nari-10q_20200630.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 June 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 August 7, 2020, the registrant had 48,522,958 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

2

 

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

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

30

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

78

Item 3.

Defaults Upon Senior Securities

79

Item 4.

Mine Safety Disclosures

79

Item 5.

Other Information

79

Item 6.

Exhibits

80

Signatures

82

 


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)

 

 

June 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

194,836

 

 

$

23,639

 

Restricted cash

 

 

50

 

 

 

50

 

Accounts receivable, net

 

 

15,392

 

 

 

11,302

 

Inventories, net

 

 

5,620

 

 

 

3,953

 

Prepaid expenses and other current assets

 

 

3,866

 

 

 

464

 

Total current assets

 

 

219,764

 

 

 

39,408

 

Property and equipment, net

 

 

4,176

 

 

 

3,331

 

Restricted cash

 

 

338

 

 

 

338

 

Deposits and other assets

 

 

76

 

 

 

1,469

 

Total assets

 

$

224,354

 

 

$

44,546

 

Liabilities, Mezzanine Equity and Stockholders' Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,294

 

 

$

2,549

 

Payroll-related accruals

 

 

7,223

 

 

 

5,225

 

Accrued expenses and other current liabilities

 

 

1,385

 

 

 

1,096

 

Total current liabilities

 

 

10,902

 

 

 

8,870

 

Notes payable, net

 

 

29,582

 

 

 

19,481

 

Warrant liabilities

 

 

 

 

 

1,169

 

Total liabilities

 

 

40,484

 

 

 

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 June 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 June 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 at June 30, 2020; no shares authorized, issued, and outstanding at

  December 31, 2019

 

 

 

 

 

 

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

  June 30, 2020 and December 31, 2019, respectively; 48,360,081 and 6,720,767

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

  respectively

 

 

48

 

 

 

7

 

Additional paid in capital

 

 

224,726

 

 

 

2,061

 

Accumulated deficit

 

 

(40,904

)

 

 

(41,212

)

Total stockholders' equity (deficit)

 

 

183,870

 

 

 

(39,144

)

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

 

$

224,354

 

 

$

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

25,392

 

 

$

10,072

 

 

$

52,345

 

 

$

17,017

 

Cost of goods sold

 

 

3,487

 

 

 

1,331

 

 

 

6,193

 

 

 

2,262

 

Gross profit

 

 

21,905

 

 

 

8,741

 

 

 

46,152

 

 

 

14,755

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,628

 

 

 

1,580

 

 

 

6,646

 

 

 

2,789

 

Selling, general and administrative

 

 

18,880

 

 

 

7,803

 

 

 

35,273

 

 

 

13,229

 

Total operating expenses

 

 

22,508

 

 

 

9,383

 

 

 

41,919

 

 

 

16,018

 

Income (loss) from operations

 

 

(603

)

 

 

(642

)

 

 

4,233

 

 

 

(1,263

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

146

 

 

 

24

 

 

 

201

 

 

 

48

 

Interest expense

 

 

(463

)

 

 

(229

)

 

 

(809

)

 

 

(456

)

Change in fair value of warrant liabilities

 

 

(2,884

)

 

 

(118

)

 

 

(3,317

)

 

 

(242

)

Total other expenses

 

 

(3,201

)

 

 

(323

)

 

 

(3,925

)

 

 

(650

)

Net income (loss) and comprehensive income (loss)

 

$

(3,804

)

 

$

(965

)

 

$

308

 

 

$

(1,913

)

Net income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.16

)

 

$

(0.17

)

 

$

0.02

 

 

$

(0.34

)

Diluted

 

$

(0.16

)

 

$

(0.17

)

 

$

0.01

 

 

$

(0.34

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

24,295,900

 

 

 

5,753,332

 

 

 

15,339,755

 

 

 

5,676,995

 

Diluted

 

 

24,295,900

 

 

 

5,753,332

 

 

 

47,362,292

 

 

 

5,676,995

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Subscription

Receivable

 

 

Additional

Paid In

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders' Equity

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

)

 

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

3


 

Inari Medical, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

308

 

 

$

(1,913

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

573

 

 

 

228

 

Amortization of deferred financing costs

 

 

113

 

 

 

46

 

Share based compensation expense

 

 

1,000

 

 

 

190

 

Amortization of fair value of warrants issued with debt

 

 

 

 

 

8

 

Provision for doubtful accounts

 

 

84

 

 

 

 

Loss on change in fair value of warrant liabilities

 

 

3,317

 

 

 

242

 

Changes in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,174

)

 

 

(3,572

)

Inventories

 

 

(1,667

)

 

 

(1,082

)

Prepaid expenses and other assets

 

 

(3,391

)

 

 

17

 

Accounts payable

 

 

(255

)

 

 

147

 

Payroll-related accruals, accrued liabilities and other liabilities

 

 

2,287

 

 

 

1,914

 

Net cash used in operating activities

 

 

(1,805

)

 

 

(3,775

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,418

)

 

 

(899

)

Net cash used in investing activities

 

 

(1,418

)

 

