CVRX US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a commercial-stage medical device company focused on developing, manufacturing and commercializing innovative and minimally invasive neuromodulation solutions for patients with cardiovascular disease. Our proprietary platform technology, Barostim, is designed to leverage the power of the brain and nervous system to address the imbalance of the Autonomic Nervous System, which causes HFrEF and other cardiovascular diseases. Our second-generation product, Barostim, is the first and only commercially available neuromodulation device indicated to improve symptoms for patients with HFrEF. Barostim provides Baroreflex Activation Therapy by sending imperceptible and persistent electrical pulses to baroreceptors located in the wall of the carotid artery to signal the brain to modulate cardiovascular function. Barostim is currently approved by the FDA to improve the symptoms of patients with HFrEF and is CE Marked for HFrEF and resistant hypertension.

Since our inception we have generated minimal revenue, as our activities have consisted primarily of developing Barostim Therapy, conducting our BeAT-HF pre-market and post-market pivotal studies in the U.S. and filing for regulatory approvals. Our ability to generate revenue from product sales and become profitable will depend on our ability to continue to successfully commercialize Barostim and any product enhancements we may advance in the future. We expect to derive future revenue by continuing to both expand our own dedicated salesforce and increase awareness of Barostim among payors, physicians and patients.

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Our sales and marketing efforts are directed at EPs, HF specialists, interventional and general cardiologists and vascular surgeons because they are the primary users of our technology. However, we consider hospitals, where the procedures are performed primarily in an outpatient setting, to be our customers, as they are the purchasing entities of Barostim in the U.S. We intend to continue making significant investments building our U.S. commercial infrastructure by expanding and training our U.S. sales force. We have dedicated significant resources to educate physicians who treat HFrEF about the advantages of Barostim and train them on the implant procedure.

The costs for the device and implantation procedure are reimbursed through various third-party payors, such as government agencies and commercial payors. In the U.S., we estimate that 67% of our target patient population is Medicare-eligible based on the age demographic of the HFrEF patient population indicated for Barostim. As a result, we have prioritized coverage by the CMS while simultaneously developing processes to engage commercial payors. All MACs have retired automatic coverage denial policies for our CPT codes, thereby allowing hospitals to be paid for the Barostim procedure. Our reimbursement strategy involves continuing to broaden our current coverage and build our in-house market access team to obtain appropriate prior authorization approvals in advance of treatment on a case-by-case basis where positive coverage policies currently do not exist. Outside the U.S., reimbursement levels vary by country and within some countries by region. Barostim is eligible for reimbursement in certain countries in the EEA, such as Germany, where annual healthcare budgets for the hospital generally determine the number of patients to be treated and the prices to be paid for the related devices that may be purchased.

We manage all aspects of manufacturing operations and product supply of Barostim, which include final assembly, testing and packaging of our IPG and stimulation lead, at our headquarters in Minneapolis, Minnesota. We utilize components or various subassemblies manufactured by third-party suppliers, some of which have significant lead times. Many of these components are from a limited number of suppliers. We believe that our component manufacturers are recognized in their field for their competency to manufacture the respective portions of Barostim and have quality systems established that meet FDA requirements. We seek to maintain higher levels of inventory to protect ourselves from supply interruptions and continue to seek to broaden and strengthen our supply chain through additional sourcing channels.

From our inception until the IPO, we financed our operations primarily through preferred stock financings, and additionally, from sales of our Barostim products and amounts borrowed under our credit facilities. We then devoted substantially all of our resources to research and development activities related to Barostim Therapy, including clinical and regulatory initiatives to obtain marketing approval and sales and marketing activities.

We used a portion of the IPO proceeds to continue funding the expansion of our direct sales force and commercial organization related to Barostim in the U.S. We continued investing in research and development in the near term to improve clinical outcomes, optimize patient adoption and comfort, increase patient access and enhance the physician and patient experience. Longer term, we plan to explore Barostim’s potential to expand its indications for use to other cardiovascular diseases. On October 31, 2022, we entered into a loan and security agreement under which we may borrow, subject to our achievement of certain milestones, up to a total of $50.0 million in a series of term loans described in Note 5 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, and we borrowed $7.5 million of such total on that date to fund our commercial and investment efforts. As a result of these investments and our commercialization efforts, we expect to continue to incur net losses for the next several years, which may require additional funding and could include future equity and debt financing.

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Recent developments

Since it was reported to have surfaced in December 2019, a novel strain of coronavirus disease, COVID-19, has spread across the world and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have been significant and governments around the world, including in the U.S., implemented severe travel restrictions, social distancing requirements, quarantines, stay-at-home orders and other significant restrictions. As a result, the COVID-19 pandemic presented a substantial public health and economic challenge and is affecting hospitals, physicians, patients, communities and business

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operations, as well as contributing to significant volatility and negative pressure on the U.S. and world economy and in financial markets.

The COVID-19 pandemic has negatively impacted our business, financial condition and results of operations by decreasing and delaying procedures performed to implant Barostim, and we expect the pandemic will continue to negatively impact our business, financial condition and results of operations. Beginning in March 2020, our revenue was negatively impacted by COVID-19 as healthcare facilities and clinics began restricting in-person access to their clinicians, reducing patient consultations and treatments or temporarily closing their facilities.

In response to the COVID-19 pandemic, we implemented a variety of measures intended to help us manage its impact while maintaining business continuity to support our customers and patients. These measures include:

Our hospital customers in the U.S. and Europe began to gradually perform elective procedures again during the fourth quarter of 2020. As the pandemic eased throughout 2021, we experienced the following positive trends:

● Strong physician participation in our virtual educational events;

● Expansion into new accounts; and

However, procedure volumes were again negatively impacted by the Delta and Omicron variants of COVID-19 in the third and fourth quarters of 2021 and continuing into the first quarter of 2022. By March 2022 and continuing through the date of this Annual Report on Form 10-K, implant centers resumed procedures at more normal levels. The extent to which the business recovers from the COVID-19 pandemic will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and spread of COVID-19 and its variants and the actions to contain the spread of COVID-19 and its variants or treat its impact.

Factors affecting our performance

We believe there are several important factors that have impacted and that we expect will continue to impact our business and results of operations. These factors include:

● Growing and supporting our U.S. commercial organization;

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● Raising awareness among payors to build upon reimbursement for Barostim;

● Leveraging our manufacturing capacity to further improve our gross margins.

Components of results of operations

Revenue

Our U.S. sales have increased since the pre-market approval of Barostim by the FDA in August 2019, and the subsequent reimbursement changes in 2020. We expect to continue to drive increases in revenue through our efforts to increase awareness of Barostim among physicians, patients and payors and by the expansion of our U.S. sales force. As a result, we expect that U.S. sales will continue to account for the majority of our revenue going forward.

