Financial Reporting

There were no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on effectiveness of controls and procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

31


 

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not subject to any material legal proceedings.

Item 1A. Risk Factors.

For a discussion of our potential risks and uncertainties, see the information in Part I, "Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. Other than the risk factors set forth below, there have been no material changes to the risk factors disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

We may experience disruptions to our business as a result of the relocation of our headquarters and operations.

In October 2020, we entered into a lease agreement to move our headquarters to a larger space in Irvine, California.  The process of moving our entire business, including our research and development and manufacturing operations, is inherently complex and is not part of our day-to-day operations. The relocation will require the movement and installation of key manufacturing equipment and recertification with applicable regulatory bodies, including the FDA. This relocation process could cause significant disruption to our operations, divert management attention and resources and involve significant costs, all of which could have a material adverse effect on our business, financial condition and results of operations. In addition, we can give no assurance that the relocation will be completed as planned or within the anticipated timeframe, or that we will fully realize the expected benefits of the relocation.  

We entered into a new credit facility, which may affect our ability to operate our business and secure additional financing in the future.

In August 2020, we repaid in full and terminated our credit facility with Signature Bank, or the SB Credit Facility. In September 2020, we entered into a senior secured revolving credit facility with Bank of America, or the Credit Agreement, under which we may borrow loans up to a maximum principal amount of $30.0 million. Advances under the Credit Agreement bear interest at an annual rate equal to the greater of the prime rate, the federal funds rate plus 0.50%, or the LIBOR rate based upon an interest period of 30 days plus 1.00%, plus an applicable margin. Margin will be 1.25% until March 31, 2021 and then will range from 1.00% to 1.50% based on the Company’s applicable fixed charge coverage ratio. As of September 30, 2020, there were no amounts outstanding under the Credit Agreement. In addition, we are required to pay an unused line fee at an annual rate ranging from 0.25% to 0.375% of the average daily unused portion of the amounts available under the Credit Agreement. We are required to make monthly interest payments on any borrowed amounts outstanding under the Credit Agreement, which may divert resources from other activities.

Our obligations under the Credit Agreement are collateralized by substantially all of our assets, excluding intellectual property, and we are subject to customary financial and operating covenants limiting our ability to, among other things, dispose of assets, undergo a change in control, merge or consolidate, incur debt, make distributions, grant liens and make investments, in each case subject to certain exceptions. The covenants related to the Credit Agreement, as well as any future financing agreements into which we may enter, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies.

While we have not previously breached and are not currently in breach of these or any other covenants contained in our Credit Agreement or other debt arrangements, there can be no guarantee that we will not breach these covenants in the future. Our ability to comply with these covenants may be affected by events beyond our control, and future breaches of any of these covenants could result in a default under the Credit Agreement. If not waived, future defaults could cause all of the outstanding indebtedness under the Credit Agreement to become immediately due and payable and terminate commitments to extend further credit and foreclose on the collateral granted to it to collateralize such indebtedness. If we do not have or are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either upon maturity or in the event of a default, our assets could be foreclosed upon and we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our ability to operate and continue our business as a going concern.

In order to service indebtedness, we need to generate cash from our operating activities. Our ability to generate cash is subject, in part, to our ability to successfully execute our business strategy, as well as general economic, financial, competitive, regulatory and other factors beyond our control. We cannot assure you that our business will be able to generate sufficient cash flow from operations or that future borrowings or other financings will be available to us in an amount sufficient to enable us to service our indebtedness and fund our other liquidity needs. To the extent we are required to use cash from operations or the proceeds of any future financing to service our indebtedness instead of funding working capital, capital expenditures or other general corporate purposes, we will be less able to plan for, or react to, changes in our business, industry and in the economy generally. This may place us at a competitive disadvantage compared to our competitors that have less indebtedness.

32


 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Sales of Unregistered Securities.

None.

Use of Proceeds from the IPO

 For a discussion of the use of proceeds from the IPO, see the information in “Part II, Item 2. Use of Proceeds from the IPO” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. There have been no material changes to the use of proceeds from the IPO disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable

Item 5. Other Information.

None.

 

33


 

Item 6. Exhibits.

 

 

Incorporated by reference

Exhibit Number

Description

Form

File Number

Exhibit

Filing Date

3.1

Amended and Restated Certificate of Incorporation

8-K

001-39293

3.1

5/28/2020

3.2

Amended and Restated Bylaws

8-K

001-39293

3.2

5/28/2020

10.1

Lease Agreement, dated as of October 7, 2020, by and between Inari Medical, Inc. and Oak Canyon Creek LLC

 

 

 

 

10.2

Lease Termination Agreement, dated as of October 7, 2020, by and between Inari Medical, Inc. and Bake Technology Park LLC

 

 

 

 

10.3#

Amended and Restated 2020 Employee Stock Purchase Plan

 

 

 

 

31.1

Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

31.2

Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

32.1†

Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

32.2†

Certifications of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

101.INS

XBRL Instance Document

 

 

 

 

101.SCH

XBRL Taxonomy Extension Schema Document

 

 

 

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

# Indicates management contract or compensatory plan.

The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the U.S. Securities and Exchange Commission and are not to be incorporated by reference into any filing of Inari Medical, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

 

34


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Inari Medical, Inc.

 

 

 

 

Date: November 12, 2020

 

By:

/s/ William Hoffman

 

 

 

William Hoffman

 

 

 

Chief Executive Officer and President

(Principal Executive Officer)

 

 

 

 

Date: November 12, 2020

 

By:

/s/ Mitchell Hill

 

 

 

Mitchell Hill

 

 

 

Chief Financial Officer

(Principal Financial Officer and

Principal Accounting Officer)

 

 

35