 

(899

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

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

  issuance costs paid

 

 

164,361

 

 

 

 

Proceeds from notes payable

 

 

10,000

 

 

 

 

Debt financing costs

 

 

(12

)

 

 

 

Proceeds from exercise of stock options

 

 

67

 

 

 

20

 

Proceeds from warrants exercises

 

 

4

 

 

 

 

Net cash provided by financing activities

 

 

174,420

 

 

 

20

 

Net increase (decrease) in cash

 

 

171,197

 

 

 

(4,654

)

Cash, cash equivalents and restricted cash beginning of period

 

 

24,027

 

 

 

21,884

 

Cash, cash equivalents and restricted cash end of period

 

$

195,224

 

 

$

17,230

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

81

 

 

$

10

 

Cash paid for interest

 

$

618

 

 

$

403

 

 

 

 

 

 

 

 

 

 

Noncash investing and financing:

 

 

 

 

 

 

 

 

Common stock issued on conversion of convertible preferred stock

 

$

54,170

 

 

$

 

Common stock warrants issued on conversion of preferred stock warrants

  and the reclassification of the warrant liability

 

$

4,486

 

 

$

 

Deferred initial public offering cost recorded to additional paid in capital

 

$

1,382

 

 

$

 

Accrual of deferred interest obligation associated with debt

 

$

100

 

 

$

 

 

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


 

4


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1. Organization

Description of Business

Inari Medical, Inc. (the “Company”) was incorporated in Delaware in July 2011 and is headquartered in Irvine, California. The Company develops, manufactures, markets and sells devices for the interventional treatment of venous diseases. 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 have imposed “shelter-in-place” orders, quarantines and other restrictions. In the United States, governmental authorities have 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 have resulted in reduced operations at the Company’s headquarters, work stoppages, slowdowns and delays, travel restrictions and cancellation of events. These orders and restrictions have significantly decreased the number of procedures performed using the Company’s products and otherwise negatively impacted operations.

In response to the impact of COVID-19, the Company implemented a variety of measures intended to help manage through the impact and position it to resume operations quickly and efficiently once these restrictions are lifted. Some of these measures include: 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 is changing daily and cannot be predicted. As a result, the Company expects the pandemic to continue to negatively impact its business, financial condition and results of operations.

5


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 June 30, 2020, the condensed consolidated statements of operations, mezzanine equity and stockholders’ deficit, and cash flows for the three and six months ended June 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 June 30, 2020 and its consolidated results of operations and cash flows for the three and six months ended June 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. 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

6


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 June 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 June 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 $146,000 and $62,000 as of June 30, 2020 and December 31, 2019, respectively, and no accounts receivable write offs were recognized during the three and six months ended June 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.

7


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 June 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

8


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 June 30, 2020 and December 31, 2019, the Company recorded $302,000 and $330,000, respectively, of unbilled receivables, which are included in accounts receivable, net, in the accompanying balance sheet.

For both the three months ended June 30, 2020 and 2019, 40% of revenue was derived from the sale of ClotTriever products, and 60% of revenue was derived from the sale of FlowTriever products. For the six months ended June 30, 2020 and 2019, 38% and 39% of revenue was derived from the sale of ClotTriever products, respectively, and 62% and 61% of revenue was derived from the sale of FlowTriever products, respectively.

The Company offers payment terms to its customer 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 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 $74,000 and $6,000 for the three months ended June 30, 2020 and 2019, respectively and $111,000 and $34,000 for the six months ended June 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.

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.

9


Inari Medical, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

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 selling, general and administrative expenses.

Comprehensive Income (Loss)

The Company’s net income (loss) equaled comprehensive income (loss) for the three and six months ended June 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 considered to be 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, we sell 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.

10


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 June 30, 2020 and December 31, 2019 (in thousands):

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred stock warrant liability

 

$

 

 

$

 

 

$

 

 

$

-

 

Total liabilities

 

$

 

 

$

 

 

$

-

 

 

$

-

 

 

 


11


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):

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Beginning balance

 

$

1,169

 

 

$

213

 

Change in fair value of warrant liability

 

 

3,317

 

 

 

242

 

Conversion of preferred stock warrants to common stock

  warrants upon the closing of the IPO

 

 

(4,486

)

 

 

 

Ending balance

 

$

 

 

$

455

 

 

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 $318,000 and $537,000 as of June 30, 2020 and December 31, 2019, respectively, and consist of the following (in thousands):

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Raw materials

 

$

1,817

 

 

$

1,067

 

Work in process

 

 

911

 

 

 

640

 

Finished goods

 

 

2,892

 

 

 

2,246

 

 

 

$

5,620

 

 

$

3,953

 

 

5. Property and Equipment. net

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

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Manufacturing equipment

 

$

2,922

 

 

$

2,190

 

Leasehold improvements

 

 

1,012

 

 

 

932

 

Computer software

 

 

351

 

 

 

296

 

Furniture and fixtures

 

 

389

 

 

 

259

 

Computer hardware

 

 

711

 

 

 

527

 

Assets in progress

 

 

643