We derive a portion of our revenue from the sale of Barostim to hospitals in Germany and other select countries in Europe. Revenue from sales of Barostim in Europe fluctuates based on the average selling price of Barostim as determined by location of sale and channel mix, each of which may vary significantly from country to country. Our revenue from international sales can also be significantly impacted by fluctuations in foreign currency exchange rates.

Cost of goods sold and gross margin

Cost of goods sold consists primarily of acquisition costs of the components and subassemblies of Barostim, allocated manufacturing overhead and scrap and inventory obsolescence, as well as distribution-related expenses such as logistics and shipping costs. We expect cost of goods sold to increase in absolute dollars primarily as, and to the extent, our revenue grows. Gross margin may also vary based on regional differences in rebates and incentives negotiated with certain customers.

We calculate gross margin as revenue less cost of goods sold divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, but is primarily driven by the average sale price of our product, the percentage of products sold that include a full system (i.e., an IPG and a stimulation lead), as compared to individual IPG sales, and the allocated manufacturing overhead. Although we sell the majority of our devices directly to hospitals, the impact of the average selling price on gross margin is driven by the percentage of products we sold to distributors as compared to those sold directly to hospitals, as our average selling price is typically higher on products we sell directly. The full system sales typically have a lower gross margin as they include the cost of an IPG and a stimulation lead whereas individual IPG sales only include the cost of an IPG. The manufacturing overhead costs of Barostim are directly aligned to our production volume and therefore the cost per product is reduced if production levels increase. While we expect our gross margin to be positively affected over time to the extent we are successful in selling more product through our direct sales force and by increasing our production volumes, it will likely fluctuate from period to period as we continue to introduce new products and adopt new manufacturing processes and technologies.

Research and development expenses

Research and development (“R&D”) expenses consist primarily of personnel costs, including salaries, bonuses, employee benefits and stock-based compensation expenses for our R&D employees. R&D expenses also include costs associated with product design efforts, development prototypes, testing, clinical trial programs and regulatory activities, contractors and consultants, equipment and software to support our development, facilities and information technology. We expense R&D costs as they are incurred. We expect R&D expenses to increase in absolute dollars as we continue to develop enhancements to Barostim. Our

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R&D expenses may fluctuate from period to period due to the timing and extent of our product development and clinical trial expenses related to Barostim in HFrEF.

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses consist primarily of personnel costs, including base salaries, bonuses, employee benefits and stock-based compensation expense for our sales and marketing personnel, including sales commissions, and for administrative personnel that support our general operations such as executive management, financial accounting, information technology and human resources personnel. SG&A expenses also include costs attributable to marketing, as well as travel, legal fees, financial audit fees, insurance, fees for other consulting services, depreciation and facilities. We expense commissions at the time of the sale.

We expect SG&A expenses to increase in absolute dollars as we continue to expand our direct sales force and commercial organization in the U.S. In addition, we will continue to increase our international presence and to develop and assist our channel partners. However, we expect our SG&A expenses to decrease as a percentage of revenue as our revenue grows.

Interest expense

Interest expense consists of interest on our debt and amortization of associated debt discount.

Other income (expense), net

Other income, net consists primarily of interest income on our interest-bearing account. Other expense, net consists primarily of the fair value adjustments related to our formerly outstanding convertible preferred stock warrants, which were accounted for as a liability and marked-to-market at each reporting period. The final fair value adjustment of the warrant liability was recorded upon the closing of the IPO in connection with the conversion of the warrants to common stock warrants. Other items include losses on the extinguishment of debt, interest income earned on our cash and cash equivalents and the effect of exchange rates on our foreign currency-denominated asset and liability balances.

Provision for income taxes

Provision for income taxes consists primarily of income taxes in foreign jurisdictions in which we conduct business. We maintain a full valuation allowance for deferred tax assets including NOL carryforwards, R&D credits and other tax credits.

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Results of operations

Consolidated results of operations for the year ended December 31, 2022, compared to the year ended December 31, 2021

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Year ended ​ ​ ​ ​

​ ​ December 31, ​ Change ​

Gross margin ​ 78 % 72 % ​

Operating Expenses: ​ ​ ​ ​

Provision for income taxes ​ (109) ​ (91) ​ (18) 20 %

NM – Not meaningful

Revenue

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Revenue by Geography

​ ​ Year ended ​ ​ ​ ​ ​ ​

​ ​ December 31, ​ Change ​

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Revenue was $22.5 million for the year ended December 31, 2022, an increase of $9.4 million, or 72%, over the year ended December 31, 2021.

Revenue generated in the U.S. was $18.0 million for the year ended December 31, 2022, an increase of $8.9 million, or 97%, over the year ended December 31, 2021. HF revenue in the U.S. totaled $17.6 million and $8.4 million for the years ended December 31, 2022 and 2021, respectively. The increase was primarily driven by continued growth as a result of the expansion into new sales territories and new accounts, as well as increased physician and patient awareness of Barostim. Total HF revenue units in the U.S. totaled 587 and 290 for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, the Company had a total of 106 active implanting centers, as compared to 46 as of December 31, 2021. Active implanting centers are customers that have completed at least one commercial HF implant in the last 12 months. The number of sales territories in the U.S. increased by 12 to a total of 26 during the year ended December 31, 2022. A sales territory is an established regional area held by an account manager, typically after six to nine months of employment.

Legacy hypertension revenue in the U.S. totaled $0.5 million and $0.7 million for each of the years ended December 31, 2022 and 2021, respectively.

Revenue generated in Europe was $4.4 million for the year ended December 31, 2022, an increase of $0.6 million, or 14%, over the year ended December 31, 2021. Total revenue units in Europe increased to 231 for

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the year ended December 31, 2022, from 176 for the prior year period. The revenue increase was primarily due to the lessening impact of the COVID-19 pandemic in Europe. The number of sales territories in Europe remained consistent at six during the year ended December 31, 2022.

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Cost of goods sold and gross margin

Cost of goods sold increased $1.4 million, or 37%, to $5.0 million for the year ended December 31, 2022, compared to the year ended December 31, 2021. This increase was primarily due to higher sales of Barostim.

Gross profit was $17.5 million for the year ended December 31, 2022, an increase of $8.1 million, or 86%, over the year ended December 31, 2021. Gross margin increased to 78% for the year ended December 31, 2022, compared to 72% for the year ended December 31, 2021. Gross margin for the year ended December 31, 2022 was higher due to a decrease in the cost per unit and an increase in the average selling price. This was partially offset by a larger percentage of our revenue units coming from full systems versus battery replacements.

Research and development expenses

R&D expenses increased $2.5 million, or 33%, to $10.0 million for the year ended December 31, 2022, compared to the year ended December 31, 2021. This change was primarily driven by a $1.8 million increase in compensation expenses, mainly as a result of increased headcount, a $0.4 million increase in consulting fees, a $0.2 million increase in clinical study expenses and a $0.1 million increase in non-cash stock-based compensation expense.

Selling, general and administrative expenses

SG&A expenses increased $22.2 million, or 80%, to $50.0 million for the year ended December 31, 2022, compared to the year ended December 31, 2021. This change was driven by a $12.3 million increase in compensation expenses, mainly as a result of increased headcount, a $2.4 million increase in travel expenses, a $1.8 million increase in non-cash stock-based compensation expense, a $1.7 million increase in marketing and advertising expenses, primarily related to the commercialization of Barostim in the U.S., a $1.2 million increase related to D&O insurance costs incurred as a result of becoming a public company, a $0.9 million increase in professional fees, and a $0.6 million increase in consulting expenses.

Interest expense

Interest expense decreased $2.1 million, or 93%, to $0.2 million for the year ended December 31, 2022, compared to the year ended December 31, 2021. This was driven primarily by the repayment of the outstanding debt in November 2021 under the Horizon loan agreement.

Other income (expense), net

Other income, net was $1.4 million for the year ended December 31, 2022, compared to other expense, net of $14.8 million for the year ended December 31, 2021. Other income, net in 2022 was primarily driven by $1.5 million in interest income on our interest-bearing account. Other expense, net in 2021 was primarily driven by a $13.7 million increase in expense related to the increase in fair value of our convertible preferred stock warrants due to the change in the value of our common stock from December 31, 2021 to July 2, 2021, which is the date the warrants converted to common stock warrants. The expense in 2021 was also due to a $1.3 million loss on debt extinguishment in connection with the November 2021 repayment of the outstanding debt under the Horizon loan agreement.

Provision for income taxes

Provision for income taxes was nominal for the years ended December 31, 2022 and 2021.

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Liquidity, capital resources and plan of operations

We have incurred significant operating losses and negative cash flows from operations since our inception, and we anticipate that we will incur significant losses for at least the next several years. As of December 31, 2022 and 2021, we had cash and cash equivalents of $106.2 million and $142.1 million, respectively. For the years ended December 31, 2022 and 2021, our net losses were $41.4 million and $43.1 million, respectively. Our net cash used in operating activities for the years ended December 31, 2022 and 2021, was $42.7 million and $27.7 million, respectively.

Prior to the IPO, our operations were financed primarily by aggregate net proceeds from the sale of our convertible preferred stock of $383.1 million, as well as debt financing. In September 2019, we entered into the Horizon loan agreement to borrow $20.0 million, which was fully repaid on November 3, 2021. In July 2020, we completed an equity financing pursuant to which we issued 62,500,000 shares of Series G convertible preferred stock at a price of $0.80 per share, for net proceeds of $49.8 million after deducting offering expenses. On July 2, 2021, we closed our IPO for net proceeds from the offering, after deducting the underwriting discount and other offering expenses payable by us, of $133.2 million. On October 31, 2022, we entered into the Loan Agreement under which we may borrow, subject to our achievement of certain milestones, up to a total of $50.0 million in a series of term loans described in Note 5 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, and we borrowed $7.5 million of such total on that date to fund our commercial and investment efforts.

On November 4, 2022, we entered into an Equity Distribution Agreement with Piper Sandler & Co., as agent, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million in an “at-the-market” or ATM offering, to or through the agent. As of December 31, 2022, no shares have been sold.

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Our future liquidity and capital funding requirements will depend on numerous factors, including:

● our investment in our U.S. commercial infrastructure and sales forces;

● our R&D activities for product enhancements and to expand our indications;

● our need to implement additional infrastructure and internal systems;

● the emergence of competing technologies or other adverse market developments.

We believe that our existing cash resources and term loan facility together with revenue will be sufficient to meet our forecasted requirements for operating liquidity, capital expenditures and debt services for at least the next three years. If these sources are insufficient to satisfy our liquidity requirements, however, we may seek to sell additional equity or enter into an additional loan agreement. If we raise additional funds by issuing equity securities, our stockholders would experience dilution. Additional debt financing, if available, may involve covenants further restricting our operations or our ability to incur additional debt. Any such debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.

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Additional financing may not be available at all or may only be available in amounts or on terms that we do not deem to be favorable. If we are unable to obtain additional financing when needed to satisfy our liquidity requirements, we may be required to delay the commercialization and marketing of Barostim.

Cash flows

The following table sets forth the primary sources and uses of cash for each of the periods presented below:

​ ​ ​ ​ ​ ​ ​

​ Year ended

​ ​ December 31

Net cash (used in) provided by: ​ ​

Investing activities ​ (685) (1,183)

Effect of exchange rate changes on cash and cash equivalents ​ (9) (8)

Net change in cash and cash equivalents ​ $ (35,878) $ 82,960

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Cash used in operating activities

Net cash used in operating activities for the year ended December 31, 2022 was $42.7 million and consisted primarily of a net loss of $41.4 million and a decrease in net operating assets of $5.6 million, partially offset by $3.9 million from non-cash stock-based compensation expense and $0.4 million from the depreciation of property and equipment. Net operating assets consisted primarily of inventory, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses to support the growth of our operations.

Net cash used in operating activities for the year ended December 31, 2021 was $27.7 million and consisted primarily of a net loss of $43.1 million and a decrease in net operating assets of $1.6 million, partially offset by non-cash charges of $13.3 million related to the fair value adjustment to our convertible preferred stock warrants, $1.9 million from non-cash stock-based compensation expense and $1.3 million from the loss on debt extinguishment. Net operating assets consisted primarily of inventory, accounts receivable and accrued expenses to support the growth of our operations.

Cash used in investing activities:

Cash used in investing activities was $0.7 million and $1.2 million for the years ended December 31, 2022 and 2021, respectively, and consisted of purchases of property and equipment.

Cash provided by financing activities:

Net cash provided by financing activities for the year ended December 31, 2022 was $7.5 million and consisted of $7.5 million related to proceeds from debt financing, $0.6 million related to proceeds from the Employee Stock Purchase Plan and $0.2 million related to proceeds from the exercise of common stock options, partially offset by debt financing costs of $0.8 million.

Net cash provided by financing activities for the year ended December 31, 2021 was $111.9 million and consisted primarily of proceeds from the issuance of common stock of $133.2 million, partially offset by the repayment of the outstanding debt balance and related fees of $21.3 million.

Indebtedness

On October 31, 2022, we entered into the Loan Agreement with Innovatus, as the collateral agent and a lender, under which we may borrow, subject to our achievement of certain milestones, up to a total of $50.0 million in a series of term loans. On the closing date, we borrowed the minimum amount of $7.5 million

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under the Loan Agreement. The term loans advanced pursuant to the Loan Agreement (collectively, the “Term Loans”) bear interest at a floating rate per annum equal to the sum of (a) the greater of (i) the prime rate and (ii) 5.50% plus (b) 2.65%. The Term Loans mature on January 31, 2028 and require interest-only payments until November 1, 2027. The Term Loans are secured by substantially all of our personal property. We have the option to draw down (i) the remaining $7.5 million of the first tranche from the filing date of our Annual Report on Form 10-K for the year ended December 31, 2022 until September 30, 2023, (ii) up to $30.0 million less the amount funded from the first tranche between September 1, 2023 and December 15, 2023 if we achieve trailing three months revenue of $5.75 million prior to June 30, 2023, and (iii) up to $20.0 million between September 1, 2024 and December 15, 2024 if we achieve trailing three months revenue of $9.0 million prior to June 30, 2024. A performance covenant takes effect at the earlier of September 30, 2025 or the third tranche funding requiring that we achieve 50% of the trailing twelve months revenue target set in the Board-approved revenue plan in effect for such period.

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Critical accounting policies and estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and judgments that affect the amounts reported in our consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable and supportable under the circumstances. The results of this evaluation then form the basis for making judgments about the carrying values 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 such differences may be material to our consolidated financial statements.

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective and complex judgments.

Stock-based compensation

We maintain an equity incentive plan that was adopted in 2001 to provide long-term incentives for employees, consultants and members of the Board of Directors. The plan allows for the issuance of non-statutory and incentive stock options to employees and non-statutory stock options to consultants and non-employee directors. In connection with the IPO, we adopted the 2021 Equity Incentive Plan under which we may grant equity incentive awards to eligible employees (including our named executive officers), non-employee directors and consultants in order to enable us to obtain and retain services of these individuals, which we deem as essential to our long-term success.

We recognize equity-based compensation expense for awards of equity instruments to employees and non- employees based on the grant date fair value of those awards in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all equity-based compensation awards to employees and non-employee directors, including grants of restricted shares and stock options, to be recognized as expense in the statements of operations and comprehensive loss based on their grant date fair values. We estimate the grant date fair value of stock options using the Black-Scholes option pricing model. We use an estimate of the value of our common stock, with the assistance of an independent appraiser, to determine the fair value of options.

The Black-Scholes option pricing model requires the input of certain subjective assumptions, including (i) the fair value of common stock, (ii) the expected share price volatility, (iii) the expected term of the award, (iv) the risk-free interest rate and (v) the expected dividend yield.

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We account for forfeitures as they occur. We expense the fair value of our equity-based compensation awards granted to employees on a straight-line basis over the associated service period, which is generally the period in which the related services are received.

JOBS Act accounting election

The Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult.

Recent accounting pronouncements

A discussion of recent accounting pronouncements is included in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk

The risk associated with fluctuating interest rates is primarily limited to our cash equivalents and debt entered into under the Loan Agreement, which are carried at quoted market prices and the prime rate, respectively. We do not currently use or plan to use financial derivatives in our investment portfolio.

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Foreign currency exchange rate risk

Portions of our revenue and operating expenses that are incurred outside the U.S. are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statements of operations and comprehensive loss. To date, foreign currency transaction realized gains and losses have not been material to our consolidated financial statements, and we have not engaged in any foreign currency hedging transactions. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in currency rates.

Inflation risk

Inflationary factors, such as increases in our cost of goods sold and operating expenses, may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain and increase our gross margin and selling and marketing and operating expenses as a percentage of our revenue if the selling prices of our products do not increase as much as or more than these increased costs.

Credit risk

As of December 31, 2022 and 2021, our cash and cash equivalents were maintained with one financial institution in the U.S., and our current deposits are likely in excess of insured limits. We believe this institution has sufficient assets and liquidity to conduct its operations in the ordinary course of business with little or no credit risk to us.

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

CVRx, Inc.

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Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of CVRx, Inc. (a Delaware corporation) and subsidiary (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for the years then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Companyas of December 31, 2022 and 2021, and the results of itsoperations and itscash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

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/s/ GRANT THORNTON LLP

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We have served as the Company’s auditor since 2016.

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Minneapolis, Minnesota

February 10, 2023

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CVRx, INC.

Consolidated Balance Sheets

(In thousands, except share and per share data)

​ ​ ​ ​ ​ ​ ​

​ December 31, December 31,

Assets ​ ​

Current assets: ​ ​

Prepaid expenses and other current assets ​ 4,223 ​ 2,585

Property and equipment, net ​ 1,698 ​ 1,425

Operating lease right-of-use asset ​ ​ 334 ​ ​ —

Other non-current assets ​ 27 ​ 26

Liabilities and Stockholders’ Equity ​ ​

Current liabilities: ​ ​

Total current liabilities ​ 8,088 ​ 5,908

Long-term debt ​ ​ 6,747 ​ ​ —

Operating lease liability, non-current portion ​ ​ 117 ​ ​ —

Other long-term liabilities ​ 805 ​ 681

Commitments and contingencies (Note 10) ​ ​

Stockholders’ equity: ​ ​

Accumulated other comprehensive loss ​ (207) ​ (198)

Total liabilities and stockholders’ equity ​ $ 124,937 ​ $ 152,548

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

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CVRx, INC.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

​ ​ ​ ​ ​ ​ ​

​ ​ Year ended

​ ​ December 31,

Operating expenses: ​ ​

Selling, general and administrative ​ 50,045 ​ 27,863

Other income (expense), net ​ 1,373 ​ (14,800)

Provision for income taxes ​ (109) ​ (91)

Cumulative translation adjustment ​ (9) ​ (8)

Net loss per share, basic and diluted ​ $ (2.02) ​ $ (4.16)

​

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

​

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​

CVRx, INC.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share data)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Total

​ ​ Convertible ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ other ​ stockholders’

​ Shares ​ Amount Shares ​ Amount capital deficit loss equity

Exercise of stock options ​ — ​ — 59,341 ​ ​ 23 ​ — ​ — ​ 23

Employee stock compensation — ​ — — — ​ 1,912 ​ — ​ — ​ 1,912

Reverse stock split ​ — ​ ​ — ​ — ​ ​ — ​ ​ (1) ​ ​ — ​ ​ — ​ ​ (1)

Cumulative translation adjustment ​ — ​ — — — ​ — ​ — ​ (8) ​ (8)

Employee stock compensation — ​ — — — ​ 3,887 ​ — ​ — ​ 3,887

Cumulative translation adjustment — ​ — — — ​ — ​ — ​ (9) ​ (9)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

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

​

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CVRx, INC.

Consolidated Statements of Cash Flows

(In thousands)

​ ​ ​ ​ ​ ​ ​

​ Year ended

​ ​ December 31,

Cash flows from operating activities: ​ ​

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

Depreciation of property and equipment ​ 412 ​ 168

Amortization of deferred financing costs and loan discount ​ 25 ​ 229

Loss on debt extinguishment ​ ​ — ​ ​ 1,325

Changes in fair value of convertible preferred stock warrants ​ — ​ 13,294

Changes in operating assets and liabilities: ​ ​

Prepaid expenses and other current assets ​ (1,634) ​ (1,980)

Net cash used in operating activities ​ (42,677) ​ (27,732)

Cash flows from investing activities: ​ ​

Purchase of property and equipment ​ (685) ​ (1,183)

Net cash used in investing activities ​ (685) ​ (1,183)

Cash flows from financing activities: ​ ​

Proceeds from the exercise of common stock options ​ 184 ​ 23

Proceeds from Employee Stock Purchase Plan ​ ​ 587 ​ ​ —

Payments related to reverse stock split ​ ​ — ​ ​ (1)

Proceeds from debt financing ​ ​ 7,500 ​ ​ —

Debt financing costs ​ ​ (778) ​ ​ —

Repayment on debt financing ​ ​ — ​ ​ (21,300)

Net cash provided by financing activities ​ 7,493 ​ 111,883

Effect of currency exchange on cash and cash equivalents ​ (9) ​ (8)

Net change in cash and cash equivalents ​ (35,878) ​ 82,960

Cash and cash equivalents at beginning of year ​ 142,072 ​ 59,112

Cash and cash equivalents at end of period ​ $ 106,194 ​ $ 142,072

Supplemental Information: ​ ​

Cash paid for interest ​ $ 59 ​ $ 1,706

Cash paid for income taxes ​ 5 ​ 2

ROU assets exchanged for lease liabilities ​ ​ 579 ​ ​ —

​

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

​

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CVRx, INC.

Notes to Consolidated Financial Statements

​

1. Business organization

CVRx, Inc. (the “Company”) was incorporated in Delaware and is headquartered in Minneapolis, Minnesota. The Company has developed and is marketing a medical device, Barostim, for heart failure (“HF”) and resistant hypertension. The Company is focused on the sale of its product in the U.S. and Europe.

Management expects that operating losses and negative cash flows from operations could continue in the foreseeable future. There is no assurance that the Company will generate sufficient product sales to produce positive earnings or cash flows.

2. Summary of significant accounting policies

Statement presentation and basis of consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with the applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

The consolidated financial statements include the accounts of CVRx, Inc., its wholly owned subsidiary, CVRx Switzerland LLC, and its sales branch in Italy. All intercompany balances and transactions have been eliminated in consolidation.

JOBS Act accounting election

The Company is an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, the Company has elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies.

Use of estimates

Preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents include highly liquid investments with an original maturity of three months or less. As of December 31, 2022 and 2021, cash equivalents consisted of money market funds, which are stated at cost and approximate fair value.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Customer credit terms are established prior to shipment with the standard generally being net 30 days. We evaluate the collectability of our accounts receivable based on known collection risks and historical experience. In circumstances where we are aware of a specific customer's inability to meet its financial obligations to us, we record a specific allowance for bad debts against amounts due to reduce the carrying amount of accounts receivable to the amount we reasonably believe will be collected.

​

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Inventory

Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company regularly reviews inventory quantities in consideration of actual loss experiences, projected future demand and remaining shelf life to record a provision for excess and obsolete inventory when appropriate.

Leases

Operating leases are included in operating lease right-of-use (“ROU”) asset, accrued expenses, and operating lease liability – non-current portion in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. We used the incremental borrowing rate based on information readily available at the time of recognition to determine the present value of the lease payments. The determination of our incremental borrowing rate requires management judgement based on information available at lease commencement.

Revenue recognition

The Company sells its products primarily through a direct sales force and to a lesser extent through a combination of sales agents and independent distributors. The Company’s revenue consists primarily of the sale of its Barostim, which consists of two implantable components: a pulse generator and a stimulation lead.

Under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration that 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. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. The Company recognizes net revenue on product sales when the customer obtains control of the Company’s product, which generally occurs at a point in time upon delivery based on the contractual shipping terms of a contract.

Stock-Based Compensation

We recognize equity-based compensation expense for awards of equity instruments to employees and non-employees based on the grant date fair value of those awards in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all equity-based compensation awards to employees and non-employee directors, including grants of restricted shares and stock options, to be recognized as expense in the statements of operations and comprehensive loss based on their grant date fair values. We estimate the grant date fair value of stock options using the Black-Scholes option pricing model. We account for forfeitures as they occur. We expense the fair value of our equity-based compensation awards granted to employees on a straight-line basis over the associated service period, which is generally the period in which the related services are received.

Recent accounting pronouncements

On January 1, 2022, the Company adopted Accounting Standards Codification Topic 842, Leases (“ASC 842”), utilizing the alternative modified retrospective transition approach. Under the alternative modified retrospective transition approach, the reported results for 2022 reflect the application of ASC 842 guidance,

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whereas comparative periods and their respective disclosures prior to the adoption of ASC 842 are presented using the legacy guidance of ASC 840. As a result of adopting the new standard, the Company recognized ROU assets of $579,000 and lease liabilities of $561,000 as of January 1, 2022. The lease liabilities represent the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rate as of January 1, 2022. The corresponding ROU assets are recorded based on the lease liabilities and the cumulative difference between rent expense and the amounts paid under the lease. The Company did not elect any practical expedients.

​

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses ("ASU 2016-13"),to require the measurement of expected credit losses for financial instruments held at the reporting date to be based on historical experience, current conditions, and reasonable forecasts. ASU 2016-13 became effective for us for interim and annual periods beginning January 1, 2023, and we will expand our financial statement disclosures in order to comply with the guidance. We have determined that the adoption of ASU 2016-13 will not have a material impact on our results of operations, cash flows, or financial position.

​

3. Selected balance sheet information

Inventory consists of the following at:

​

​ ​ ​ ​ ​ ​ ​

​ December 31, December 31,

​

Property and equipment, net consists of the following at:

​

​ ​ ​ ​ ​ ​ ​

​ December 31, December 31,

Office furniture and equipment ​ $ 350 ​ $ 271

Computer equipment and software ​ 618 ​ 556

Leasehold improvements ​ 95 ​ 88

Capital equipment in process ​ 231 ​ 813

Less: Accumulated depreciation and amortization ​ 2,280 ​ 1,868

​

​

Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the lease. Depreciation expense was $0.4 million and $0.2 million for the years ended December 31, 2022 and 2021, respectively.

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Accrued expenses consist of the following at:

​

​ ​ ​ ​ ​ ​ ​

​ December 31, December 31,

Clinical trial and other professional fees ​ $ 1,733 ​ $ 1,607

Customer rebates ​ ​ 256 ​ ​ 380

Operating lease liability, current portion ​ ​ 222 ​ ​ —

​

​

​

4. Debt

Innovatus Loan Agreement

On October 31, 2022, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Innovatus Life Sciences Fund I, LP, as the collateral agent and a lender, under which the Company may borrow, subject to the Company’s achievement of certain milestones, up to a total of $50.0 million in a series of term loans. On the closing date, the Company borrowed the minimum amount of $7.5 million under the Loan Agreement. The Loan Agreement initially requires interest only payments through November 2027, followed by three monthly principal and interest payments. A final payment of $0.3 million, equal to 4.5% of the original borrowed principal, is due in January 2028. The terms loans advanced pursuant to the Loan Agreement (collectively, the “Term Loans”) bear interest at a floating rate per annum equal to the sum of (a) the greater of (i) the prime rate and (ii) 5.50% plus (b) 2.65%. The Term Loans mature on January 31, 2028 and require interest-only payments until November 1, 2027. The Term Loans are secured by substantially all of the personal property of the Company. The Company has the option to draw down (i) the remaining $7.5 million of the first tranche from the filing date of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 until September 30, 2023, (ii) up to $30.0 million less the amount funded from the first tranche between September 1, 2023 and December 15, 2023 if the Company achieves trailing three months revenue of $5.75 million prior to June 30, 2023, and (iii) up to $20.0 million between September 1, 2024 and December 15, 2024 if the Company achieves trailing three months revenue of $9.0 million prior to June 30, 2024. A performance covenant takes effect at the earlier of September 30, 2025 or the third tranche funding requiring that the Company achieve 50% of the trailing twelve months revenue target set in the Board-approved revenue plan in effect for such period. The Loan Agreement requires the payment of certain penalties if the Term Loans are paid off prior to maturity for any reason, including pursuant to an acceleration clause, and includes various restrictive covenants, including a restriction on the payment of dividends or making other distributions or payments on the Company’s capital stock, subject to limited exceptions. The Company was in compliance with these covenants as of December 31, 2022.

​

In connection with the Loan Agreement, the Company recorded $0.8 million of debt issuance costs and discounts as a reduction of long-term debt.

​

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The annual principal maturities of debt under the Loan Agreement are as follows:

​

​ ​ ​ ​

​ December 31,

(in thousands) ​ 2022

Less: Unamortized debt costs and discounts ​ (753)

Long-term debt ​ $ 6,747

​

​

​

5. Leases

We lease 23,890 square feet of office space in Minneapolis, Minnesota, which houses our principal executive offices and our manufacturing facility. We lease this space under an operating lease agreement that commenced December 1, 2008 and expires July 31, 2024. We intend to add new facilities as we grow, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations. Our operating lease agreement includes an option to renew for one additional period of five years. The exercise of the lease renewal option is at our sole discretion and was not included in the lease term for the calculation of the ROU asset and lease liability upon adoption of ASC 842 on January 1, 2022, as it is not reasonably certain of exercise.

In addition to base rent, we will also pay our proportionate share of operating expenses, as defined in the lease. These payments will be made monthly and will be adjusted annually to reflect actual charges incurred for operating expenses, such as common area maintenance, taxes and insurance.

The following table presents the lease balances within the consolidated balance sheets:

​ ​ ​ ​

​ December 31,

(in thousands) ​ 2022

Right-of-use assets: ​ ​ ​

Operating lease right-of-use asset ​ $ 334

Operating lease liabilities: ​ ​ ​

Accrued expenses ​ ​ 222

Operating lease liability, non-current portion ​ ​ 117

Total operating lease liabilities ​ $ 339

​

Maturities of our lease liability for our operating lease are as follows as of December 31, 2022:

​

​ ​ ​ ​

​ ​ December 31,

(in thousands) ​ 2022

Total undiscounted lease payments ​ ​ 353

Less: imputed interest ​ ​ (14)

Present value of lease liability ​ $ 339

​

As of December 31, 2022, the remaining lease term was 1.5 years, and the discount rate was 5.0%. The operating cash outflows from our operating lease were $0.4 million for the year ended December 31, 2022.

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As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, the minimum lease payments under all operating leases as of December 31, 2021 were as follows for the years ending:

​

​ ​ ​ ​

(in thousands) ​ ​ ​

​

Prior to January 1, 2022, we recorded operating lease rent expense under ASC 840 on a straight-line basis over the period of the lease. Rent expense for the year ended December 31, 2021 was $0.4 million.

​

​

​

6. Stockholders’ equity

Initial Public Offering

On July 2, 2021, the Company closed its IPO of 8,050,000 shares of its common stock at a public offering price of $18.00 per share, which included 1,050,000 shares of common stock issued upon the exercise in full by the underwriters of their option to purchase additional shares, for net proceeds from the IPO, after deducting the underwriting discount and other offering expenses payable by the Company totaling $1.6 million, of $133.2 million.

Upon the closing of the IPO, all shares of convertible preferred stock were automatically converted into common stock. Series G convertible preferred stock was converted into common stock on a 15.819-for-1 basis, and all other shares of convertible preferred stock were automatically converted into common stock on a 39.548-for-1 basis. The conversion of the outstanding preferred stock resulted in an aggregate of 11,929,584 shares of common stock. As of December 31, 2022 and 2021, no preferred stock was outstanding.

Reverse Stock Split

In connection with the IPO, the Company’s Board of Directors and stockholders approved a 1-for-39.548 reverse stock split of the Company’s common stock. The reverse stock split became effective on June 22, 2021. The par value of the common stock was not adjusted as a result of the reverse stock split. Adjustments corresponding to the reverse stock split were made to the ratio at which the convertible preferred stock converted into common stock in connection with the closing of the IPO. Accordingly, all share and per-share amounts for all periods presented in these financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split and the adjustment of the conversion ratio of the convertible preferred stock.

Common Stock Warrants

In connection with the IPO, the warrants to purchase shares of convertible preferred stock automatically converted into warrants to purchase common stock, resulting in the reclassification of the related convertible preferred stock warrant liability to additional paid-in capital. Upon the closing of the IPO, these warrants to purchase convertible preferred stock became exercisable for 716,131 shares of common stock upon conversion at a weighted average exercise price of $2.39 per share.

​

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7. Stock-Based compensation

Summary of plans and activity

In June 2001, the Company’s Board of Directors and stockholders established the 2001 Stock Incentive Award Plan (“2001 Plan”). Under the 2001 Plan, as amended, 2,674,749 shares of common stock had been reserved for the issuance of incentive stock options granted to employees, non-employee directors, consultants or independent contractors. Options granted under the 2001 Plan have vesting terms that range from the date of grant to four years and expire within a maximum term of 10 years from the grant date.

In connection with the IPO in 2021, the Company’s Board of Directors and stockholders established the 2021 Equity Incentive Plan (“2021 Plan”). The number of shares of common stock initially reserved for issuance under the 2021 Plan was 1,854,490 newly reserved shares in addition to the 600,737 shares that remained available for issuance under the 2001 Plan. The shares available for issuance under the 2021 Plan automatically increase on the first day of each year, commencing January 1, 2022, and ending on (and including) January 1, 2031, in an amount equal to 5% of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of each automatic increase, or such lesser number of shares as determined by the Board of Directors. The annual increase resulted in an additional 1,019,967 shares being reserved for issuance under the 2021 Plan as of January 1, 2022. The 2021 Plan provides for the issuance of stock options, stock appreciation rights, restricted stock awards, stock unit awards and other stock-based awards and cash incentive awards to employees, consultants and non-employee directors of the Company and its subsidiaries. Awards granted under the 2021 Plan will have such vesting schedules and other terms as determined by the Compensation Committee and stock options and stock appreciation rights have a maximum term of 10 years from the grant date. No further awards can be made under the 2001 Plan following the adoption of the 2021 Plan. As of December 31, 2022, there were 1,514,213 shares available for future issuance under the 2021 Plan.

Options are granted at exercise prices not less than the fair market value (as determined by the Board of Directors) of the Company’s common stock on the date of grant.

During the years 2008 through December 31, 2022, the Board of Directors authorized the grant of stock options for the purchase of shares of common stock to the employers of certain non-employee directors. The options were not granted under the 2001 Plan or the 2021 Plan, but terms are substantially the same as the Company’s standard form of option agreement for non-employee directors as they have an exercise price not less than the fair market value on the grant date and vest over 48 months from the date of grant.

The following is a summary of stock option activity:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Weighted ​ ​

​ ​ Number ​ Average ​ Aggregate

​ ​ of ​ Exercise ​ Intrinsic

​ ​ Options ​ Price ​ Value

​ ​ ​ ​ ​ ​ (in thousands)

Cancelled / Forfeited ​ (76,294) ​ $ 11.25 ​ ​ ​ ​

​

As of December 31, 2022, stock options outstanding included 8,796 options that were not granted under the 2001 Plan or the 2021 Plan. For options outstanding as of December 31, 2022, the weighted average

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remaining contractual life was 7.8 years. For options exercisable as of December 31, 2022, the weighted average remaining contractual life was 6.6 years.

In connection with the IPO, the Company’s Board of Directors and stockholders also established an Employee Stock Purchase Plan (the “ESPP”). The number of shares of common stock initially reserved for issuance under the ESPP was 278,170. The shares available for issuance under the ESPP automatically increase on the first day of each year, commencing January 1, 2022, and ending on (and including) January 1, 2031, in an amount equal to 1% of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of each automatic increase, or such lesser number of shares as determined by the Board of Directors. The annual increase resulted in an additional 203,993 shares being reserved for issuance under the ESPP as of January 1, 2022. The ESPP will permit certain of the Company’s U.S. employees to purchase shares of the Company’s common stock at a price per share not less than 85% of the lower of (i) the closing market price per share of the Company’s common stock on the first day of the applicable purchase period or (ii) the closing market price per share of the Company’s common stock on the purchase date at the end of the applicable six-month purchase period. The first purchase date under the ESPP was June 30, 2022. Accordingly, as of December 31, 2022, 113,890 shares of common stock have been purchased under the ESPP for $0.6 million of employee contributions. As of December 31, 2022, there were 368,273 shares available for issuance under the ESPP.

Stock-based compensation expense

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and ESPP purchase rights on the grant date. The Company measures stock-based compensation expense based on the grant date fair value of the award and recognizes compensation expense over the requisite service period, which is generally the vesting period for stock options and the offering period for ESPP purchase rights. The amount of stock-based compensation expense recognized for stock option awards during a period is based on the portion of the awards that are ultimately expected to vest. The amount of stock-based compensation expense recognized for ESPP purchase rights during a period is based on the estimated purchase rights as of the grant date. The Company accounts for forfeitures as they occur.

The following table provides the weighted average fair value of options granted to employees and the related assumptions used in the Black-Scholes option pricing model for the years ended December 31, 2022 and 2021.

​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

Weighted average fair value of options granted $ 4.72 ​ ​ $ 5.64 ​

Expected term (in years) — non-officer employees ​ 5.3 to 6.1 ​ ​ ​ 2.7 to 6.1 ​

Expected term (in years) — officer employees ​ 3.2 to 6.1 ​ ​ ​ 3.0 ​

Expected dividend yield ​ — % ​ ​ — %

Risk-free interest rate ​ 1.75% to 4.18 % ​ ​ 0.17% to 1.44 %

​

The following table provides the weighted average fair value of ESPP purchase rights and the related assumptions used in the Black-Scholes option pricing model for the year ended December 31, 2022.

​ ​ ​ ​ ​

​ December 31,

Weighted average fair value per ESPP purchase right $ 1.95 ​

Expected term (in years) ​ 0.5 ​

Expected volatility ​ 51.3% to 62.9 %

Expected dividend yield ​ — %

Risk-free interest rate ​ 0.22% to 2.52 %

​

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There were no ESPP purchase rights for the year ended December 31, 2021.

The Company reviews these assumptions on a periodic basis and adjusts them, as necessary. The expected term of a stock option award was determined based on the Company’s analysis of historical exercise behavior while taking into consideration various participant demographics and option characteristics. The expected term of an ESPP purchase right is based on the offering period. We utilize the simplified method to develop the estimate of the expected term. The expected volatility is based upon observed volatility of comparable public companies. The expected dividend yield is assumed to be zero, as the Company has never paid dividends and has no current plans to do so. The risk-free interest rate is based on the yield on U.S. Treasury securities for a period approximating the expected term of the options being valued.

The following table presents the components and classification of stock-based compensation expense for the periods indicated:

​ ​ ​ ​ ​ ​ ​

​ Year Ended December 31,

Employee Stock Purchase Plan ​ ​ 223 ​ ​ —

Total stock-based compensation expense ​ ​ 3,887 ​ ​ 1,912

​ ​ ​ ​ ​ ​ ​

Selling, general & administrative ​ $ 3,304 ​ $ 1,468

Research & development ​ ​ 519 ​ 420

Cost of goods sold ​ ​ 64 ​ 24

​

As of December 31, 2022, unrecognized compensation expense related to unvested stock-based compensation arrangements was $8.7 million. As of December 31, 2022, the related weighted average period over which the expense is expected to be recognized is approximately 2.5 years.

Early exercise of stock options

Under the 2001 Plan, the Company has issued options to certain executive officers with early-exercise provisions. The options may be exercised by the holder any time after they are granted. The Company has the right to repurchase, at the original option exercise price, shares issued pursuant to such early-exercise provisions, upon the termination of employment or death of the stockholder. This repurchase right expires based upon the original option vesting schedule. As of December 31, 2022 and 2021, there have been no early exercises and therefore there is no liability recorded for the early exercise of stock options.

8. Income taxes

As of December 31, 2022 and 2021, a valuation allowance was recorded against all deferred tax assets due to the Company’s cumulative net loss position.

The components of our provision for income taxes are as follows for the periods indicated:

​

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Current ​ ​ ​ ​ ​ ​

Federal and state ​ $ — ​ $ —

Total provision for income taxes ​ $ 109 ​ $ 91

​ ​ ​ ​ ​ ​ ​

​

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The reconciliation of taxes at the federal statutory rate to our provision for income taxes are as follows for the periods indicated:

​

​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Tax at federal statutory rate ​ ​ 21.0 % ​ 21.0 %

Permanent differences ​ ​ (2.1) ​ ​ (9.0) ​

Research and development ("R&D") tax credit ​ ​ 0.8 ​ ​ 0.9 ​

Uncertain tax position ​ ​ (0.3) ​ ​ (0.2) ​

State, net of federal benefit ​ ​ (0.5) ​ ​ (0.7) ​

Deferred rate change ​ ​ 0.3 ​ ​ 2.5 ​

Change in valuation allowance ​ (19.5) ​ (14.7) ​

Total ​ ​ (0.3) % ​ (0.2) %

​ ​ ​ ​ ​ ​ ​ ​

​

Significant components of net deferred tax assets were as follows for the periods indicated:

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Deferred tax assets ​ ​ ​ ​ ​ ​

Net operating loss carryforwards ​ $ 82,050 ​ $ 74,716

Capitalized R&D expenses ​ ​ 8,412 ​ ​ 8,577

Non-qualified stock options ​ ​ 752 ​ ​ 350

Property and equipment ​ ​ 144 ​ ​ 91

Accrued vacation ​ ​ 212 ​ ​ 151

Net deferred tax assets ​ $ — ​ $ —

​

As of December 31, 2022, the Company had federal and state net operating loss carryforwards (“NOLs”) of approximately $361.0 million and $6.2 million, respectively. The federal NOLs began expiring in 2021 and the state NOLs began expiring in 2020. As of December 31, 2022, the Company had federal and state tax credit carryforwards of approximately $9.3 million and $1.8 million, respectively. The federal tax credit carryforwards began expiring in 2021 and the state tax credits will begin expiring in 2028.

​

Utilization of NOLs may be subject to an annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The Company has not performed a detailed analysis to determine whether an ownership change has occurred. Such a change of ownership would limit the Company’s utilization of the NOLs and could be triggered by subsequent sales of securities by the Company or its stockholders.

The changes to our gross unrecognized tax benefits were as follows of the periods indicated:

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Gross unrecognized tax benefits at beginning of year ​ $ 1,939 ​ $ 1,840

Gross increases: ​ ​ ​ ​ ​ ​

Prior year tax positions ​ ​ 4 ​ ​ 10

Current year tax positions ​ ​ 113 ​ ​ 91

Gross decreases: ​ ​ ​ ​ ​ ​

Prior year tax positions ​ ​ (10) ​ ​ (2)

Gross unrecognized tax benefits at end of year ​ $ 2,046 ​ $ 1,939

​

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All of these unrecognized tax benefits, if recognized, would impact the effective tax rate before taking consideration of the valuation allowance. The amount of unrecognized tax benefits subjected to the valuation allowance was $1.6 million and $1.5 million for the years ended December 31, 2022 and 2021, respectively. The Company recognized approximately $66,000 and $61,000 of interest or penalties for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, total accrued interest and penalties were $0.4 million and $0.3 million, respectively. The Company recognizes accrued interest and penalties related to unrecognized tax positions as a component of income tax expense. The Company does not expect a significant change in the amount of unrecognized tax benefits in the next year.

​

The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. Tax years from 2001 through present remain open for audit under the applicable statute of limitations due to the carryover of the unused NOLs and tax credit carryforwards. The Company does not have any tax audits or other proceedings pending.

9. Loss Per Share

Basic and diluted net loss per share attributable to common stockholders was calculated for the periods indicated (in thousands, except share and per share data):

​ ​ ​ ​ ​ ​ ​ ​

​ Year Ended December 31,

Numerator: ​ ​ ​ ​

Denominator: ​ ​ ​

​

The Company’s potentially dilutive securities, which include stock options, shares of convertible preferred stock, warrants to purchase shares of convertible preferred stock and warrants to purchase shares of common stock, have been excluded from the computation of diluted net loss per share attributable to common stockholders, as the effect would be to reduce the net loss per share attributable to common stockholders. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

​

​ ​ ​ ​ ​

​ Year Ended December 31,

​

​

10. Commitments and contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. There have been no contingent liabilities requiring accrual or disclosure as of December 31, 2022 or December 31, 2021.

11. Employee benefit plans

The Company sponsors a voluntary defined-contribution employee retirement plan (the “401(k) plan”) for its U.S. employees. The 401(k) plan provides that each participant may contribute pre-tax or post-tax

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compensation up to the statutory limit allowable. Under the 401(k) plan, each participant is fully vested in his or her deferred salary contributions when contributed. The Company does not provide matching contributions to employees.

12. Segment, geographic information and revenue disaggregation

The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region, for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single reportable and operating segment structure. The Company and its Chief Executive Officer evaluate performance based primarily on revenue in the geographic locations in which the Company operates.

The Company derives all its revenues from sales to customers in Europe and the U.S. The following table provides revenue by country for each location accounting for more than 10% of the total revenue for the periods indicated:

​ ​ ​ ​ ​ ​ ​

​ ​ Year ended

​ ​ December 31,

​

As of December 31, 2022 and 2021, long-lived assets were located primarily in the U.S.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of disclosure controls and procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, refers to controls and other procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of the end of the period covered by this Annual Report on Form 10-K.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

​

Management assessed our internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

​

Based on this assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. GAAP. We reviewed the results of management’s assessment with the audit committee of our board of directors.

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Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated by reference to our definitive proxy statement for our 2023 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.

Item 11. Executive Compensation

The information required by this Item is incorporated by reference to our definitive proxy statement for our 2023 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated by reference to our definitive proxy statement for our 2023 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated by reference to our definitive proxy statement for our 2023 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.

Item 14. Principal Accountant Fees and Services

The information required by this Item is incorporated by reference to our definitive proxy statement for our 2023 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.

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PART IV

Item 15. Exhibit and Financial Statement Schedules

(a) 1. Financial Statements:

The following consolidated financial statements of the Company are set forth in Part II, Item 8:

Report of Independent Registered Public Accounting Firm (PCAOB ID 248)

Consolidated Balance Sheets as of December 31, 2022 and 2021